“Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full and managed with reasonable care, it is about the safest investment in the World.”
Franklin D Roosevelt
As we enter a new phase in the New Zealand property cycle, under the potential of Government changes affecting the ability of offshore buyers to purchase property in this Country and taxation changes to property investment, it may be a good time for investors to remember this quote. Over the short term the property market will fluctuate, as it is affected by supply and a number of other factors, including interest rates, inflation etc., however over the medium to longer term values will continue to increase, as ultimately there is a limited supply and an increasing demand from population growth.
The CPI inflation figure for the year ending June 2018 came in bang on the Reserve Banks prediction of 1.5%, up 0.4% on the previous quarter, which saw annualised inflation running at 1.1%.
The main drivers of this increase were fuel, and this quarter is prior to any effect from the Auckland Council’s fuel tax which came into effect at the beginning of July, and the increased cost of owning, and therefore renting property, with 1 of these factors being an increase in local body rates.
The passing of legislation to enable the Auckland Council to instigate a localised fuel levy has now opened the door for other Councils and Bodies around the Country to follow suit, with at last count some 17 other local bodies registering with Government an interest in applying for the ability to put a levy on fuel in their region once they are able to in approximately 18 months’ time.
Auckland City has now created a Council juggernaut, with it appears an insatiable appetite to spend money, one of the latest being a possible contribution to a Pacifica statue at Bastion Point. The increase in rates, fuel tax, and government transport contributions have given them access to a huge pool of money, with a history of extreme levels of wastage, inefficiency and in some cases ill-informed investment. There also appears real disharmony within the Council, as the Mayor seems to be pursuing his own agenda without informing or consulting his Councillors.
The slowing of the New Zealand economy is seeing local Banks adopting a more cautious attitude to transactions. We have heard of 2 Banks taking a much tougher stance on land bank/ development deals, effectively pulling out of the market, and them putting pressure on high net worth clients with sizeable loans to reduce debt levels. Global has recently completed a number of new non-bank facilities to restructure part of a borrower’s debt away from their Bank to release some equity and enable their existing Bank to finance one of the client’s other projects.
A common story from developers we deal with is ongoing delays caused by local Councils, whether this be Resource Consents or the issue of Code of Compliance and/or titles. This appears to be a Country wide issue, rather than specific to Auckland, as we have a number of projects which have been stalled for 6-8 months waiting on consents. The delays around the issuing of consents add real costs to any development, with these being an issue for developers and financiers alike. A developer needs to be very aware of the costs of extending any loan facility, as we are seeing a number of clients caught with huge rollover fees through their facilities running past due date, as non-bank lenders reduce loan terms as much as they can to increase their annualised return via fees.
We still have financiers chasing us for transactions to look at, and as Global operates independent of any financier, we will not look to pressure you into a facility that does not fit your requirements. A good broker will add value by negotiating the best offer possible, rather than pushing the first offer available.
A changing market creates opportunities, and with borrowing rates still at historically low levels and a fundamentally sound economy, those opportunities still exist. Global is being contacted by financiers with funds to lend, so if you or your clients have a project to discuss, please contact us.