“Compound interest is the eigth wonder of
the World. He who understands it, earns it;
he who doesn’t, pays it”

Albert Einstein

The economic loosening has well and truly begun, with a 0.5% reduction in the OCR in October and now a further 0.5 % reduction in November. We do have a large number of fundamental issues which will mean a recovery will be a slow process, and certain sectors will take longer to recover. This Country has lost and is losing still a lot of our brightest and best educated youth, as they chase higher wages and better career prospects overseas. How many of us have heard of friend’s kids – be they Doctors, lawyers, police officers or in Health care shifting to Australia and obtaining an income 50% higher for the equivalent role they had in New Zealand. Immigration has now also slowed, and apart from ex-pats returning with their young families, is mainly made up of unskilled workers. This will flow through to the housing market, as the vast majority of these immigrants will never be in a position to purchase homes for themselves, with a lot here to earn and send what they can back to family in other Countries. We have seen this before though, and it tends to be a cyclical trend, and just as the younger generation tend to transfer from job to job regularly, they also now appear prepared to transfer from Country to Country.

The jump in optimism in the ANZ Business survey is a reflection of a feeling that the Coalition is making the hard fiscally responsible decisions to turn our economy around. There are a couple of business sectors that were amongst our largest export earners, prior to Covid, that haven’t bounced back to the levels we would have hoped. These being tourism and the offshore student sector. New Zealand is now regarded as a very expensive destination to visit, and we appear to be even missing out on a lot of the long-haul visitors who tack on New Zealand after a visit to Australia. A lot of us watched the America’s Cup racing in Barcelona and considered what a boost that would have been to have held the event in this Country. However, it was pointed out that there probably would have been fewer competitors due to the extra cost of coming down under and certainly fewer offshore spectators.

The fewer overseas students is a result of the previous Government preventing these institutions from opening up to foreign students , after Covid, whilst Australia went chasing them and as students enter 3 + year courses it is a tap that can’t be quickly turned on. Now with the Australians looking to cap the numbers of foreign students and Canada considering a complete ban, hopefully this Country can benefit from that.

The latest rise in unemployment to 4.3% is unfortunately a necessary evil to get on top of inflation. We would expect a jump in the next quarter’s rate, with expectations that it will sit at over 5.0% over the next 12 months. New Zealand has been through a period of historically low interest rates and low unemployment, with a return to the historical averages now happening.

The resounding victory for Donald Trump and the Republicans now controlling Congress and the Senate mean that the new President has the ability to push through his policies unimpeded, whether that be Tariffs, toughening the laws around illegal immigrants, or America’s membership to NATO. His last Presidential term saw him achieve under 50% of what he campaigned on, but this term may be different. There is no doubt however that America will now be focused on what is perceived as good for themselves, rather than good for the World as a whole, and our exporters who sell into the United States will be feeling nervous.

The positives for this Country recently has been the strong demand from China for dairy prices, with Fonterra now looking at $10 per kg as a milk price payout to farmers.

The reducing OCR rate is now flowing through to non-Bank funders, as most of them are chasing transactions to invest funds before the Christmas break. Global has been approached recently by a couple of new funders looking for transactions in the NZ market. One of these is a Hong Kong based funder representing a number of high-net-worth parties looking for both debt and equity opportunities in New Zealand and Australia. They are main center focused and will consider transactions in the $10m + range.

We are very much now in the pre-Xmas rush, with strong enquiry, including a lot of refinancing of existing exposures. Global is finding some funders are still happy to extend, whilst others appear focused on repayment.

Some of our recent transactions are –

• Settlement of a large development property in the far North.
• Refinancing Residual stock facilities.
• Refinancing Childcare facility.
• Negotiation and refinance of a mortgagee sale situation.
• Refinancing the development facility of a luxury motel complex.
• Refinancing a multi-unit block of residential units.
• Land Bank funding of a forestry block.
• Residential house & refurbishment.
• Sub-division development facility.

The lower OCR, leading to lower mortgage rates, should see the development market show some signs of life. The areas where there are currently strong demand for sites and houses are regions that are seeing stronger than average population growth, be that through organic growth- employment opportunities or lifestyle, or where new transport infrastructure reduces travel times to a major employment hub, such as the extension of the Northern Motorway, just as we saw a number of years ago with the Western Motorways in Auckland. However, like any growth areas, the issue becomes the access to services that can accommodate the growth.

As this is our last newsletter for 2024, everybody at Global Pacific Capital would like to wish you a Merry Christmas and hope you have a great summer break.