As we enter the year of the “Rooster”, with a new protectionist President having been sworn in in the United States, making our trade dealings with China become even more important. The political and economic landscape changed dramatically in 2016, with immigration concerns driving the Brexit result, Trump becoming the President, and a number of other political surprises occurring throughout the world, during the year. New Zealand had to get in on the party, with the shock resignation of John Key. It was certainly a year of shocks, and we would suggest that they will continue during 2017, which should be a warning to Bill English and the National Government, as events which seemed highly unlikely unfolded through the force of the people.
The “Trump“factor will make economic markets jittery for a period , which will result in swings in share markets and currency markets. The early economic indicators for this Country however appear positive, with the expectation of continued GDP growth, the continued recovery of dairy products prices, and strong tourist and immigration inflows. The rise of oil prices in late 2016 have resulted in inflation rising to back over 1.0%, however economists are picking restrained upward pressure on inflation, rather than a strong jump, which means the OCR is unlikely to be pushed up in the short term. We have however seen borrowing rates increase slightly, due in the main to banks borrowing costs rising and a drive by them to increase margins.
The restraints that the Australian owned parents have placed on their New Zealand subsidiaries, has resulted in a sharp pull back by all the main banks with regards to their exposures to certain industries. We understand this is a result of concerns the Australian banks have to the residential and development markets in, particularly Sydney, Melbourne, and Brisbane, as warnings of an apartment glut and crash, flow through to this Country, and a directive that the New Zealand Banks fund more of their lending books via onshore borrowing.
We have all seen the media reports of a number of high profile development projects which have failed to proceed due to funding restrictions, and must bear in mind that there are many more not proceeding that don’t get reported to the public. Global has been approached by several developers over the past 4-6 months, who have either had funding approved, only to have the bank withdraw the offer, prior to drawdown, or have ended up with a decline, after a lengthy and normally positive feedback during the application process. We are even getting banks admitting to clients, that they don’t have the capacity to fund a project.
The strength of our economy, internationally high interest rates, and political stability, mean that offshore investors/lenders are now looking to fill some of these gaps left by the Banks. Global is currently working with 3 offshore lenders who appear to have a strong appetite to fund development projects in this Country, and to date have arranged both mezzanine facilities and a blended rate facilities. These financiers comprise investment funds based out of the United Kingdom, Asia, and the United States, who are aggressively looking for opportunities to both invest and fund into New Zealand and Australia. The offers we have obtained to date have all geared to 80% plus of cost , with the requirement that there are fixed price build contracts with experienced construction companies and 100% + presale cover. Financing costs generally line up with onshore prime and mezzanine rates, currently offered in the market here.
Global has also been involved in negotiating investors to either purchase consented development opportunities, or bringing JV partners into a project, and with the toughening bank lending stance we are seeing a lift in demand for non-bank financing sources. There are still several finance companies and private individuals active in the non-bank mortgage market.
Please do not hesitate to contact us, should you or one of your clients require any advice or assistance with a project.