Try to be Positive, but…

“When written in Chinese, the word crisis is composed of two characters – one represents danger, and the other represents opportunity“
John F Kennedy

At Global we try to be positive about this Country and its future. However, the recent budget and resulting state of this country’s finances makes it hard to be too positive. The Country under the control of Labour over the past 5 years has drifted into almost third world status, from a position of the Country and its financial position being the envy of the world to one of the also rans. Economically we are creating a hole that it will be hard to dig ourselves out of, and a burden our children will be lumbered with, should they stay around.

  • Net Government debt is now set to peak at $91.2 billion in 23/24. In 2018 debt was 28.1% of GDP, this has now ballooned to over 50% of GDP.
  • Treasury has predicted the current account deficit for the current year ballooning to $7.0 billion this year, then increasing to $7.6 billion next year. When this Government came to power, we were running a solid surplus’.
  • The Swiss Institute for Management & Development now ranks this Countries economic performance at 47th out of the Worlds 63 most important 1st World Countries – this down from 22nd.
  • The IMF has forecasted NZ to have 1 of the lowest GDP growth rates and one of the highest inflation rates in the Asia Pacific region. GDP growth is forecast at 3.2% for the 22/23 year dropping to 1.0% for the 23/24 year.
  • The Country has plummeted from one of the Worlds best GDP performers to one of the worst.

Grant Robertson has been surprisingly quiet over the first 5 months of this year, as the squeeze of a recession and the bite of ongoing inflation can’t now be blamed on Covid. His recent announcement that he has $4 billion surplus to spend in this year’s budget conveniently ignores the fact that this is more borrowed money. We are getting to the point where our level of debt and current account deficit will see New Zealand’s credit rating downgraded, resulting in the cost of servicing our debt increasing. The economic statistics listed above are separate from our issues with crime, the inability to attract workers, and our crumbling infrastructure and Healthcare system. The recent relaxing of immigration rules and the access to other benefits for New Zealanders living in Australia will result in an acceleration of the” Brain Drain”. The attraction of higher salaries in Australia will attract a lot of people with the ability to move, not to mention the weather.

Economists were leaning towards the OCR having peaked; however, this was prior to the Budget. The financial stimulus the Government is injecting into the economy is in direct contrast to what the Reserve Bank is trying to achieve. The year to date has seen inflationary pressures soften in the US, UK, Australia and Europe, however, still remain stubbornly high. New Zealand Banks appear to see medium to longer term rates coming off, as they are now reducing their longer-term fixed mortgage rates, however again our inflation is running at too high a level. The view was that if the Reserve Bank lifted the OCR by a further 0.25%, then that would be the last, and they have now done so.  However most economists have commented that the stimulus of the Budget and the stimulatory effect of strong immigration will see the likelihood of a further 0.25% lift in the medium term. The Banks are seeing their mortgage books shrink as the housing market has slowed. We are also hearing that a number of larger property investors are now faced with substantial value losses in their portfolios as yield rates increase and values drift downwards. The fact that most have seen their borrowing costs triple over the past 12 months means many are now in breach of their debt servicing ratios with their funders. The Banks will start to put pressure on these borrowers to reduce their levels of debt, giving them time to sort the effective default themselves, before taking a firmer stance.

The non-Bank funding markets are very active, financiers are still in a position where they can be selective as to the deals they take on, with continued strong levels of demand.  This has flowed through to fees and rates, with most of those lifting further. Global still has access to non-development asset funds at under 10%, however most are in the 10-11.5% range, with fees on top. Development funding costs have jumped appreciably, with interest rates in the 11.5%-12.95% & fees/line fees on top. We are still getting strong enquiry for development funding, however without strong presale support and /or good equity, these are hard to place. However, with immigration being so strong, and the perception that property values are near the bottom, and interest rates near the top, one would suggest this may change quite quickly. 

Global has been busy over the first 5 months of this calendar, successfully negotiating a mix of financing packages over a broad range of asset classes –

  • Refinancing a number of development facilities on residual stock
  • Funding a couple of large residential house builds for owner occupiers.
  • Rural Finance to fund the purchase of livestock in the far North.
  • Financing the completion of a new build luxury motel complex
  • Refinancing a long-term hold land bank.
  • Subdivision and subsequent construction finance in a Northland tourism center
  • Funding a large multi-unit complex with an offshore investment fund.
  • Refinancing land & buildings of a Childcare facility
  • Refinancing of a beef fattening block in Northland
  • Funding the completion of a Coastal sub-division.
  • Development funding for a South Island housing development
  • Land Bank funding for future development sites.
  • Refinancing of a rural lifestyle block in the Kaipara District

As you can see, we are involved in a wide spread of transactions, with a varied mix of security.  It is free for us to assess a deal, so if you have a transaction, you are looking at, don’t hesitate to contact us and we can provide advice around funding options.