Winds of Change!

“When the winds of change blow.
Some people build walls , and
 others build windmills “


Anonymous Chinese Proverb

Just when a possible return to a new normal appears on the horizon, Covid throws us a new variant of itself.  This Country has always lagged behind the appearance of the virus in various forms, as opposed to the rest of the World, however our government doesn’t appear to have utilised this time to get our testing, response systems and health system any more advanced to deal with it than when the virus arrived here 2 years ago.  We had a period before the arrival of the Delta variant, where we lorded our open lives and successes, but there were no extra ICU beds, or an introduction of saliva testing.  The rest of the World is opening its borders and removing a large number of the restrictions put in place, whilst this Country bounces back into the “Red Level”.  My son, based in the UK has easy access to Rapid Antigen Tests, which they use every couple of days to check for Covid, yet the importation of the tests was actually banned by this Country’s Ministry of Health last year, and after removing the ban, the Government are commandeering private business’ orders of the tests.  These are proving a critical tool in managing the disease and labour supply around the rest of the World.

This year will be pivotal to the fortunes of our 2 major political parties in 2023, as the influence of Covid on our lives will wane, and the hangover effects of it will evidence themselves in the economy- large Government debt, rampant inflation, and higher interest rates.  The ability of Labour to gain the trust of the New Zealand public as the right party to deal with these issues, will be critical to their ability to win a third term.  The emergence of Christopher Luxon is going to provide a real challenge on these fronts as his business experience and acumen is top tier.

The recently introduced CCCFA rules, are another example of rushed legislation, that has been put in place, without being thought through. The idea of curbing investor’s ability to borrow further, by tightening debt servicing requirements is all well and good, however it has hit hardest the group they are trying to help- the first home buyer.  The new rules are already under review, with most commentators expecting them to be eased a bit. Inflation is now rampant, not just in this Country, but around the World as a result of central Banks stimulatory policies to combat Covid lockdowns. Australia recently announced annual inflation running at 3.5%, above predictions, and the US Fed stating they may have to tip the economy into recession if it stays above 7.0%.  This Country is now running at an annualized rate of 5.9%, a 3-decade high, and most of us would have noticed the large price increases of food products, petrol, etc. The disruptions to worldwide supply chains is further exacerbating price pressures, and our Bank raising the cash rate will do little to curb these pressures.  Economists are now trying to predict where the cash rate and mortgage lending rates will end.  The reduction in Bank lending has meant the Banks are cashed up, hence Bank deposit rates have not followed lending rates upwards to the same extent.

The New Year is seeing most non- Bank funders inundated with enquiry, as transactions from the end of 2021 look for a home. This inevitably leads to them picking the cleanest deal.  Construction loans need to be presented with all the information available, and a robust pricing schedule, which covers off likely build cost increases through the project, so contingencies are increasing.  The CCCFA rules are seeing development funders vet presales more thoroughly, and a number of finance companies withdraw from the development funding market, due to nervousness of buyer’s ability to raise mortgages, and the uncertainty this will create in the presales market. Banks are busy reassessing existing undrawn approvals, with a number of borrowers now finding that the approval amount is reduced under the new rules.

This year appears to be showing the signs of being very disruptive, as employers grapple with Omnicrom disruption to their workforce, rising inflation and interest rates, and uncertainty in the financing and banking markets.  As I saw quoted recently – “I have had my 30-day trial and I would like to return 2022 “. However, this type of market creates opportunities, and it is a case of identifying them as, the slowing of price increases for residential property, and increased construction and funding costs will make a lot of proposed developments uneconomic, which means the value of the land needs to be reassessed.  Global sees a lot of overpriced development sites, with the development margin included in the sale price of the site, which in this market will now sit unsold.

As Bank deposit rates lag behind the inflation rate, and property loses its golden glow, for the moment, we would suggest that there will be good levels of liquidity going into the non-Bank mortgage market, which will be active this year.  So should you or any of your clients have a project in need of support, don’t hesitate to contact us.