The commercial property year that was. 5 lessons investors can learn from Tesla, Meridian and Covid-19. And more in property news this week…
Welcome to our first Property News This Week for 2021.
Our aim is to glean the important economic and property insights affecting investors from the torrent of information filling the newsfeeds each week so you don’t have to. We then present them in digestible snack form so you can update yourself over morning tea.
Read on and enjoy your economic and property news this week.
In property news this week…
- The commercial property year that was.
- 5 lessons investors can learn from Tesla, Meridian and Covid-19.
- Auckland Council building for sale as thousands of staff work from home.
- OCR no longer predicted to go negative.
- Consents are up, but NZ’s stubborn housing shortage will be a slow fix.
- Tiny trailer homes are no solution for a first home affordability crisis.
- Trumper tantrum creates crisis for Trump’s business empire just before he returns to it.
- Seth Godin on how to get into the top 5%.
The commercial property year that was
“No one knew what was going on”: Just 72 hours to prepare for carnage, says the headline in OneRoof’s wrap-up article on 31 December 2020.
“The commercial property sector started 2020 in a good place. Agents were buoyed by strong sales and buying activity in 2019 and the outlook for the months was universally positive, with yields sharpening in in key asset classes.
“But when Covid struck, and the country went into lockdown, the economic forecasts for the sector were grim.
“While most experts thought the residential sector would eventually bounce back from predicted price declines, few thought the same for the commercial sector: no one knew how long New Zealand would be in lockdown, how long we’d have to work from home and how long it would be before we could safely shop in the high street or eat out at a restaurant.
“Landlords and investors, particularly those with assets in retail, hospitality, tourism and office sectors feared for their future, and rent relief was a big issue.
“But out of lockdown came hope and then a rush of sales and investments that have left the market stronger than ever.”
OneRoof talked to industry leaders and experts to see how they got through one of the most tumultuous years in real estate. They had high praise for the measures the Government put in place and have a lot of optimism for 2021.
5 lessons investors can learn from Tesla, Meridian & Covid-19
An excerpt from Sam Stubbs’ opinion piece in Stuff on Wednesday…
“The meteoric rise in the share price of Meridian and Tesla in 2020, and the roller coaster that Covid has been for financial markets, has important lessons for all investors.
“The first is that predicting financial markets is a fools game, because they reflect very complex global environments that cannot be reliably predicted.
“Look how bad predictions are, in spite of the best information. Bank economists have premier access to information on financial flows, consumer behaviour and businesses conditions. So did they predict interest rates, share markets or property market right in 2020? Hardly. By their own admission, they made weather forecasters look good.
“Stockbrokers are no better. Five years ago I was told by a respected stockbroking firm that Tesla were about to go bust. Since then it’s share price has risen 860%.”
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Auckland Council building for sale as thousands of staff work from home
Remote working trend has helped Auckland Council clear out one of its downtown office buildings, which once housed 1,000 employees.
Bledisloe House in the CBD, which once housed 1,000 staff, is now largely empty with most moved across the road into the council’s Albert St headquarters.
The reduced numbers of staff in council offices has helped a project, begun in 2018, to reduce the number of major council offices from 10 to four.
The sale of surplus offices is expected to save $117 million in maintenance and running costs over a decade.
COMMENT: Whilst there will always be demand for office space, the office sector is facing significant headwinds. Most affected are B-grade and other less-desirable offices.
OCR no longer predicted to go negative
In an economic news review published on Wednesday, ANZ economists now forecast an OCR cut to 0.1% in May and believe a negative OCR is no longer necessary.
COMMENT: We’ve been saying since November 2020 that we don’t believe there are sufficient grounds for the Reserve Bank of New Zealand (RBNZ) to take the OCR into negative territory.
Our assessment was that it might go to 0.1% to match Australia’s rate, but no lower, and remain stubbornly low for several years.
In our 27 November 2020 article titled, Why NZIER predicts negative OCR next year (and we don’t) we said…
“The stimulus already introduced by Government and the Reserve Bank (RBNZ) is working so well that house prices have taken off…
“Initially it was first-home buyers who bid prices up crazily. They took advantage of the lower deposit required and their ability to fund a bigger mortgage for the same monthly mortgage payment, thanks to record low interest rates, and went mad at auctions. Then investors climbed on board and also became active.
“This caused the RBNZ to do a U-turn, breaking its promise to remove loan-to-value ratio (LVR) restrictions for at least 12 months, in an acknowledgement that the housing market is running hot. Banks didn’t wait and reinstated the LVR restrictions immediately.
“When the dust had settled, LVR restrictions had only been lifted for half the promised 12-month minimum.
“It is clear that RBNZ Governor Adrian Orr is under immense pressure from Finance Minister Grant Robertson to rein in house prices.”
The RBNZ “accepts that monetary stimulus and cheaper rates fuel house prices, but says that is how the policy works, that creating wealth stimulates spending and therefore economic recovery. It also notes that a fall in house prices would be a risk to recovery.”
“But the growing clamour over house prices, which forced the RBNZ to bring back LVR restrictions early, will more than likely put paid to taking the OCR below 0.1%, which is where Australia’s OCR currently sits.”
NOTE: We no longer believe the OCR will be cut to 0.1% but do believe interest rates will remain very low by historic standards for the next two years.
Further cuts are unlikely because of the political problems the hot housing market is causing for the government, which in turn is placing pressure on the Reserve Bank.
N.B. Our NZ Interest Rates Forecast page updated today shows no movement in term deposit rates and only one minor change in mortgage rates in the last month.
Consents are up, but NZ’s stubborn housing shortage will be a slow fix
Here’s why the housing shortage will take a long time to fix despite record consents
Stats NZ released data yesterday showing that 38,624 consents for new homes were issued in the year to November 2020.
It is the highest annual national total since July 1974, but it would only have taken 280 additional consents to have eclipsed even that record.
Within the North Island, Auckland, Hawke’s Bay, and Taranaki all saw record levels of new homes consented.
Kiwibank chief economist Jarrod Kerr said the greater number of consents would put a dent in the shortage, but rough modelling suggested there was a shortfall of 80,000 to 100,000 so it would take a long time.
There were multiple issues preventing the more effective boosting of housing supply. These include labour shortages in the construction industry, material costs, access to land to build on, and difficulties with the consent process at council level.
COMMENT: Kerr noted a number of issues, all of which are supply-side factors. As stated in our Property News This Week of 18 December 2020 under the heading “Looking ahead to the big issue of housing affordability in 2021″…
“Supply-side factors include the lack of availability of land, restrictive building regulations (i.e. excessive red tape), and high taxes, Council levies and charges. Fix these and you fix housing affordability.”
In our Property News This Week of 11 December 2020 we quoted Reserve Bank governor Adrian Orr on the subject. He pointed out that the dangers of trying to curb demand with higher prudential requirements: “Generally imply higher deposit requirements, lower credit ceilings, and higher interest costs for the mortgage borrower. All of these factors disadvantage lower income and lower wealth households.”
Trying to fix the issue of insufficient supply by curbing demand will only prove to be a temporary intervention until supply is fixed.
Tiny trailer homes are no solution for a first home affordability crisis
Rob Stock, Stuff’s money and consumer affairs reporter, has 3 golden rules when it comes to tiny homes and the housing crisis…
- Tiny homes are no solution to housing crisis
- Communal living is fraught
- Home loans shouldn’t be life sentences
Trumper tantrum creates crisis for Trump’s business empire just before he returns to it
It’s right there in the first few pages of Trump University Branding 101: “The truth is, everything you say and do is important,” he wrote in the 2008 book’s foreword. “Actions matter.”
After egging on a mob that rioted inside the US Capitol last week, the brand that’s at the heart of President Donald Trump’s career and fortune is in crisis.
Even those who previously supported Trump have now shunned him.
My favourite line from the article is…
“As he’s walking out of the palace gates he’s torching the kingdom, but in doing so he’s permanently damaging his own brand,” said Sally Hogshead, a branding specialist. “There’s a shame factor with being associated with the Trump brand for a larger percentage of the population than before.”
COMMENT: One word… karma.
And finally, in not-property news this week something too good not to share…
Seth Godin on how to get into the top 5%
In every field, extraordinary benefits go to those seen as being in the top 5%. One out of 20.
Sure, the biggest prizes go to the once-in-a-generation superstar. But that’s largely out of reach. It turns out, though, that if you’re thoughtful and diligent, the top 5% is attainable.
The approach is to pick the right set to be part of. Not, “top 5% of all surgeons,” but perhaps, “top 5% of thoracic surgeons in Minnesota.” Be specific. Find your niche and fill it.
That’s challenging, because once you set out to be specific, you’re on the hook. The standards are more clear. No room to waffle.
Which leads to the second half of the approach: The hard work. The work of levelling up and being honest about the choices that those you seek to serve actually have. If they knew what you know, would they choose you? What would it take for you to learn enough and practice enough and invest enough to truly be one of the top 5%?
That’s something you can achieve in exchange for focus and effort. To be in the top 1% takes a combination of luck and magical talent. But to be in the top 5%, one in 20, is mostly about choices.
The thing is, you’re not competing with the other 19 people, not really. You’re competing with yourself, competing in a journey to determine how much you care about making an impact.
Here’s to a powerful and productive year. Make a ruckus. Seth Godin
That’s it for this week, thanks for hanging in there.
Cheers, Brandon 🙂
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