Looking ahead to the big housing issue of 2021. ANZ imposes 60% LVR on investors with immediate effect. Contact Energy cuts office space as more staff work from home. And more in property news this week…
This is our last Property News This Week for 2020. The first Property News This Week for 2021 will be published in mid January 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…
- Looking ahead to the big issue of housing affordability in 2021 🔮
- Contact Energy cuts office space as more staff work from home 🖥️
- ANZ imposes 60% LVR on investors with immediate effect 😲
- GDP rises record 14% in September quarter 🥱
- 760hp, 300 km/h electric car powered by salt water 🚘
Looking ahead to the big issue of housing affordability in 2021
For the final issue of the year, we will lead with a look ahead to next year.
Auckland house prices were stagnant from 2016 until late last year and with it the big issue of housing affordability quietened down too.
In fact, last month I reported that despite house prices rising faster than wages over the last year, mortgage payments are just as affordable for first home buyers as they were three years ago, thanks to falling interest rates and higher wages.
The gnashing of teeth has been growing louder though, and I expect it to be a hot issue in 2021.
The Auckland housing market entered its cyclical upswing late last year but rather than recognising the cyclical nature of the upswing, many commentators are describing the market as “out of control”.
Minister of Finance Grant Robertson wrote to the Reserve Bank of New Zealand (RBNZ) last month asking how it could address rising house prices and improve housing affordability.
In his reply, Reserve Bank governor Adrian Orr pointed out that supply-side factors are “the most significant determinant of house prices in New Zealand”.
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.
Reforming the Resource Management Act (RMA) will help address some of the supply-side issues, but these things take time and largely happen out of the public spotlight.
Orr said in his reply to the Minister of Finance last month that, “Suppressing housing demand factors can reduce house prices, but will only prove to be a temporary intervention until supply responsiveness is re-established.”
Activists will instead demand measures to reduce demand, especially demand from people they deem evil – investors, foreigners, baby boomers, privileged white people and other bogeymen.
And the Government will want to be seen to be doing something – anything.
So I expect measures to curb housing demand. The Government knows this is easier and more visible than addressing the real issue of supply and will be ‘good optics’ to help convince people they are actually doing something.
In response to pressure from the Government, the RBNZ is likely to introduce debt-to-income (DTI) limits on mortgage lending next year.
This will have the unintended consequence of hitting first-home buyers especially hard, making it even more difficult for them to get onto the property ladder. If you are a first-home buyer you’d best get in before it’s too late.
The rate of house price increases will ease back next year, but prices are still likely to increase at the rate of 1% per month.
Social housing is another part of the issue, with the public housing waitlist growing by more than a thousand in September to new record high. Expect a lot of news on this from the Government next year.
Contact Energy cuts office space as more staff work from home
In a sign of the times, Contact Energy has reduced its head office space, releasing 5,000 square metres of CBD vacancy on to the Wellington market
The company employs 350 staff in the capital and has just moved from four levels at 29 Brandon St in the Harbour City Tower to just one floor covering 1,400 square metres.
Work-from-home arrangements brought about by Covid-19 resulted in productivity improvements for Contact Energy, so it is now making the longer-term commitment to less space and a more flexible way of working.
There will always be demand for offices but unlike industrial property, the office and retail sectors both face long-term challenges.
If you’re looking for somewhere secure to park your money and earn 6% p.a. pre-tax PLUS capital gains, find out why Provincia industrial property fund is rated so highly by investors…
ANZ imposes 60% LVR on investors
Tony Alexander didn’t think any banks would go further than the Reserve Bank’s requirement for a 30% deposit from investors (70% LVR). This is the level that was in force prior to the Covid-19 pandemic.
But on Tuesday this week ANZ announced it will impose a 60% LVR on residential property investors with immediate effect. That means investors must stump up a deposit of 40%.
Alexander says, “This is important because it was only when the 40% deposit requirement was imposed by the Reserve Bank effective from July 2016 that we truly saw the ending of the upward part of Auckland’s house price cycle.”
It also halved the average rate of monthly price increases in the rest of the country.
If the house price cycle is due for a rest, the previous experience tells us that 40% is effective, says Alexander.
“But Auckland re-engaged on the upward leg of its cycle only late last year and is not over- stretched. Therefore, it is unlikely that this time around monthly price gains will settle down around 0%. An eventual settling late next year near 1% per month is most likely.
“But 40% for the rest of the country will be interesting given that the regions have been on a tear since roughly 2015-16.”
ASB, BNZ, Kiwibank and Westpac all indicated to interest.co.nz that they were in no hurry to follow suit.
GDP rises record 14% in September quarter, yawn 🥱
If you’re short on time you can safely skip this one; there’s no news here.
Legacy media are all shouting about the “record economic growth in the past quarter” and a “truly epic recovery” but it’s not news; we all knew it was coming and it’s nothing to crow about, merely a return to semi-normality.
When economic activity fell over due to the king hit of Covid-19 lockdowns, an 11% fall in June quarter economic activity was recorded. That’s what happens when you stop the country.
When we crawled back to our feet, a 14% growth in September quarter economic activity was recorded. It’s not so much “unprecedented growth” as just what happens when the country gets back up after being knocked out.
We’re not dead, but we’re still a wee bit wobbly. In their economic Daily Alert today, ASB Bank economists said…
“All-up, economic activity has now lifted above pre-COVID levels – a remarkably strong result. With the NZ (and international) borders still largely shut, activity in a number of sectors is well below year-ago levels, but that impact is being offset by stronger performances elsewhere.”
Construction and retail trade/accommodation led the gains. Thanks to Covid-19 we can’t holiday abroad easily but we can improve our home sanctuaries and travel domestically instead. Who said Kiwis can’t fly?
And finally, in not-property news this week something too good not to share…
760hp, 300 km/h electric car powered by salt water
Indistinguishable from magic… Swiss company nanoFlowcell unveiled a sleek looking fully electric sports car at the Geneva Motor Show this year. Their goal: the first production car in the world powered by saltwater.
Range is up to 1,000 km – an astonishing 50% more than a Tesla Model S 100.
Acceleration is equally impressive – 0 to 100 km/h in 2.4 seconds – and the carbon footprint even more impressive.
Whereas charging a conventional electric car needs monster investment, lots of parking space and puts strain on the national grid, nanoFlowcell’s system can be retrofitted to existing petrol stations.
Instead of plugging it in for a couple of hours to charge up a bank of high-voltage lithium-ion batteries weighing up to 625 kg, the car’s twin tanks are filled with bi-ION electrolyte fuel via a twin-nozzle pump.
The fuel is essentially saltwater – a water solution containing both organic and inorganic salts that can be produced almost anywhere on Earth totally carbon-free.
One tank holds bi-ION fluid with a positive charge and the other a negative charge. The two fluids are separated by a membrane where positively charged ions lose an electron, generating electricity in the process.
NASA gave up on this “flow cell” tech in the 1970s because the energy density was so poor, but nanoFlowcell’s 16 years of chemistry R&D has yielded breakthroughs to beat a lithium-ion battery’s kWh/kg storage capacity.
And unlike petrol and lithium-ion batteries it’s totally safe, so there’s zero chance of explodey fiery mayhem in the event of a crash.
That’s it for this week, thanks for hanging in there and see you next year!
Cheers, Brandon 🙂
Looking for someone to manage your commercial property?
We are one of the few firms to specialise in managing commercial properties for investors 🏭
Many of our clients previously managed their properties themselves but wanted to simplify things so they could enjoy life 🏌️♂️🛥🎣
With management fees usually paid by the tenant as part of their outgoings/opex budget, why would you take on all that hassle yourself when we can do it at no cost to you? 🤔
We currently manage anything from large multi-million dollar commercial property portfolios right through to single units.
If you own commercial property in Auckland or Hamilton…
This content is provided for general information only and should not be relied upon or used as a basis for making any investment or financial decision. To the extent that any information or recommendations in this content constitute financial advice, they do not take into account any person’s particular financial situation or goals. As individual circumstances differ, we strongly recommend you seek independent legal and/or financial advice prior to acting in relation to any of the matters discussed herein. Neither Provincia Property Fund Ltd nor Provincia Property Management Ltd nor Provincia Property Fund Management Ltd nor any person involved in this content accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this content.