Provincia settles another industrial property. Lock in those long rates while you can. And more investment insights in property news this week…
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.
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Read on and enjoy your economic and property news this week.
In property news this week…
- Provincia settles another industrial property.
- Lock in those long rates while you can.
- Bernard Hickey slams property investors.
- Andrew King fights back and exposes Hickey’s untruths.
- Tony Alexander issues a warning.
- Westpac predicts another recession, but not in the property market.
- Pangolins offered highest level of protection in China.
Provincia settles another industrial property
We are pleased to announce that our eighth property settled last week. Provincia Property Fund investors are now officially part-owners of 25-27 Timothy Place in Auckland’s Rosebank Peninsula industrial precinct.
Key facts…
- Settled on 11 February 2021
- Purchase Price: $4.2 million
- Rent: $230k p.a.
- Guarantees: 12-month bank guarantee covering rent and opex of $258,113 +GST.
The tenant is a well-established tyre importer and distribution business providing an essential service. We have secured them on a brand new 3-year lease with two 3-year rights-of-renewal and annual increases of 2%.
We have had our eye on the Rosebank Peninsula industrial precinct for a long time but it is very tightly held. When the Timothy Place property came up we moved quickly and got it under contract fast.
The site comprises two separate buildings with an enclosed connection between the two. There is also yard space and additional, undeveloped land to the rear of the property. This gives rise to some future value-add opportunities, including…
- Reconfigure the buildings for multiple occupiers
- Subdivide the property
- Extend the 27 Timothy Place warehouse to the rear
- Build an additional building at the rear of the property
Overall, 25-27 Timothy Place fits the ‘Provincia brief’ and we are super excited to have secured such a great property ahead of the other competing purchasers.
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… |
Lock in those long rates while you can
Ex-BNZ chief economist Tony Alexander says, “Borrowers should seriously consider forsaking the candy of cheap short-term fixed rates to lock in long rates at levels they may never see again in their lives.”
The term deposit and mortgage interest rates we track have been very stable since December, reinforcing our view that we have seen the bottom of this cycle.
Inflation risks have turned and the risk is now on the upside, especially medium- and long-term mortgage rates.
To quote from our NZ Interest Rates Forecast page…
“The risk is to the upside, not the downside. In plain English, interest rates are not likely to fall any further. If they do, it will be a minuscule movement. Mortgage rates will start moving up first; term-deposit rates much later.”
We expect medium-term and long-term fixed mortgage interest rates to start increasing later this year in advance of any Official Cash Rate (OCR) increases, and short-term rates to lag OCR increases.
When the OCR does start moving, which we think is likely to be as early as February 2022 (and maybe even November 2021), expect a slow creep upwards rather than dramatic changes.
There is low risk of the OCR or short-term mortgage rates rising by a lot in a short period of time.
The Reserve Bank of Australia still has its cash rate at 0.1% and has indicated it will keep it there through to 2024. This limits the extent to which the Reserve Bank of New Zealand can increase the OCR, which is currently at 0.25%.
We see the OCR remaining below a 1% ceiling throughout 2022.
And we see the grim times for savers continuing. ASB Bank had this to say in their Term Deposit Report of 5 February 2021…
Another year of low interest rates expected
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- [Term deposit] interest rates are expected to stay low for several years, and we could still see some declines from today’s levels.
We agree with ASB’s view.
For more analysis of interest rates, visit our NZ Interest Rates Forecast page. We update it every week and the most recent update was today, Friday 19 February 2021.
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Bernard Hickey slams property investors
Left-leaning journalist Bernard Hickey says property investors are making a lot of money, most of which is not taxed, unlike investments in term deposits, KiwiSaver and listed companies.
Hickey said the inspirational story of Ana Meredith’s “journey” towards owning 25 rentals by 2025 made him “sick for the future of first-home buyers”.
“Rental property investors have ridden a Government guarantee, lower interest rates, much faster population growth and endemically low house building rates for 30 years to extraordinary and untaxed wealth.”
“Politicians from both sides refuse to consider taxing the capital gains properly or bring in a wealth or inheritance tax that would crystallise some of those gains as income to be taxed, as other forms of income are taxed,” says Hickey.
One of Hickey’s outrageous claims is that the Government subsidises and guarantees landlords to the tune of $10 billion-plus each year in taxes not collected and subsidies delivered in accommodation supplements.
Hickey believes property investors earn risk-free returns with support from a bank that won’t be allowed to collapse and support from a Government that doesn’t want prices to fall.
“Rental property investors have ridden a Government guarantee, lower interest rates, much faster population growth and endemically low house building rates for 30 years to extraordinary and untaxed wealth.”
“And there are no signs it will change. The best any first-home buyer can hope for is they don’t have to bid against an investor supercharged with fresh equity and debt, and that their current landlord doesn’t put up their rent faster than their incomes.”
Andrew King fights back and exposes Hickey’s untruths
Andrew King, president of the NZ Property Investors Federation, wrote a blistering reply to Bernard Hickey’s opinion piece…
“In an opinion piece in the Sunday Star Times on 7 February, Bernard Hickey once again made unfounded, inaccurate and untrue statements about rental property providers in New Zealand,” writes King.
“Hickey has a maniacal dislike of people owning rental property and providing somewhere for people to live. He must by now know that his claims of rental property owners having special tax advantages is wrong, yet he persists in spreading this misinformation.
“In his last opinion piece Hickey states that ‘Rental property investors argue they are taxed at the same rate and in the same way as everyone else. That’s just not true.’
“For the umpteenth time Bernard, yes it is. But it isn’t just us trying to argue this point, even the IRD have confirmed that it is true.
“Hickey tries to defend his point by saying that, ‘Income from wages and company profits are taxed through PAYE and spending is taxed through GST’, however this is incorrect and misleading.
“Company profits are not taxed through PAYE. Company profits are taxed through income tax, just as rental property profits are.
“The owners of companies that increase in value don’t pay tax on this capital gain, just as rental property owners don’t if their property value increases. This is also the same for the self employed, farmers and shareholders.
“Why is it that rental property owners are condemned for making capital gains while shareholders aren’t?
“The value of share prices are promoted daily in newspapers, radio and other media. If the increase in value of share prices isn’t a factor for investing in shares, then why is there daily interest in how much they have gone up by?”
“Although he is not alone in doing so, Hickey is selective in what he compares rental property to in an attempt to be seen as correct.
“He says that ‘Landlords also have access to tax breaks that competing first-home buyers can’t get. They are able to claim the interest costs on their mortgages as a cost of doing business, along with maintenance, rates and management fees’.
“What he doesn’t mention is that all businesses claim expenses from their business income, not just rental property.
“His argument doesn’t make sense as a home owner doesn’t receive any income from their property to claim expenses against.
“The rental property owner doesn’t get to claim expenses on their own home, only the rental property that they rent out.
“In addition, if the property is not the owners home but they choose not to rent it out, they also cannot claim expenses. They are a speculator rather than a rental property owner.”
“It appears that Hickey has been captured by the Financial Services industry, a collection of extremely profitable companies who have never liked the fact that they can’t ‘clip the ticket’ from people buying a rental property.
“These are the same companies who brought you events such as the Global Financial Crisis, yet still managed to pay themselves vast salaries while convincing Governments to bail out their organisations.
“The Financial Services Industry has for many years tried to introduce rules and laws that make it harder for people to provide rental homes for tenants. Hickey is probably New Zealand’s poster boy for taking their views public.
“For many years they argued for a capital gains tax before realising that it would apply to them as well. In their naivety they thought it would only apply to rental property.
“However through the efforts of Hickey and others, they have made rental property providers the villains and may achieve their cunning plan through convincing the Government to further extend the Bright Line Test on rental properties.
“While portrayed as a tool to rein in property speculators, it is essentially a capital gains tax to dissuade people from providing rental property.”
“We are in a rental crisis where we need more rental properties, so the last thing we need is to dampen down the best group of people to provide the extra rental properties we need.”
“If the Government is to be bold and transformational then they need to stop listening to Hickey and others of his ilk and address the real issues in our housing system. Their recent announcement of amending the RMA is an excellent start in the right direction.”
Tony Alexander issues a warning
Tony Alexander says our natural tendency as humans is to over-extrapolate both negative and positive developments.
“There are two developments underway at the moment and much as they are so exceedingly compelling, I’d like to throw in a dose of reality before people get a bit too carried away.
“The first is the expectation that once the borders fully reopen and expat Kiwis can return without having to go into a hotel for two weeks, we will see an absolute flood.
“Some will come back for sure. But I spent some time a decade or so back chatting extensively with Kiwis overseas and it is clear that there are deep reasons why they choose to be there rather than here.
“The huge majority will not return – especially when we consider the growing view abroad that once the vaccinations roll out and borders do reopen overseas we might see an extremely strong period of economic growth across many parts of the world.
“Why come back here when opportunities for gainful employment and business growth may abound in the UK, US, Canada, South Korea etc? Strong growth will provide a huge incentive for Kiwis offshore to stay there.
“So, be very careful if you are buying property here in Godzone in expectation of most of the one million Kiwis overseas coming back.
“Plus, do remember that some 650,000 of them are in Australia and highly unlikely to come back to this quiet and larger version of Tasmania.
“The second over-extrapolation people are I believe doing currently relates to population flows out of Auckland. The increasingly popular view is that the combination of…
- High property prices in Auckland,
- Working from home possibilities, and
- Aging of the population
… “will see many tens of thousands of people flock to all other locations in the country.
“People are snapping up properties not just in the areas most shifting Aucklanders will go to (Northland, Bay of Plenty and Waikato), but seemingly everywhere else as well.
“The argument is strong and will make sense to anyone thinking about it or putting it to another person.
“But the risk is that just as we Kiwis here in NZ, so smug in our handling of Covid and massively up ourselves about it, over-estimate how many of our compatriots will return, we are under-estimating the attraction of Auckland.
“Auckland is where the baby boomers have their families and friends. … The booming rest home sector will provide them with the opportunity to cash up their highly priced house and retire within 5-10 kilometres of where they have been living for the past few decades.
“Auckland is where migrants have tended to go and they have delivered a buzz, especially a business buzz, not seen to the same extent in other parts of the country.
“Auckland has been undergoing a substantial upgrading of its infrastructure with more to come, including improvements in the rail system.
“Auckland has an ability to intensify land use not available in other parts of the country. There is no land shortage within the city’s urban boundaries – just the same shortage of tradespeople as elsewhere around the country.
“Auckland certainly has seen internal migration flows heading outward to other parts of the country over the past two census periods and is likely to continue to do so. But it is our only truly internationally connected city.
“Astute observers may wish to note that in a few months when a lot of the waterfront development is done and something hopefully certain is done regarding Queen Street, there will be a focus on the attractiveness of inner city living which will likely rejuvenate the still subdued apartment market.
“This rising focus will be encouraged by young people seeking more affordable accommodation in the inner city, and people anticipating the return of tourists and international students over 2022.”
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Westpac predicts another recession, but not in the property market
Westpac economists reckon we’re in for another recession this year, but it won’t be enough to stop the runaway housing market.
It seems like a non-event now but New Zealand went into a recession during lockdown last year and rebounded in the September quarter.
Westpac’s economics team expect the closed borders will lead to another recession over the early part of this year.
“We estimate that the absence of overseas tourists cost the country around 2% of GDP in the September quarter, including the second-round effects on domestic spending and production. But that will rise to around 6% by the March quarter, when tourism normally peaks.
“This means that some of the upcoming data, once seasonally adjusted, will show the economy slowing or even going backwards. We’re expecting overall GDP to shrink by 0.7% over the December and March quarters combined.”
COMMENT: I expect it will be another non-event.
Commenting on the housing market, Westpac’s chief economist Dominick Stephens said, “We are now forecasting 17% house price inflation in 2021, due to ongoing low interest rates.”
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And finally, in not-property news this week something too good not to share…
Pangolins offered highest level of protection in China
The world’s most trafficked animal has been thrown a lifeline by the Chinese government, which has granted pangolins the highest form of protection and removed their body parts from a list of ingredients approved for use in Chinese medicine.
Paul Thomson, executive director and co-founder of Save the Pangolins, joined other conservationists in welcoming the news. “China’s commitment to increasing pangolin conservation efforts garners hope for their future,” he said.
The pangolin’s new protective status is effective immediately and follows an announcement in March that China was banning the hunting, trade, transportation and consumption of all terrestrial wild animals whether captive-bred or wild caught, where the end purpose is to eat.
That’s it for this week, thanks for hanging in there.
Cheers, Brandon 🙂
DISCLAIMER
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.
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