|
Newsletters
15 December 2010
What Happened to Our Predictions?!
This recession is now starting to drag on a bit longer than we all had initially hoped. 2010 did not quite pan out the way that many pundits had predicted. In fact, after what seemed to be a relatively soft landing during 2009, many of us were looking forward to 2010 as being the year for recovery and getting on with the job again!
The very low interest rates under which we have been operating, and the strong world-wide demand for our commodities has not quite flowed through to better times. After years of being told to save and watch our spending, we finally did and it hurts! The result is lower house prices (probably a good thing), struggling retailers, increased “returns” on most commercial buildings and a general lack of confidence across many sectors.
The bubble finally bursting in Greece and Ireland has clearly not helped (and Ireland was a model economy!) Years of inept government by those countries and a closer look at the books has revealed what should have been obvious i.e. those countries were living beyond their means on the credit of richer nations such as Germany. I suspect that the USA uses China the same way. A scary thought!
Go hard Australia……like it or not we need you mate!
New Zealand is quite highly indebted although not quite on the scale seen elsewhere. The freely available credit pre-2008 in which we fully indulged, has created a large “monkey” around our collective necks. The re-payments are weighing heavy on the economy. All the talk was for a “V” shaped recovery. It is now starting to feel very much like a “U” shaped recovery.
Housing prices are anticipated to stay flat for at least another 12 months, commercial and industrial properties are really starting to separate out the “good” from the “ordinary” and farmland prices are nowhere near providing a reasonable productive return despite record prices for our primary products overseas.
Economies are so much about how we the consumer feel, how we behave, and how we perceive things to be, real or not. A good boost of confidence would help.
Predictions for 2011 vary. A World Cup win by the All Blacks would certainly help the national psyche. No more earthquakes please, no more South Canterbury Finances, and no more Pike Rivers! The election will be a sideshow. Let’s hope the country does not get too distracted.
For the Morgans Team, it will be more of the same. We can all look back on 2010 with some satisfaction, particularly on some of the larger commercial and contract jobs completed. We pride ourselves on being the preferred Valuers for all the major lenders, developers and larger institutions in our region, whilst retaining the personal touch for all our clients.
Personally, it has been a very full year for Heather and myself, culminating in Ben being admitted as a Solicitor in the Wellington High Court, watching Simon win Bronze in Delhi (very exciting), Laura completing her first year at UCOL and Emily being Emily.
I have also got myself firmly entrenched with cycling in the region, being on the Board of the new Bike Manawatu Club and also through my involvement with the Velodrome “bid” and New Zealand Cycling Centre of Excellence at Massey. What a fantastic outcome that would be for the City and our region should we win it….or should I say when we win it!
Thank you again for your ongoing support during the year. 2011 will definitely be better than 2010.
Have a great Christmas and relaxed New Year break.
Best Regards
Paul van Velthooven (Director)
9 December 2009
What A Difference A Year Can Make
Last December we were thinking the worst and hoping for the best. This December, thankfully we can forget the worst and expect some recovery during 2010 with perhaps an eye to the "best" by 2011, and being rugby World Cup champions of course!
Whatever the result, a salutary lesson has been learnt by most of us, and there needed to be. Borrowing to spend more than we earn eventually catches one up. We definitely have been a nation of spenders. Now thankfully, personal and business decisions seem to be made more and more on good business models where income and cash flow is king, where debts are able to be paid back and where the growth in capital (or equity) is based on proper supply/demand influences and not solely on freely available credit.
Despite "tightening" credit during 2009 cheap interest rates have certainly been a major stimulus in keeping our economy and the marketplace reasonably fluid. One could perhaps be a little concerned that the housing market has seemingly "recovered" in many areas, almost to pre 2008 levels. It would be harmful to us in the long term if a bull run were to push house prices to those unattainable and unaffordable levels again. If you listen to Mr Bollard, a spike in interest rates is on the cards. Similarly the threat of a capital gains and/or land tax is inching closer and closer.
There is however some credence in the argument that tax on property and a reduction in personal tax will help redirect "capital" into the productive sector and away from "fuelling" house prices and the non productive sector of the economy.
More investment capital into research and development would be a good starting place.
However it is great to see houses selling again, sections being purchased and building consents on the up. Our economy is still very dependent on a healthy, active but not "over-priced" housing sector.
In the commercial property market there has been a real flight to quality. Some investors appear to have flown in the dark. Yields of 7% or less have been paid in our region for modern, well-located, well-leased property providing "attractive" returns for some "new" investors when deposit rates have been less than 4%. Whether they get a return off their capital is still somewhat unknown. There are "premiums" evident given the relative shortage of good stock in the lower price brackets and present low interest rates.
The new requirement from Mr Bollard for banks to now source up to 60% of their lending from onshore deposits will no doubt force interest rates up and leave bankers no option but to fund only the prime assets and/or their number one clients. Any property with a "hook", stigma, or weak cash flow will struggle to attract lending support from the major banks.
Values for secondary properties have moved out and the gap between first grade and secondary grade properties has widened somewhat.
That of course means opportunity for the well prepared and/or well funded investors. There is nothing like a recession to find out the willing or the wanting.
Wasn't it great to see the milk solids return to a reasonable level again. At $4.55 per kilogram we were up to our necks in it. At $6.10 per kilogram the country is well underway again as the real engine in the economy recovers. Fortunately, land values are still far from reaching the unrealistic levels achieved in early 2008. Wouldn't it also be nice if lamb prices were also to return to last year's level and the exchange rate to drop a little.
Long term, the prognosis must be good for farming as Asia in particular needs more and more protein be it milk or meat. As a food basket we can produce protein efficiently and effectively. It will take more than a half-cocked ETS and weak US dollar to offset the long term prognosis for farming in this country.
For Morgans, 2009 has been a very busy year. We have retained all our wonderful staff, kept the team busy, moved to new and upgraded premises in Feilding, opened a satellite office in Masterton, upgraded our website and can now look forward to a well deserved break over Christmas fully prepared to confront (or embrace) the issues and opportunities that 2010 will bring.
On a personal front, the health is all good. Our eldest son Ben is in the Solomon Islands keeping the peace having completed his degrees, Simon is cycling all over the place with Delhi on his mind, Laura is about to touch the real world at UCOL and Emily is keeping Heather and I young and on our toes.
Thank you for your ongoing and loyal support of Morgans Property Advisors. All the very best for 2010, have a great Christmas and a relaxed New Year break.
Best Regards
Paul van Velthooven (Director)
|
