Archive for September, 2010
Thursday, September 30th, 2010
Suddenly, it’s time for John Key’s government to start putting the big political ideas away in preparation for the traditional months of inaction before a general election.
We’ve already seen it on water, where a major report will very certainly not produce legislation before the election, expected in November 2011, hopefully after New Zealand has won the Rugby World Cup.
Jenny Shipley’s government behaved heroically in September 1999, despatching New Zealand defence forces to secure the peace in East Timor with Australia, and could have gone to the polls on it.
Shipley hung on for a fillip from the World Cup, which never came. In her defence, it was the dying days of a nine-year-old government.
For John Key, the Cup is much better-timed, and the strategy being pursued emphasises New Zealand and its visitors enjoying the tournament, no matter who wins. Clever, but perhaps a little optimistic for certain die-hard fans.
At the very least, the Cup will stimulate short-term economic activity and, if the weather holds, a lot of word-of-mouth endorsement and repeat visits from tourists both local and foreign.
It is next year’s big story.
That means that this year’s big, hard stories can afford to take a rest for at least the next 12 months. All round Wellington now, the shutters will slowly go down on the big, new policy issues and ideas, if this government’s caution and the pattern of every other government is anything to go by.
Some, like compulsory savings, may be plucked from the bunch and used as a campaigning platform, but Key’s pragmatism and caution mean he won’t want to fight on too many fronts.
The noticeable casualty in the past couple of weeks has been water, where a landmark report last week will produce legislation probably in 2012. Another is that hoary old beast, the emissions trading scheme.
Yep, it’s time already to review the ETS, much unloved by all, with current half-way house provisions due to run out in mid-2013 and a report on options required just before the election.
What might happen?
Well, for a start, we might stop kow-towing to the Aussies. Having adopted something a bit like the scheme they eventually never implemented, it would be madness to follow them and switch now to a carbon tax, which the new Gillard Government is apparently discussing as it gets its first taste of coalition politics.
It shouldn’t sway New Zealand back to the sterile carbon tax versus ETS debate.
The fact is New Zealand has an ETS and so do a lot of other countries. The countries that don’t have them either will or will do something similar. Even a change in the balance of the US Senate making President Barack Obama unable to pass federal climate change measures wouldn’t necessarily stop Meridian Energy collecting Californian state subsidies that make its US solar generation investment worthwhile.
In other words, even if acting global is taking too long, there is momentum for “acting local”.
The more that’s the case, the more it will become acceptable to tweak the local rules. New Zealand, for instance, gets between 60% and 70% of its electricity from hydro-electricity, compared to Australia, where three-quarters of the electricity comes from coal.
Our “heavy” industries – mainly agricultural processors like Fonterra, which are making an effort to impose environmental disciplines on their farmer suppliers – have nothing like the relative carbon intensity of a milk processing plant in coal-powered Australia.
Yet the Australian company is shielded from that country’s ETS – or would be, if they had one – while New Zealand has adopted the Australian intensity factors, which
bear no relation to reality here.
Those kinds of oddities need sorting out and careful explaining if they make sense.
Likewise, there should be a discussion on whether the commitment to an “all gases, all sectors” approach is negotiable. What about excluding certain gases – say methane, while keeping nitrous oxide in – instead of framing everything as an attack on certain industries?
There would be logic to this, in that technologies to control nitrous oxide – accounting for 16% of New Zealand’s greenhouse gas emissions – are emerging fast.
Methane, on the other hand, accounting for fully one-third of all our GHG emissions, has no easy answer yet. We’ll need to find one, though, if Energy Minister Gerry Brownlee’s dream of exploiting deep methane hydrates for natural gas and transport fuels is to be realised.
That’s why New Zealand will and should keep investing, particularly in agricultural science, not only to cut those emissions, but to collaborate with our new-found, fast-growing, non-Western trading partners in Indonesia, China, India, South Africa and South America.
These are the issues the ETS review, which will occur next year, will address, but not decide on.
For a definitive answer on what comes next, don’t expect anything much till 2012.
Monday, September 27th, 2010
What’s best renting or buying? Radio New Zealand asked me that question last week, partly because another one of those affordability surveys had come out and headlines screamed out Queenstown and Auckland were the most unaffordable places to live.
One can ask why do you need a survey to tell you that? Queenstown is a very unique place in New Zealand and the home of some serious wealth. (Personally it hasn’t had that much appeal to me, but hey I enjoy Rotovegas!)
Auckland is a different story and illustrates why I don’t like these surveys – that is they are all about trying to say the housing market is one
big amorphous mass. In reality it’s lots of little markets. You could even think of it in sharemarket terms where each individual house is a separate company listed on the exchange.
House, like shares, often trade at prices which are different to fundamental economic valuations. We see that in the housing market at present where prices are around five to six times the average wage, when three to four times is considered “fair value”.
Coming back to the story and the Auckland headline. It is silly to make such a bald statement as it is such a big market. Sure plenty of bits are seriously unaffordable, while others are the opposite.
After the RNZ interview I had a good yarn with Harcourts chief executive Hayden Duncan. While he had lots of interesting things to say one thing was the state of the market. It’s a two speed job at the moment with the middle and top end doing well with good sales volumes and prices and, if anything, a lack of stock on the market. Those who do sell are making reasonably quick sales at good prices.
At the other end of the market, which tends to be the preserve of first home buyers and property investors, it’s a different story. High stock levels, low sales volumes and soft prices.
To me this, along with current interest rate forecasts, suggests to me that it is a great time for both investors and first home buyers.
It’s quite a different story to what the affordability surveys show.
Friday, September 24th, 2010
They were streaming in droves into the Christchurch Convention Centre on Wednesday night this week.
So much so, that it put me in mind of a political rally in the good old days – when people actually still went out to things instead of watching them on the telly, the Internet or, according to unsubstantiated rumour, their iPhones.
It seemed too much to hope that this throng of middle-aged husbands and wives were all registrants for the Water New Zealand annual conference, occurring at the same venue.
Rather, they were heading into a fundraising talk for a Christchurch private hospital, which was to be addressed by one of the new Gurus du Jour, economist Gareth Morgan.
To be fair, it might just be that the charity fundraisers had done a particularly good job at mustering a crowd. And no two ways about it, Gareth Morgan is a singular Kiwi of particular quality. In a country where everyone knows everyone else and is therefore generally too scared to speak up, Gareth Morgan’s instinct is to grab the megaphone and tell it like it is wherever and whenever he disagrees on the big, hard, public issues that matter most.
He’s not always right, but he’s often on the money. He’s particularly strong on the tendency for New Zealanders to think the world owes them a living, and on the tricks the wealthy and powerful get up to in convincing the pecunious and ignorant to part with their hard-earned savings.
As a member of the Tax Working Group, which paved the way politically for the October 1 tax cuts, he had no qualms about dissing its conclusions as – and I’m paraphrasing here – a half-hearted compromise on the kind of game-changing prescription that Prime Minister John Key talks up but won’t act on.
And he rides motorbikes, pays people out of his own pocket to do iconoclastic research into the unsustainability of the public health system and the proof of climate change. Since becoming a beneficiary of his son Sam’s sale of TradeMe to the Fairfax Media group, he’s also become something of a philanthropist on a scale that most New Zealanders barely appreciate.
So, ringed about the entrance to the Christchurch Town Hall were lovely pictures of Gareth with various Africans who could probably do with a quid from a well-intentioned Kiwi charity, flanked by the grizzled guru himself. And I’m pretty sure I spotted a trail bike in there somewhere too.
Perhaps it wouldn’t have struck me as noteworthy if it hadn’t been for the similarly glossy stands that caught my eye a day earlier in the main walkway to the Air New Zealand boarding gates at Wellington airport – an area normally reserved for flat screen TV displays, late model cars and vague attempts by Meridian Energy and Telecom to be loved by the never-ending stream of politicians who walk that route.
But this week, the signs were all about Gareth Morgan, his trustworthiness, and also his KiwiSaver products.
Now, it may well be that Gareth Morgan Investments is the bee’s knees. He’s certainly played a welcome role in exposing the
weaknesses of others’ marketing ploys, particularly the MorningStar group’s assessment of which KiwiSaver funds have performed best. At one stage, they were praising Huljich Wealth Management, which was clearly a serious error.
But at a time when it seems everyone’s feet are made of clay – right down to old Pottery-Foot himself, the previously unassailably saintly Allan Hubbard – it’s jarring to see an investment proposition so completely bound up with the name of an individual.
Surely, the lessons of the last half dozen years would urge caution: think newsreader Richard Long’s ill-fated shill-act for Hanover Finance, think proposed securities law reforms that contemplate making “celebrities” liable if they promote investments that turn out to be dogs.
Of course, Gareth Morgan may be a special breed. Perhaps he will turn out always to have been right, and produce returns for those who invest in his KiwiSaver products that dwarf the competition. At the very least, it’s credible to suggest that even if he goes down in a heap, he won’t bullshit his way through it when it all comes crashing down.
But the fact remains: this is investment marketing by personality cult.
If the past is a guide, not only should investors beware, but so should anyone who puts so much freight on their own name. Again, as Allan Hubbard has shown, the line between integrity and hubris can be very fine indeed.
Thursday, September 23rd, 2010
We Kiwis have a bit of a fascination with house price stats, which probably is no surprise considering our so called love affair with bricks and mortar.
I suspect this penchant to look at house price stats will become even more interesting following the awful events in Christchurch earlier this month.
our second biggest city and accounts for its fair share of house sales each month. However following the quake the market has stopped dead in its tracks.
Part of the reason is to do with insurance, or the lack of appetite for insurers to issue cover at the moment.
In coming months this is likely to distort the numbers produced by organisations like QV and REINZ.
But the quake also raises lots of other questions which will no doubt test the minds of property investors. One is that we often talk about the best house to buy as investments are low maintenance brick and tile properties.
Following the quake it seems most of the damage has been to these types of property rather than the wooden, weatherboard, tin roof type houses.
Also you have to wonder what will happen to house prices in the Garden City once sales start again. Will people, including investors, still want to buy property there? Or will they opt for other areas?
Maybe, if they are buying in Christchurch the criteria for may change and premiums will be paid for good quality buildings which have withstood the destruction unharmed?
Another thought which has crossed my mind is that maybe there is a potential “leaky home” type crisis brewing. Engineers certify a building is sound following the quake but years later some damage is found which is expensive to repair and impacts on the value of the property.
We’ve been keeping an eye on what is happen on Landlords.co.nz and the next issue of NZ Property Investor will have a feature on what the quake means for property investors. We’d love to hear your thoughts on what the big shake has meant for the property market and particularly investors. Leave a comment here or email your thoughts to firstname.lastname@example.org
Monday, September 20th, 2010
It’s been something of a rollercoaster for Nuplex over the last couple of years. At times, the board and senior management seem to have been out of touch with reality.
In May 2009 the NZSA wrote to 20 companies with an analysis showing they were carrying excessive debt based on their published 2008 annual reports. The market was outraged that we could be so “reckless” with our claims.
Provenco Cadmus (now in liquidation) came out bottom of the heap; Allied Farmers was not much better and almost all of the companies on the list subsequently went to the market to strengthen their balance sheets. So who was fooling who?
Nuplex was also on this list. Chairman Rob Aitken claimed our study was flawed. It is hard to see how he justified that position as just weeks earlier the company had been forced to ask shareholders for a bailout of biblical proportions. The reason – a huge debt to equity blowout!
Our study showed that even in June 2008 Nuplex may have been in breach of one bank covenant. Again, there was denial based on the company’s capital notes being equity rather than debt. This subtlety was probably lost on the capital note investors.
When debt covenants were officially breached due to the GFC a few months later, the company saw no reason to inform its owner shareholders, despite the situation being critical. In the latest annual report Aitken claims that “shareholder interests were preserved”. Try telling that to anyone unable to afford to take up the seven for one rights offer!
In April 2010 the Securities Commission announced action against Aitken and the company for breaching continuous disclosure rules. Aitken continues to protest that covenants are only a guide. Until the bank actually enforces its rights, he seems to hold the view that the shareholders don’t need to know, despite the fact that at that stage their investment is probably heading down the toilet.
Now the Nuplex board seems to have agreed that moving the company domicile to Australia is the next smart move. There are three reasons given.
Firstly, New Zealand dividends could be partially imputed. The company tells us that at present all corporate overheads are carried in New Zealand meaning there are no New Zealand profits to impute against. The usual situation is to recover overheads from subsidiaries and remit these, thus alleviating this burden. Quite why Nuplex cannot do this is something we are querying with them. In any event, it does not matter whether dividends are imputed or not. Either the company pays the tax and declares a lower dividend or the investor does so from a proportionately higher payout. The outcome is
the same. Only the process differs.
Secondly, Aitken claims greater liquidity in the larger Australian market. Nuplex might end up around 172 on the ASX200 if they can meet the appropriate liquidity hurdle which would not be the case at the moment. This hardly positions them in the headlights. In New Zealand, they would drop to 46 on the NZX50. So, coverage would diminish and arguably reweighting by passive funds could depress the share price. On Friday 17 September, 54,750 NPX shares traded on the ASX and 321,848 on the NZX. NPX’s argument is not supported by the facts. The reality is a lose/lose situation.
The final reason is a re-rating of NPX shares over time. In our view, this will be influenced by the company’s performance rather than where it is domiciled. Off the radar and with modest liquidity at best, the shares may indeed be re-rated, but not necessarily in the direction Aitken expects.
It has been said that capital is easier to find in Australia. This is undoubtedly true, but NPX have plenty of headroom to grow. Debt to NTA is a modest 15%. Until such time as it is demonstrated that additional equity is unavailable, this is a non-reason.
There are compelling arguments for staying put. New Zealand has a free trade agreement with China, a large and growing market for NPX. Australia does not. This is a global company. It could be based anywhere from an operational perspective. Moving to Australia is no panacea. Look at Nufarm.
So what are the reasons? Could it be related to the majority of the board and many executives being Australian based? A fear of flying? Or perhaps the New Zealand directors fancy all that international travel? All the personnel took the job knowing the present situation. It is a bit rich to now find fault with it.
Certainly, the company has become staggeringly generous towards its top people since the gradual shift to Australia gained momentum and business picked up. Retired CEO John Hirst collected $4.2 million for his last 9.5 months including $1.4 million bonus and $1.9 million termination, not forgetting the $370,000 that he escaped paying when the executive share scheme was cancelled in 2009. New CEO Emery Severin has pocketed $415,000 in his first 2.5 months. The NZSA is not averse to rewarding good performance, but this is getting out of hand.
NPX is an iconic New Zealand company. A real “garage to global” success story. 81.6% of shares are held in NZ. NPX has been incredibly well supported by NZ investors. The NZ capital markets can ill afford to lose another primary listing.
There is no advantage to the majority of shareholders in moving the domicile.
Aitken could do well to reflect that ultimately shareholders will decide whether such a move is wise, and indeed whether he retains the confidence of the NZ majority owners.
To find out more and support the NZSA, join up online at www.nzshareholders.co.nz The best 30c per day you will ever invest!
Contributed by John Hawkins, NZSA Chairman.
Wednesday, September 15th, 2010
Was South Canterbury Finance (SCF) complying with NZX continuous disclosure requirements in the months before its receivership on August 31?
SCF’s prospectus was last amended on August 24 but provided no update on the December 31 accounts other than discussing its credit rating downgrades and other adverse events, including a comment that a guarantee provided by major shareholder Allan Hubbard could no longer be relied on because of the government putting his affairs into statutory management.
On April 12, when he announced SCF had registered a new prospectus, Maier told NZX that SCF’s total equity was $206.6 million
On May 21, Maier told NZX the company produced “a breakeven trading result” in the March quarter.
But following the receivership the government estimates making good on its guarantee of SCF’s debentures and paying out other high-ranking creditors will cost it about $600 million.
As recently as August
5, NZX queried SCF whether it was complying with its continuous disclosure obligations after the price of its listed preference shares dropped from $16.50 to $10 on August 3.
Maier replied SCF “confirms that, in its view, it continues to comply.” He blamed the price fall on “a financial adviser,” unnamed, but probably Chris Lee, writing to his clients saying Maier’s attempts at recapitalisation would be unsuccessful and “setting out the potential implications for perpetual preference shareholders if that is the case.”
Maier said then “positive discussions are continuing” on recapitalising SCF.
The 100 million preference shares became worthless on receivership. Lee says, based on Maier’s statements and “three months of intensive audits by Korda Mentha and Ernst (&) Young,” about SCF’s financial position at December 31, the preference shares had asset backing of about $1.65.
“If not, the audited accounts were wrong, despite multi audits from our top auditors,” Lee says.
“Why did the public (SCF investors) receive no updates from the directors between $200 million equity, ‘break-even’ and receivership?” Lee asks.
Maier told ShareChat last week everything “was disclosed perfectly appropriately” and he stands by his comments on SCF’s financial position earlier this year. “I’m quite happy with the accounts.”
He said Lee had previously promoted investment in securities such as SCF’s. “I think he’s quite driven to explain himself and I’m not sure he can,” he said.
Lee says about 99% of his clients with investments in SCF were covered by the government guarantee. “The small number of clients we have who had preference shares have received very good advice from us.”
Preparation of SCF’s June 30 accounts should have been well advanced ahead of the receivership.
Asked whether SCF should have published some guidance as to what was likely to be in those accounts, Maier ended the telephone interview with ShareChat.
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Thursday, September 9th, 2010
Let’s get one thing straight. Earthquakes are not good for the economy.
There’s been some feverish talk about the damage to Christchurch being some kind of god-send for the construction industry, especially after last week’s prediction of a collapse in activity in that sector, with 20,000 to 30,000 jobs at risk.
But try painting the destruction as good news for someone whose house is threatened with collapse on the next big after-shock. Don’t expect a sympathetic reaction.
Yes, it’s true that there’s suddenly a lot of work in Christchurch for anyone skilled in wielding first a sledgehammer and then a normal hammer.
But an earthquake is only good for the economy in the same way that wars are: once everything’s been wrecked, it needs to be rebuilt.
But what do you have once you’ve rebuilt? You have what you had before, only newer.
Admittedly, there will be an opportunity to throw some Batts in the ceilings of elderly homes that are temporarily unroofed, and some property owners will take the opportunity to renovate earlier than they might have. Nationally, retailers of baked beans, torch batteries and big bottles of water will probably report a stronger month than usual.
But there is still virtually no productivity gain, no new long-term economic activity generated, and no addition to the national balance sheet from reconstruction in the aftermath of a disaster.
That’s why insurance stocks fell on Monday morning, while shares of companies like Fletcher Building and Steel and Tube took a jump up. The insurance bucket will tip some funds into the construction bucket, but it’s still a zero sum game.
Likewise, the Earthquake Commission and the government will spend money to put things right, but every cent of that comes off the asset side of the Crown accounts. As Prime Minister John Key made clear this week, the government may well have to lift its self-imposed cap on new spending to meet the emergency demand.
Thankfully, there is headroom to do this. As Standard & Poors’ noted when maintaining the country’s current credit ratings earlier this week: “There is likely to be a negative impact on government finances, but we believe that the Crown’s very low debt burden … provides it with some room to absorb increased spending on reconstruction.”
Someone should tuck that “very low debt burden” comment away for a rainy day, since fears about the government debt picture were enough to have Ministers scurrying to international financial centres just 18 months ago, on the fear of a downgrade.
In a sense, the earthquake spend is the physical equivalent of the South Canterbury Finance bail-out: it’s a good thing we were prepared for it, but it’s still a damned nuisance. It will not only siphon off capital and investment into repairing
the damage, but it will also sap government focus from its wider economic policy challenges.
The clearest proof of that is that Key is cancelling important international travel to deal with the issues and the Minister of Economic Development Gerry Brownlee is on point duty as the Minister of Shaky Buildings in Christchurch for the foreseeable future.
It’s hard to see a lot of focus going into the Economic Growth Agenda while the earth’s still moving down south and the government remains in crisis management mode.
Of course, handling a crisis well can be a powerful political fillip – Christchurch mayor Bob Parker’s chances of re-election look only to have been improved by the earthquake. But any sense of dithering, inaction or inadequacy of response will be leapt on by news media that by now are running out of ruined shops to stand in front of and are looking for fresh angles.
Hence Key’s about-face on going to London this weekend, a decision almost certainly driven as much by signs that the Press Gallery scented a classic beat-up in which Key staying at the Queen’s private residence could be portrayed as insensitive junketing.
Meanwhile, banks, power companies and unpopular businesses like Hong Kong-backed would-be buyers of the Crafar farms, Natural Dairy New Zealand, have fallen over themselves to be generous.
Where Fonterra gave $1 million in relief, NDNZ – a much smaller enterprise – pledged $250,000. The million dollar pledge from Contact Energy, whose reputation has suffered ever since blundering into an increase in both its tariffs and its directors’ fee pool almost two years ago, is the largest single donation it has ever made, in a market where competition for customers has been particularly fierce.
Bank chief executives, normally unavailable and remote, have been offered on a plate to reporters to discuss their quake-sponsored benevolence.
Not that any of this is bad. Canterbury has a daunting clean-up on its hands, so assistance is welcome, irrespective of the wider agendas that may fuel it.
Nor is the news from the earthquake itself all bad. It’s not a complete accident that nobody died in Saturday morning’s big shake. It must be, in part, a testament both to the value of well-enforced building codes and to the country’s specialism in earthquake engineering.
Those investments, made in good times, have borne fruit in this catastrophe. While the cost of the clean-up may hit $2 billion and do nothing in the long run for economic activity, it’s also true that the cost could have been so much higher.
Tuesday, September 7th, 2010
Almost a year ago Brian Gaynor pointed out that three rural companies, PGG Wrightson, Pyne Gould Corporation, and New Zealand Farming Systems Uruguay with their interlocking boards, had squandered shareholder wealth to the tune of $880 million. Now, having cleared up numerous conflicts and governance problems, appointing John Parker as chair and with new faces in the Management Company, Farming Systems Uruguay is under offer.
First Singapore-based Olam secured a commitment from Manager PGG Wrightson, to buy all its shares at 55c each. Why did PGW break all advisers guidelines again, and immediately jump at the offer. Could it be PGW knew there were others
in the background?
Then a competing bid was received from Uruguay’s Union Agriculture Group at 60c each. The independent board members including Craig Norgate and Murray Flett, issued a strong rebuff, supported by a Grant Samuels’ opinion. This priced the shares between 65 and 79c each, and allocated an NTA of over $0.90/share.
The plot thickened with John Parker’s announcement that a mystery buyer was interested in buying out the PGW loan, and providing $60 million funding for the final stages of development. Nothing has been heard since.
NZFSU guidance was a loss of $10 million based on a conservative production forecast and a milk price of 25c/litre. This has been vindicated by the recent annual result. Production for the year was up 52% while expenses rose only 12%. The company hopes for a profit in 2012. Were the two buyers attracted by the large tax incentive, just confirmed by the Uruguayan tax office, or were they simply taking advantage of the cheap farm prices they see in this balance sheet?
Finally the Olam offer was increased to 70c/share – the middle of the Grant Samuel’s range, and the independent directors have recommended partial acceptance of the offer. This is an unusual recommendation which they have emphasised by stating that Olam would better as a corner-stone shareholder at 51%, rather than an outright owner.
On the face of it, the offer may seem attractive. Some valuations based on discounted cash flow of average past earnings are very low. The company bought too much overvalued land in the 2008 year at an average US$4600/ha. Latest sales at $3600/ha indicate a gap between market value and cost, although the company says it has already taken the required write-downs. The managing company, PGW (which in the face of severe criticism reduced its commission rates,) has now negotiated termination of its management. This is a positive because although Keith Smith claimed in the original prospectus for NZFSU that “PGG Wrightson had an unmatched combination of knowledge, experience and demonstrated capability… to create a profitable farming business in Uruguay,” PGW never really proved that, in buying land, meeting forecasts, or establishing production.
It is hard to work out just how important NZ Farming Systems Uruguay is to PGW because it earns contributions from seeds, and financial services outside its management fee plus dividends from the Uruguayan company. There is also the potentially unstable political situation in Uruguay. Could a successful corporate farming venture be nationalised in future? Some Sharechat readers have commented that there is no room for corporate overheads in a dairy farming business. They forget that the two margin model of share milking is common throughout the industry.
Perhaps shareholders should take a longer term view. The current milk price is steadily above the 25c of the forecast. Demand is increasing substantially in developing markets. NZFSU is at an early stage of its life. Its existing farms are capable of producing a profit of $35 -40 million by the 2014-15 year. Its governance problems have largely been corrected, a new CEO is to be appointed and other management internalised.
As long as the operators are allowed to achieve results without directors squandering their efforts, as happened in PGG Wrightson, this company could perform for shareholders, Uruguay, and the New Zealand economy. Too often do we see NZ directors and shareholders selling out too early, at a low price, leaving us all with the impossible invisibles balance that year after year undermines our balance of payments.
Contributed by Alan Best. NZSA Director
Thursday, September 2nd, 2010
The little theme of this week’s newsletter is about looking ahead at the property market and what is happening. Pondering the market is something we often do and it is worth addressing again as there is so much uncertainty and change.
While the news has been pretty gloomy and the housing market appears to be dead, I wonder if it is as bad as some make out?
As readers know we try to be a bit more balanced in our view on the market and look for positives as well as negatives.
One thing that strikes me is winter is always a moribound season for house sales; this year is no different.
Some interesting figures from Alistair Helm yesterday show that the trend quite well. Often when we enter the spring period the market lifts quite swiftly.
On a month by month basis the last set of numbers looked sad. However its worth looking at them with a longer term view.
Helm’s reports says sales fell by 2.9% from June to July, and a total of 4,411 property sales were recorded by licensed real estate agents in July.
Back in July 2009 the total sales was 6,014. On a moving annual basis sales are up 2.8% with 63,701 sales in the past 12 months as compares to 61,952 in the prior 12 months.
The stratified price fell from $363,925 in June to $359,525 in July. The June price is up just 1.8% as compared to July 2009.
Sale prices across the country has remained fairly stable over the past nine month with some small ups and downs. The current price is still 3.1% below the peak price in the market back in November 2007.
Looking ahead there are a couple of warming signs. One is my discussions with real estate agents. No-one shies away from the fact June and July were awful periods. However, word getting
back to us is that August has been far better with more buying activity and more stock coming onto the market.
While we put together the September issue of the NZ Property investor Magazine we also came across comments that were far more supportive of the market than one would believe if they listened to only some commentors and media.
Everyone agrees it is a buyers’ market and those in the position are doing just that. Again comment which came through was that it’s better now as “there has been a clean-out of timewasters, dreamers and fly-by-nighters.”
The other slightly positive factor was last week’s immigration numbers. (Read about them here).
And if I had to add another it would interest rates. The emerging view is that the next official cash rate will come later rather than sooner, and overall the increases will be less than what we have seen in other cycles.
So the next set of numbers will give us a good feel for whether these positive signs turn into activity.
I started by talking about looking ahead and finding out what is happening in the market. You can help do that too. The annual ANZ/NZPIF survey is on. You can take part here (and go in the draw to win a prize).
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