Junokoto. Welcome to shared lunch. I'm Garth Bray. Well winter is here not normally a boomer of a time for our property market, and the Reserve Bank is sounding a little loop warm about easing rates. Further so, what lies ahead for us? Time to check in with that sage of the savvy property investor, Tony Alexander see what he thinks. But before that, it's some important information you should always consider before investing.
Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Tony, A rare pleasure to have you here face to face in Auckland. Love to have you with us. Yep. I'll get to the Reserve Bank in a second. But the centric starter that we've seen out very recently, the credit reporting stuff that shows business and consumer credit up. I mean it's not the lending is not where it was in twe but is that the first sign that things are getting better or is it still not looking great?
Oh? We're economists don't generally look at the lending data for a sign of what's happening in the economy. We tend more to look at leading indicators, what's happening with consumer sentiment, business sentiment, these sort of things, investment, intensions, employment and tensions. So definitely interesting there. But for instance, if you look at the reserve banks lending numbers, the volume of lending to the farming sector is down about one percent or so on a year earlier. So do
we look at that and go, farming's falling away. It's all getting really really bad, while not with commodity prices up about seventeen percent on a year earlier.
So they're probably just paying off debt, aren't they. Because things are so good that it's actually a healthy sign.
That's relevant because if we talk about the good returns being made by the farmers, oh, the region's going to boom. Rural towns are going to absolutely boom. Right, that's where I'm going to do my property investment. Yeah, we'll just remember the costs for operating a farm have gone through the roof in recent years. And yeah, they've been getting a voice in their ear to pay down debt for
a long time. So the actual region stimulus. It's going to be there, but it's not really going to be what it's been in the past coming out of recessions.
Just on that though, I looked at that Centrix data and there was like a heat map of how badly in areas, how badly behind people are. She was lush green all up the South Island, all in single digits. You get up into pretty much the whole of the North Island was a bit of an orange, and you get to Bay of Plenty, you get to the coast Titaffity, it was red and we're talking like seventeen eighteen percent, you know, in an areas and sign that's not a
healthy sign. That's a two track economy, there isn't it.
Well, yeah, for the moment, I think it does look like that, And in a way it's sort of a payback and a broad sense from earlier on when we saw from a housing market perspective, things were growing really strongly in the North Island but not in the South Island. I used to talk a lot about it that this
boom and house prices. There was some in the South Island, but it wasn't as much as in the North Island, and so if we extrapolate that to businesses in general, probably you've got more businesses getting over optimistic in the North Island than the South Island during the boom, and so when you get the type monetary policy occur, there's more weeding out to do in the business sector, maybe residential property investment market in the North Island than the
South Island. So that's sort of what I would put it down to. I wouldn't over extrapolate that towards right New Zealand's future for the next hundred years. It's back to the South Island. This population imbalanced twenty five percent in South Island or so seventy five percent North. It's going to reverse yet, No, it's just a bit of a cyclical thing from that earlier on boom which was more in the North.
It just must be anecdotes that I keep running into people that are moving to christ Church the end to try and ditch the Auckland property prices.
Well, that's definitely happening and it's going to keep happening as well.
Yeah, yeah, I mean liquidations in some of that data were quite high. Business liquidations. We're talking like thirty percent I think was it up on year on year. That's not good.
Yeah, yeah, definitely not good. But this is what I warned about from twenty twenty two. In fact, as early as the first half of twenty twenty one, I was warning residential builders just watch out. There's a boom underway. Lots of inexperienced, undercapitalized people are entering the residential construction sector, as widely defined, and there's going to be a weeding
out period somewhere down the track. And then I morphed that into talking about over twenty twenty three of this weeding out is going to be across all sectors of the economy in twenty twenty four. And so that's what we saw with liquidations up et cetera last year. And then of course I was warning strongly from August last year when we saw the interest rates were coming down. A journalist wrote, We're going to be a rockstar economy again,
and I thought, what a load of absolute rubbish. There are going to be businesses that are going to be caught out and some of the weakness we see in the economy at the moment. It's the reality check as I think businesses are realizing, oh, who was right? This isn't a boom. We survived to twenty five, it's not enough. And some businesses, either from their own volition or the ird or the bank the creditors are realizing we can't make it.
If we don't have a boom.
Then, given the cost we've got going up, the massive margin compression, we've got to close down. And so that weeding out process is still rolling through twenty twenty five. Actually, as the CENTRIC data showed in the construction sector, where there was a much sharper increase in number of liquidations sort of trending upwards in the past three years compared with other sectors like retail, hospitality.
Because broadly, I think this month that actually turned, or last month it's turned, and it almost looks like the worm is turning down. The liquidations might just be starting to trend down. You don't think it's over.
It'd be nice to think that, but I think it's too soon to really call that. Having said that, although my commentary since August has been a negative, quite shockingly so to some people, I do have to keep emphasizing there is still a recovery underway. We've got the absence
of those crunching interest rates, out there. We have the surprisingly good returns in parts of the primary set sector, more foreign students coming into the country, there is some business investment infrastructure, so there is a recovery underway, but it's not an especially strong one. It's the absence of the strong upturn, which is catching out some businesses just in the last gasp of their breath for this year.
If we look at what the Reserve Bank came out with, which was effectively a little bit of a split decision there, they took some convincing the full board that a full cut was needed of twenty five basis points. Apparently they even talk about cutting fifty What do you take out of that.
Yeah, I wouldn't have voted for a cut. I would have stuck there at three point five percent.
Yeah.
No, people don't want to hear that because I've just said the economy this year weaker than people were thinking. That sounds like less inflationary pressure. Not so quick, because the other thing I've been saying since August last year, on top of the economy's going to still be a bit weak going forward, is there are still inflationary pressures bubbling on underneath in the economy. Where are they coming from, well,
they're coming through the business sector. Generally, it's when you go and buy your cheese also at the supermarket there or you meet So the high commodity prices great news for our farmer's, horticulturalists, et cetera. But it feeds through into the supermarket, so we feel it there as a consumers. But just generally, the costs are still rising out there. And I've talked a lot about our price seat behavior
by businesses. And if we look, for instance, at the A and Z's Monthly Business Outlook Survey, on average, since nineteen ninety two, when inflation started settling around two two and a half percent on average and net twenty six percent of businesses have said I'm raising my prices within the next year. That's still running at forty five percent. So we've got a well above average proportion of businesses saying I'm putting my prices up. And this is when
conditions are still weak. We've had recession or two recessions in the economy in the past three years. You would expect that number to be way way down, And of course it comes from a net seventy three percent of them are saying my cost arising, I expect them to go higher in a year's time. So my concern is that monetary policy aims at where things are going to be in eighteen to twenty four months time. Well, I
expect the economy is going to be stronger. And when I look at the A and Z survey and I offset it against another survey from the New Zealand Institute of Economic Research, you know they've done that survey since the nineteen sixties. What it says to me is this, once businesses see customers coming through the door and good numbers like next year, to raise their prices to rebuild margins.
And that will bring the inflation back.
The inflation will come back. And so that's why I think the Reserve Bank's mind now has shifted away from right, we no longer need high interesstrates to crunch inflation. To let's be careful, we don't continue the whipping around behavior of the past, you know, one to two decades and cut too far now and have to rapidly increase late twenty six, twenty twenty twenty seven.
Right, they really are taking quite a long view there. Hard to get that long view though, I mean, you saw Christian hawksbeare who's you know, acting governor at the moment, came out kind of with a well, it's not just what we see in front of us, it's what we see either side of us. They have these alternative scenarios which I kind of boiled down into my head to all, we're facing some headwinds and it's all going to get more expensive, or all, we're facing these headwinds and we're
just kind of going to give up. You know, the whole economy is going to go into a coma globally almost Am I way off there? Yeah?
No, the economy is wild. Economy is still going to grow. Like I was reading commentary this morning about the OECD have slashed their forecast for world growth over the next two years. Well that was the word that was used in there. It was only a reduction of about zero point two percent in their forecast this year and zero point one percent next year. So people have detail as media, what are you going to do? But we pay attention to Oh there's a shocking headline, you know, and we
read it, but the actual change is relatively small. And you know the Trump Terwi war that's underway, it's definite negative for the world economy. There are two minds on does this boost world inflation.
Or lower it?
Lower it? Even Treasure and Reserve Bank can't agree on that one.
For New Zealand, hence those different scenarios. Different scenario. We're going to land here in the next sort of six to twelve months.
What are we saying, still slow recovery, which will strengthen in twenty twenty six. But we shouldn't ignore the fact that these are good prices for the farmers being received out there. They will gain some greater confidence, do some spending. And contrary to what I was thinking up until a few months ago, where I said I think the recovery is going to be broadly based in the economy, it will now start more in the regions you see it first and in Theicargo and Neden, christ Church gets it,
Taranaki plenty Waykatta get it. Auckland will be seeing it early next year, Wellington maybe twenty twenty seven. Something will flow through. It's just the normal lag in the process. So broadly economic recovery is underway. But my message to people when it comes to boring and interest rates, this is almost as good as it's going to get almost on the mortgage mortgage rates.
That was exactly what I want to ask you next. You've seeing banks now actually jousting again. I mean they're you know, skuting about the fact that they're under sort of four point nine percent. Yeah, eighteen months, Like that's a wonderful sort of a number. Not bad, I suppose in recent times we've seen a lot lower. What's going on there are they're just trying to scoop up some of those I think it was like thirty billion a month that we're going to be rolling over their mortgages.
I think it was. Yeah, a lot of people.
Yeah, because everyone's been fixing sort of one year for a number of years now. Not many people locked in for the five years at two point nine nine percent, as I was jumping up and down saying I would do for eleven month months starting exactly last week five years ago. That's when we had the two point nine to nine percent for five years first to appear in
twenty twenty, and it lasted for about eleven months. And so you've just got to think there's actually a group of people out there for whom their interstrates are now jumping up from two point ninety nine to four ninety nine or so. Poor beggars all that far. At least they got that time. You know, at the lower rates there, it'll be a shock. It'll be a shock of for them out there. Don't anticipate that the interest rates go
much lower than they are at At the moment. The financial markets are looking towards a future where global inflation is slightly higher, US budget deficit blowout, et cetera. Places upward pressure on medium to long term interest rates are everywhere, and there is an economic recovery underway in New Zealand. It's hard to talk about interstrates still needing to be cut when there's an economic recovery underway, Like duh.
Yeah, right, there's normal medicine reques. Does that mean? I suppose if you're in a position where you're watching these rates and you're thinking, oh, maybe I should break, It's like, well, everybody's situation is their own. We should say this is not financial advice, your own circummit senses dictate what you should do, but potentially something to consider as hey, it's it's going to be a longer interest rate picture.
For if I had a mortgage that was maturing let's say in three months time or six months time, I wouldn't feel in need of Oh hang on, I'd better get in right now, because inflation's going to jump up, and in three or six months time the interest rates are going to be half a percent high.
No, I don't think that'd all see that.
No, I think And even if people are going one year fixed or two years or three years, it's going to be you know, here or there six to one, half a dozen of the other. Because I can't yet see enough form in the interest rates outlook to say this is when interest rates are going to start jumping up. This is how much they're going to go by. I'd want to get cover against that. Probably it's the other side of the equation. It's the employment picture that's more
important at the moment, isn't it. Yeah, that's I think one of the reasons the real estate market is still being held back. So in my monthly survey of realistic agents been doing it for five years now now, on average, in five years, twenty one percent of the agents have ticked the box saying buyers are worried about their jobs. At the start of twenty twenty four, it was fourteen one four percent. So we started last year with stronger than average job security in the economy. It was one
wonderful well. Come June last year, fifty six percent of agents saying people are worried about their jobs. And my latest survey are just sent out. The results of that fifty one percent of agents still say people are worried about their jobs. And I think that's one reason the housing market has failed to continue the recovery we saw in the second half of last last year. And why for the second time now since the start of twenty
twenty three, a recovery has fizzled out again. And I think the labor market is one of the factors in play.
And you you see it at all levels, I guess, because if you're not if you're not selling, you're not buying, you're not seeing people transitioning out of homes into retirement villages and so on, you just everything kind of slows down. And yep, you're still seeing listings and you're still seeing stuff being built, right.
Yeah, yeah, Well, the level of construction out there still seems are pretty strong. In fact, as have been pointing out to people, one of the structural shifts in you ye, relevant to why house prices won't rise as much on average in the future is that the level of construction versus the population is now higher than we've had in the past, so more supply coming forward and land being made available, densification and tensification.
Then the consent stuff as well. I mean they're talking this private consenting outfit that's saying we'll get you a consent of its simple in ten days. You've got the government requiring councils to say how well you performing, and apparently that's lifted it from like eighty percent in time to like ninety more than ninetyer cent in time. So there's like the system's working better, isn't it. But that means more supply therefore perhaps lower prices.
More supply coming forward, not so much lower prices, although a net thirty eight percent of realistate agents at the moment say prices are falling in there in the area. So yeah, that's quite a strong result or almost back to where we were in the middle of last year.
I was looking. There was some There was a story this week about how the listed property trusts out there have seen their valuations basically kind of hit the bottom and start to build again and there's more interest there. Do you take any kind of indication from that end of the market.
Don't look at that at all myself. No, I look more at what I'm picking up from my surveys of the agents, the mortgage brokers, the property investors, et cetera. Are out there, and that tells him what's happening right now. I mean, the market will turn around, but I'm thinking this is more a story for twenty twenty six than it is for twenty twenty five. With the labor market uncertainty at the moment, the strong supply that sits out there.
Net migration only plus twenty six thousand in the past year. Two years ago almost it was one hundred and thirty five thousand net. The average for ten years net migration gained for New Zealand is fifty thousand. So let's say we're running at about half average recent average at the moment.
So whereas a year ago or just over a year ago, in my survey of property investors of landlords, I had about a net twenty five percent of landlords saying it's easy to get a good tenant, it's bonser, no worries. Now I've got about a record net thirty three percent or so, saying it is hard to get a good tenant. So for the moment, the real estate market is subdued buyers market.
I'm many of the places in the country where that's going to be particularly attractive or tricky, or it's just a case of shopping around.
Oh, you shop around, you find where you want to live the broad area because it's near your church, it's it's near your relatives, your friends, your sports fields, et cetera. And you've got a greater chance of being able to get something without having to accept. Okay, it's an operating meth house at the moment, so I've got what are you going to do. I've got to take it. You're not really going to have to be making such die compromises.
There will be compromises, but not so much of that sort of stuff.
Sure, And I mean, are you getting that sense of confidence because you speak to property investors in large numbers. What are they telling you?
What are they give the Well, then the investors are interested in buying. But it's like when you see a market relatively flat, you're thinking, am I missing something? If they're not buying, maybe I shouldn't buy as well, because we're social animals and we take our queue for what to do from what other people are doing. This is the test. There aren't many Warren Buffets, the sort of person when everyone else is going that way, he goes no, no, no,
I go this way. This is part of that challenge that for the moment, prices aren't rising, and so you're thinking, well, if I buy now, what if the price goes down three or four percent? Will I feel like an an idiot? And we call that foop fear of overpaying. And so I've got a measure of that from my real estate agent survey as well. And now and then I'll do a graph of foop has gone up so that more recently, over the past four months, more buyers are worried.
Am I buying?
Then the price goes down? Whereas FOMO only five percent of agents say buyers are feeling fomo. It's a buyers market, is all I can say. Wow, despite the foop, despite the foop, Yeah, that's right. Hey, no one's going to pick the bottom. You can't pick the top. And you've got to be thinking, if I'm buying a property, I'm probably going to be in it or owning it as a rental for a great number of years. Seriously, who gives a great worry at all that what happens in the next twelve to twelve months.
Yeah, yeah, that twelve months won't matter twenty years from.
Now, surely or not. Trouble is we all live in the short term.
True, Just thinking in the short term and thinking back to the budget, there was some supposed long term, long term thinking in the budget there around things like key we saver and so on. Was there anything in there that jumped out and made you think, kriky, we're on the right track here, right track and terms of well, just in terms of the long term plan for how we get people saving more in a position to be able to either invest in property, invest in whatever they're doing.
We are we are we answering that question, Well, the budget wasn't focused on that. The budget was all about putting in place a better fiscal track to get the Crown accounts for New Zealand ready for when the next shock comes along. I mean, you can virtually guarantee within the next ten years there's going to be another major shock at the New Zealand economy. We've just got no idea when it's what it's going to be, how bad
it's going to be. But the accounts need to be ready for that, especially given our high dependence in New
Zealand on people saving overseas. We use there, we use their money, and so yeah, improving savings is definitely a positive i'd suggest for New Zealand, but the budget wasn't aim data doing that, and unfortunately for Key we Savor from my point of view, right early on, when businesses were allowed to opt out of making a contribution by saying, oh, we're going to put it into the person's salary instead of contributing three percent ourselves, well, i'd suggest most people
who had it put into their fully costed up salary in that year might have noticed. I didn't get much of a salary increase in the next three or four years after that one, and I think for me, that's a bastardization of Key we Savor away from what it could have been.
So and it's too late to try and fish that. Obviously, the costs are quite high there. You've just got to try and work on it. Yeah, right, it's nothing else in there. Obviously, the tweaks that they made to things like contributions. It's all sort of water under the bridge.
Yeah, it's neither here nor there. I think in terms of, you know, the outlook, do I think all suddenly there's a big pool of savings and this is going to provide capital for growing New Zealand businesses.
No, no, no, no no.
This was hardly even at the margin sort of stuff there. It really doesn't classifies anything major. Even when we look at something like the twenty percent first year depreciation allowance, businesses can claim for their for their investment, and it sounds good and I'd say, yes, it is a good thing. The issue is a lot of businesses were already saying I'm going to invest and ah, now I can claim
more this year, I'll whack. Oh it's going to be of cash flow assistance and it might stimulate some more business investment in New Zealand. But it doesn't really change the outlook. I'm not actually aware of anyone who's actually changed their outlook for our economy on the basis of the budget.
I certainly haven't so yet. Apparently it's going to increase our gdp BI. I can't remember their figure by so much, but enough to sort of nudge it up by more than half a percent.
I think it's going to be one percent over twenty years. So full credit to Treasury for actually writing that. You're saying, yes, there's a positive impact, but by the way, it's the next two decades, and they're probably right, it is probably going to be something like that, But it doesn't change the key dynamic. Let's say, for businesses at the moment of their margins are severely compressed, their costs are still rising,
they're wondering, really, when do more customers come forward? That stuff is far more important than these tweaks from the budget.
I wanted to try and get to a bit of long term stuff now, and if we can just try and sort of think long term, people talk about I think the phrase the great wealth transfer is one that's been thrown around, this idea that you've got a range of people probably hitting retirement now and getting on and they're getting at the point where they're going to potentially
hand that wealth to another generation and so on. I mean, people talk about that and how people have built that up and might leave it to their kids and grandkids. Are the implications of that for the property market.
We lack research on what is really going to happen, And even if one looks at research coming from countries which have already gone through aging processes like Japan, Germany and a few others, it may not be entirely relevant
to the New Zealand situation. And maybe especially when we've looked at one of the developments in the past eighteen months, is that with soaring local authority rates and insurance premiums and electricity prices, butter and meat, any spreadsheet a person has run for this is what I can afford to
spend in my retirement, It's all out the window. Any savings or investment calculations you made from you know, when campaigns first were run by the government on save for retirement late eighties, early nineties, it's all out the window. And so I can't help but thinking that some people who have reached the conclusion I'm actually going to have to spend more of what this inheritance passing on is going to be? Why should I sacrifice even more for
these ungrateful kids or whoever a situation? And so I think for the New Zealand context, it's really hard to figure out any implication for what's going to happen. However, when I was running through a little list earlier on of reasons why the housing market is subdued at the moment, and I did mention a lot of construction, a lot of supply out there, the employment market worries low fomo, I did make a little bit of a reference earlier on to investors doing selling that extra supply is on
the market. Other investors come in bring it up to healthy home standards, or young buyers come in and watch some videos and learn how to use a screwdriver and a hammer and do it up themselves. There's an opportunity to add value to one's proper by improving undertaking long overdue maintenance on some of those properties. So I think that's one elements in there from the retiring genet generation or already in retirement.
But is that like a wee blip or is that like the start of quite a strong trend if you like, Because there are a lot of people out there that would be facing those circumstances.
It's probably a move up to a higher level of investors selling on average than was the case. So if it was chugging along like this before, it's now I think going to chug along at a higher level like that for a number of years, so higher average listings of property than would have been the case. So I don't think it's a blip, but it's going to be sustained. But that doesn't mean it sustains its negative impact on
the market for a great number of years. It's just a bit more supply out there for buyers to choose from. And you have to think to yourself, you know, from having all of us watch this housing market be so difficult for young buyers in particular for so many years. Thank goodness, this is a really good story, quite frankly.
But yeah, just to finish off with the passing on to the next generation, I don't know how that spins out in terms of how does it affect the saving is an investment desire of the generation that think it's that they're going to get it, And you've got to watch your assumptions because what I'm increasingly hearing from people who are thinking about when they pass and then passing on the wealth, they're going to skip a generation, or they're going to skip two generations and give it to
not even the grand kids, the great grand kids, or something like this, people need to watch their assumption about who gets the dosh.
You've got to wonder as well whether it's going to change people's approaches, like is it just going to be a straight roll into the same kinds of investments property investments as before. Are people going to take different approaches as well?
Yeah, exactly. I think there's going to be more diversification in people's investment portfolios when they needs to save for retirement. At central messages were getting hammered by the government from the early nineteen nineties. It was soon after the shear market had crashed in nineteen eighty seven, and people, i think naturally moved towards other assets like residential property, assisted
by interst rates falling sharply. In the early nineteen nineties, inflation went from averaging eleven percent to about two and a half percent. Straits are foul away, we had migration numbers getting stronger. It all came together to bring a lot more people into the residential property investment market from the mid part of the nineteen nineties than we'd seen before. I think now that extra layer of people is slowly
going to be dissipated away. We're still going to be left with a lot of people investing in residential property. But I think more people now are going to be looking at other areas in which to invest their money, be it either for retirement or for something special. In ten or twenty years time, I think there'll be more
diversification away from property. But still one thing of the population is still going to be renting, So the need for the rental population, the rental stop to be out there, is still going to be strong.
Tony Alexander, thank you so much, and thank you for watching. For listening, whether you're on iHeart or straight off the app or Spotify or YouTube, make sure that you hit that like and subscribe Quimitu. That's us for this week.