Published: 21 May 2005
I went to the Property & Investment Expo at Ellerslie on Friday afternoon, felt like I was the only non-exhibitor there, was pounced on like I was in an overseas bazaar.
There are differences between the incessant clamour to sell in the bazaar and the more refined New Zealand version, though. Some of the Ellerslie clamour was from people I hadn’t seen for a while â€“ cheerful banter. At many stands I made it clear I wasn’t interested in buying but did want to know about the product. At several stands I updated my knowledge on a sector or an area or a particular development site, knowledge which goes into the blend that, hopefully, makes what you read on the BD Central websites more valuable.
Whereas exhibitors at an A&P show of decades ago would dutifully impart their knowledge of a product, the exhibitors of 2005 have a message & an earnest desire to impart it. Yes, this is straight sales territory, but the stream of products displayed opens up numerous opportunities for secure earnings and for raising the quality of earnings.
So for a couple of fruitful hours I enjoyed myself in personal & business discussions, collecting information, making arrangements. Some of the information will appear on the Snapshot on external links, week to 22 May 2005 â€“ notes from the expo, websites to add to the 1100 already on the links page.
That’s enough of my day out. Between here and the footnotes, this article will offer a few pointers on local economic direction & property market sectors and touch on a few international issues which are likely to affect us.
The expo was about the future â€“ a positive, optimistic future of business & property investment in New Zealand. Several exhibitors were from Australia, a couple with novel offerings, a Queensland one which is selling in southern states as well as New Zealand and a Melbourne one which is promoting European landbanking. One of those was less about an optimistic future, more about finding a customer, wherever. The other, landbanking, was about a concept which might in due course be applied around cities here, and relates to what some developers with foresight have already been doing in coastal areas.
The New Zealand property industry is at a value point where growth should start declining because:
there’s a slowdown in immigration
the strong market has been sustained across the board for several years
positive, upward trends don’t last forever
interest rates have started to rise, albeit slowly, the rise as a percentage of a percentage is large (a 25 basis point rise on 5% is a 5% increase) although the level of interest rates is nowhere near the boilover of 20 years ago, and
international events could trigger a slump.
Equally, though, there are valid reasons for continuing strength in most sectors:
In the residential sector, as new construction slows, rents will start to catch up and redress the imbalance between capital & income growth
Australian investment of super money has changed the nature of commercial sectors, such as business parks, malls
Those Australian entrants have pulled yields down by as much as 1.5 percentage points, setting the scene for yields in sectors where they aren’t present to follow, to what seem to some in the market to be quite ridiculously low â€“ and much riskier – yields
A shortage of industrial land raises the premium
The need for warehousing hasn’t yet abated
Transport infrastructure â€“ the absence of, the potential for, the timing of â€“ dictates changes in the importance of different areas
Political efforts to curb urban sprawl change values and add (or reduce) an impetus to invest in certain sectors & geographic areas
Baby-boomers are looking quite differently from their predecessors at investment markets and at how to earn out of lifestyle products, and
Some of the above don’t rely on interest rates being at a particular level.
Ryman positive about retirement village sector
Before the expo began, I listened to a very positive account of the retirement village sector as Ryman Healthcare Ltd directors & executives explained how the company would continue to meet its 15%/year growth target, which it comfortably exceeded with a 28% net gain in the March 2005 year. They make it sound pretty simple but it takes plenty of hard graft, and sections of the market which have tired old stock are facing a survival battle. There’s also a timing issue â€“ getting people into retirement villages at the wrong age can have several detrimental impacts.
With rapid growth in the retired population, the future for New Zealand’s retirement property & aged-care markets looks assured, though drastic declines in working & child percentages of the population must carry economic warnings.
International influences â€“ the $US especially
After an email conversation on Friday with a Californian broker about the impact on international affairs of the $US decline and the impact, which I believed hadn’t been taken into sufficient account, of the US printing money to boost credit to hold off a recession, I was surprised on Saturday by 2 articles relating to this subject, and putting a quite different slant on it.
Both involved Richard Duncan, a financial analyst in Asia for more than 16 years, a former International Monetary Fund consultant who warned of Thailand’s impending economic collapse in 1993, subsequently a World Bank specialist on issues relating to the Asian economic crisis of 1997, which he said led him to a better understanding of the need for new global economic tools. Mr Duncan’s just written a book, The dollar crisis: causes, consequences, cures.
In an interview on the Daily Reckoning website, he said: “In 2003 & the first quarter of 2004, Japan carried out a remarkable experiment in monetary policy – remarkable in the impact it had on the global economy and equally remarkable in that it went almost entirely unnoticed in the financial press. Over those 15 months, monetary authorities in Japan created Â¥35 trillion.”
Why did the Japanese create so much money? Because they needed to buy from their citizens the dollars they had accumulated by selling things to Americans. Mr Duncan said if the Japanese Government hadn’t done this, the yen would have risen to an uncompetitive level, the $US would have fallen even further, the Japanese wouldn’t have had the money to buy US Treasury bonds, which would have pushed US interest rates up faster, which would have cut US consumption, which would have brought on an international recession.
The Japanese action followed urgency from the US Federal Reserve â€“ the US could cut taxes and low interest rates would induce consumption, but it needed Japan to buy dollars & treasuries to keep the interest rate down.
The Business-in-Asia website is owned by a highly distinguished Asia specialist, former diplomat & advisor Christopher Runckel, whose international business consultancy is based in Portland, Oregon. Mr Runckel conducted the interview with Mr Duncan, opening with a question on the danger of the international monetary system collapsing.
In his response, Mr Duncan said the US’ current account deficit had reached $US60 million/hour, it rose 28% in 2002 to half a trillion dollars, roughly 5% of US gdp, a trade imbalance with these consequences: “The countries that build up large stockpiles of international reserves due to large current account or financial account surpluses – such as Japan in the 1980s, the Asia crisis countries in the 1990s & China today – develop bubble economies. When those bubbles pop, as they inevitably do, they leave behind banking crises & excess capacity. The governments of those countries must then go deeply into debt to bail out the depositors of the failed banks. At the same time, the excess capacity in the economy results in deflation. Economic bubbles & systemic banking crises can be expected to recur & deflationary pressure can be expected to persist so long as the US current account deficits continue to flood the world with dollar liquidity.”
So, on the surface, in New Zealand we have a justifiably positive outlook for the property industry in general and for the economy. Just over the horizon is an economic tsunami. Plenty of people here will say the worst won’t happen, if it does it will affect everybody and there’ll be nothing you can do about it.
If you see it coming, you can work out how to react. If it goes somewhere else it affects trading partners, so it affects us.