13 Apr 2020
Looking beyond the Lockdown
As it seems, there is only one item on the news and the topic of conversation between property-related friends and family – Covid19.
I agree it deserves attention, but I believe we need to move on and focus less on the past and present and look more towards the future. Jacinda Adern’s decision to locking down New Zealand early was definitely a bold move, and with every bold decision half the people will agree and the other half will be against but I think it was a good decision which will pay dividends to us in the long term.
Over the last 20 years from what I can remember we have had Cholera outbreak ( while I was in working PNG), Dengue fever, Malaria (also while I was working in PNG) SARs, Influenza, and Ebola but people forget they come and go and the world moves on, hence the focus on the future moving forward.
Peace with China?
There are all sorts of rumours about the origins of the virus and I take them with a grain of salt. What I do find frustrating being in the property industry was I used to hear all sorts of derogatory comments against the Chinese which was unfair and just plan racist – but it’s interesting how the world has suffered now that a majority of the Chinese population has been locked down in China and unable to work. A lot of industries have been hurt including the world Stock Market – that is one thing I didn’t expect, and in New Zealand, the import, export, food, beverage and travel industries have been hit the hardest so it’s really interesting to see even how one country who has been in lockdown the longest has had such a flow-on effect on the world’s economy.
I have some best friends in China who I keep in regular contact with, and I would like to take a leaf out of Chinas pages. The government took a similar stance to ours and locked the whole country down to stop the spread, admittedly theirs was in lockdown for 12 weeks and but none the less they are just coming out of it and business is starting to return to normal. This gives me a bit of hope that if our numbers continue to drop, we should be looking at a level 3 soon.
What does this virus mean for the property industry?
So before the virus hit NZ, January the market activity was steadily rising, with February getting better and March was busy. I for one expected this would have continued for another few months and then die down due to elections. Then after elections, I would have expected the market to pick up again as new Zealand realises the there had been no change.
Right now, in my view, right after COVID-19 lockdown is over, the short term effect ( 1-2 years) on the residential property market won’t be as severe (maybe around 0-10% depending on location) as the share market, or travel and tourism industry. Even though the property industry does generally lag behind all these, people will still need houses to live in, they might trade down due to job loss, or return to New Zealand their country of origin – either way, people still need a place to live in. Interest rates are at their all-time low and I don’t expect that to change for the next 2-3 years which I think will help assist and entice home buyers and investors.
There will be a whole mix of people – some buying and some selling. I’m expecting there to be a few buyers who are cashed up out there looking for bargains (and rightly so), there will be a few sellers who are able to hold their properties at the price due to the low-interest rates and mortgage holidays while others will just wait and see. This tells me the overall impact won’t be as severe as some people are predicting.
I am also a very strong believer in the power of the Auckland market and that is why I have decided to focus here. I have owned property in Auckland, Palmerston North, Taupo, Atlanta and Memphis and none of these have performed better than Auckland in the past 10 years. In 2011 back after our last recession I purchased some of my first Auckland properties for around $270K – 8 years later they sold for over $700K, in comparison to my Palmerston North property which was purchased for $255K, it sold for $320K around the same time.
Also, I do expect people to either move back or move to New Zealand and statistically, most of them arrive in Auckland. People say the international student education sector will hurt the economy, true, but I believe this is only area specific to the CBD or areas which are in close proximity or use to universities – but again there will still be a need for accommodation. Having this in the back of my mind I can say that the Auckland market will be the first to recover.
What would be interesting and one factor to look out for would be how the banks act and how they react after the mortgage holidays are complete.
I do feel like the commercial property market especially the offices will struggle a bit when office staff realise that they can get similar productivity working from home. The companies with the big offices won’t need the bigger sqm and will tend to downsize – but I must admit my productivity is about half working from home!
What does it mean for us?
Funnily enough, 10 days before the Lockdown I did get a message from our financiers regarding the impact of Coronavirus on one of our developments, but because of the stage we are at I was fortunate enough not to be impacted, as most of our products are NZ made so the impact of import did not affect us. I’m guessing an alert would have shown up on the banks Risk Management System and they are reaching out to all developers. This is a good lesson for me as a virus outbreak was not accounted for on our Risk Assessment so I’ll have to review this again and make the appropriate changes.
During the lockdown, we have been brainstorming and reaching out to various people in the industry to get ideas of how to proceed in the changing market. What this does mean for me in the next few months is to look at how we truly share our message with our buyers and community and genuinely share what we are about and how we are communicating this online through media.
Also during this time, I have decided to be bullish rather than have a wait and see attitude, this may or may not suit everyone, but I believe this is the right time for it. What it doesn’t mean is to bury my head in the sand and ignore the world economics, but take aggressive calculated steps to ensure we come out in the front foot in 18 month’s – 2 years time.
A key aspect to coming out in front for us would be to JV with various people to leverage our strengths, our weaknesses, our determination for a stronger future.
What do I need from the readers?
I am interested in talking to people that are positive, driven who would be interested in a chat with sharing what’s beyond the horizon of this coming year and into 2021 and onwards. So if you would like to catch up, DM me and we can setup a zoom meeting.