Let’s look at the facts

In times of change, experts come out in droves predicting what is going to happen next. Sometimes, they are correct, but more often they are not. This was shown most publicly with all the major banks and economists predicting a property market downturn when covid showed up in the early months of 2019. They may have been forgiven if the market took a slight downturn or even plateaued, however it didn’t. The market went in directly the opposite direction that it theoretically should have.

So, here we are again at a point of change, with inflation rising to heights we haven’t seen in 32 years (1) and interest rates following closely behind. The pundits are pursing their lips and exercising their fingers to again predict what these changes mean and where the market is headed.

Instead of following many of the lemming-like experts, let’s look at the facts:

Source: Colliers research report (2)

GDP

Starting from the top in the above table, we can see that the GDP (Gross Domestic Product) shows a 1.2% growth compared to the same time last year however a drop of -3.1% since the last quarter. The GDP is our measure of how well the economy is doing and although its slightly down at the moment, when we look at our debt compared to other countries we are not doing too bad!

Source: NZ Government – Budget (3)

To put some perspective on the graph above, NZ’s debt is 21.3% of its GDP while the debt in the USA is 94.9% of their GDP.

So, relatively speaking we are doing quite well.

Inflation

The next one on the list (from the Key indicator chart) is CPI (Inflation). The cart shows that the CPI rose to 6.9% in March 2022 and by the end of June, the government has reported the inflation rate rose to 7.3%. As we all know, this was due to local and in fact world-wide quantitative easing due to covid.

In layman’s terms this means – the government gave out lots of money to the public to get them through the hard covid times. With people staying at home and having more disposable income, they spent money on items they wouldn’t usually spend on, either for comfort or fear. The high demand for products put a pressure on supply. If the supply stepped at this time, we would have been ok, but it didn’t. Supply actually travelled in the opposite direction due to supply chain issues and lack of working staff due to covid.

So, with a lack of supply and people willing to pay more so they can get the item before their neighbour did, the prices went up and up and up. The measure of this is called inflation. Now we can’t do much about this except to get industry back up and running plus the associated supply chains. We will need expertise and other workers to do this, so we must attract them to NZ. This then flows onto the next item in the chart, migration.

Immigration

Fees for new immigrants have just been increased (5) and a new system has been established to attract the wealthier individuals to our border. The government has created a ‘green list’ of the types of jobs that we need the most positions that are not being filled by New Zealanders. A striking omission from the green list are nurses and mid-wives and I would of have thought this was kind of strange (6). Are the news reports telling us the nurses are burning out due to doing extra shifts to cater for the nurse shortage incorrect? With the news on hospitals filling up with covid patients and other elective surgeries being put off thereby putting greater pressure on private hospitals and needing more nurse there, is this too incorrect?

It's even stranger that a Labour government would make this move, or not make it as the case may be. In a further sign that someone has made a stealth move by injecting some right-wing tendencies into the beehive, the government has now come forward with a new investor visa for potential immigrants (7).

The new plan extinguishes the Investor 1 and Investor 2 plan which let people in if they had $10m and $3m respectively. The new visa to replace these is called the Active Investor Plus visa. This will come into play on 19 September 2022 and the old visa’s (1 & 2) will cease to operate on 22nd July 2022. No doubt the chasm in between these dates will be used to process the current backlog of immigrant visa applications sitting in the system.

The basics of the change will steer people to invest in NZ companies as opposed to passive investing in stocks/properties/bonds. If the potential immigrants wanted to ignore this and continue to invest in ‘indirect’ investments, then they will need to invest at least $15M to be awarded the visa. If they are amenable to the change and put only 50% into ‘indirect’ investments with the other 50% going into companies, then the minimum investment will drop from $15M to $5M.

This will attract high net worth people and the plan is that these people will have the expertise to help our business’s grow and be competitive on the world stage. Obviously, the people we have now are not making the grade. As mentioned before, this would seem to be a right wing move that I would expect from the National party, however in my view, what we need right now is the Labour party making Labour party moves.

This high minimum investment for the Investment visa may push out the potential doctors and other specialist help that are wanting to immigrate, which is in such dire need at the moment. Australia has a similar scheme which failed, so we can only hope the powers that be have learnt from our friends across the ditch and altered the plan accordingly.

Unemployment rates are low at the moment, however to avoid the often reported ‘brain drain’ we need to entice overseas expertise.

Commercial property

Available retail and office space has increased, which can directly be related to covid however Colliers research has reported quality office space is now in demand (9). The report goes on to mention that industrial rents have increased and most real estate agents will report that they have clients looking for large warehouse floor plans. Colliers research has found the following: Latest figures from Statistics NZ show quarterly national industrial building consent issuance across storage, factories and industrial buildings reached the third highest on record in Q1 2022 with 392,012 sqm of floor space consented.

Summary

If one can pull oneself away from the doom and gloom shown in the press and turn a blind eye to the ‘expert’ opinions which have shown to be quite wrong quite recently, then the facts are all you are left with. The key indicators are what drives the economy and ultimately the wellbeing for all New Zealanders.

In the view of the writer, what we are seeing now is the interest rates going back to their normal levels and in doing so inflation will settle down. With the western countries opening up their borders I believe that the country is currently in a state of shock with the market downturn, but when we look at all the key indicators, this shows the effects we are now seeing will soon settle down and the country will get back on its upward projection.

References

Jeff Brill - Author of "The Sophisticated property Investor"

Let’s look at the facts

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