WEBVTT - Will property thrive or just survive in 2025? Tony Alexander 0:00:03.440 --> 0:00:06.600 Kirakoto. I'm Garth Bray and this is Shared Lunch. Today. 0:00:06.680 --> 0:00:10.840 We're with independent economist Tony Alexander. Another cut in the 0:00:10.840 --> 0:00:13.880 official cash rate. What does that mean for investors and 0:00:13.960 --> 0:00:17.239 homeowners alike? What's in store for twenty twenty five? Will 0:00:17.280 --> 0:00:21.200 things be as rosy or as gray as predicted? All 0:00:21.239 --> 0:00:24.280 of that? But first, some important information you always need 0:00:24.280 --> 0:00:25.119 to consider. 0:00:24.920 --> 0:00:27.479 Investing involves the risk you might lose the money you 0:00:27.520 --> 0:00:30.800 start with. We recommend talking to a licensed financial advisor. 0:00:31.560 --> 0:00:35.360 We also recommend reading product disclosure documents before deciding to invest. 0:00:35.640 --> 0:00:38.000 Everything you're about to see and here is current at 0:00:38.040 --> 0:00:38.839 the time of recording. 0:00:38.880 --> 0:00:40.960 Tony, great to see you. You're zooming in from the 0:00:40.960 --> 0:00:43.440 Gold Coast. There you look like you're surviving and getting 0:00:43.479 --> 0:00:46.680 ready to thrive in twenty twenty five. What did you 0:00:46.760 --> 0:00:49.360 make of the Reserve Bank's OCAR decision? 0:00:49.640 --> 0:00:53.320 Yeah, obviously not unexpected zero point five percent. That was 0:00:53.360 --> 0:00:55.640 what I was expecting, I guess. Ever, since the previous 0:00:55.640 --> 0:00:58.520 half a percent our cut, a number of people were saying, oh, 0:00:58.560 --> 0:01:00.360 things are so bad in New Zealand, need to be 0:01:00.400 --> 0:01:02.920 cutting by three quarters of a percent. But the story 0:01:02.920 --> 0:01:05.839 for the past four weeks or so has been people 0:01:05.880 --> 0:01:09.880 pulling back on those expectations in evidence of that maybe 0:01:09.880 --> 0:01:13.600 some of the underlying inflationary pressures are not necessarily falling 0:01:13.600 --> 0:01:16.600 away as rapidly for for next year, at least as 0:01:16.680 --> 0:01:20.039 people were thinking. For me, the most interesting thing I 0:01:20.160 --> 0:01:24.480 guess was that their release encapsulated sort of the two 0:01:24.600 --> 0:01:28.680 key themes I've been putting across for many months. Number One, 0:01:28.800 --> 0:01:31.520 intrastrates will fall, but they're not going down to the 0:01:31.560 --> 0:01:33.880 really low levels that we've seen in the past. And 0:01:34.000 --> 0:01:37.320 number two, the economy will improve, but it's not going 0:01:37.400 --> 0:01:40.880 to be a particularly robust upturn. And that's what we 0:01:40.920 --> 0:01:43.680 saw with them cutting their economic growth forecast for the 0:01:43.760 --> 0:01:47.680 years to March twenty six and twenty seven about zero 0:01:47.680 --> 0:01:51.000 point six percent for each of them, and yet lifting 0:01:51.040 --> 0:01:55.360 the inflation forecast zero point one to zero point two percent. 0:01:55.680 --> 0:01:58.360 That I think was quite significant from them. 0:01:58.480 --> 0:02:00.280 So if this is a weather forecast, we've gone from 0:02:00.360 --> 0:02:03.520 mainly fine to scattered showers almost it doesn't look quite 0:02:03.640 --> 0:02:06.560 as promising as we had first thought. And I mean, look, 0:02:06.560 --> 0:02:08.720 we've got a lot to talk about here today. We've 0:02:08.800 --> 0:02:12.160 had a President Trump's election in the US and how 0:02:12.160 --> 0:02:15.080 that could affect things, and obviously where people see the 0:02:15.080 --> 0:02:17.040 housing market and go. But I really want to sort 0:02:17.040 --> 0:02:18.480 of dig in a little bit to some of the 0:02:18.480 --> 0:02:21.880 information that we got from Adrian or there. Look, I 0:02:21.919 --> 0:02:27.480 guess would you be expecting then if we look ahead 0:02:27.520 --> 0:02:29.840 to February, which is what a lot of people were 0:02:29.840 --> 0:02:32.560 trying to work out as well, are we looking at 0:02:33.000 --> 0:02:36.680 a twenty five basis point cut fifty again or something 0:02:36.680 --> 0:02:39.760 even stronger. Was there any indication that you took, particularly 0:02:39.800 --> 0:02:42.239 from what was said there well. 0:02:42.240 --> 0:02:45.160 In the press conference afterwards, the pretty strong indication was 0:02:45.200 --> 0:02:48.880 given that they anticipate cutting zero point five percent, and 0:02:48.960 --> 0:02:51.639 that's pretty much my expectation. It's going to take some 0:02:51.760 --> 0:02:56.840 fairly either unusually strong or unusually weak economic data between 0:02:56.840 --> 0:02:59.480 now and then, I think, to cause them to do 0:02:59.560 --> 0:03:02.960 something different from that. For me, my greater interest is 0:03:03.000 --> 0:03:06.000 not so much what happens in that third week of February, 0:03:06.280 --> 0:03:10.320 but what happens after that. I'm advising people to pull 0:03:10.440 --> 0:03:13.840 back on their optimism that rates might be falling to 0:03:13.960 --> 0:03:17.000 a great degree and that mortgage rates will fall away 0:03:17.000 --> 0:03:19.119 to a great degree. I really don't think that's going 0:03:19.160 --> 0:03:20.200 to be happening. 0:03:20.639 --> 0:03:23.720 Yeah, I guess the ocr is pretty much. It's pretty 0:03:23.760 --> 0:03:26.080 much back where it was two years ago, right, I 0:03:26.080 --> 0:03:29.359 mean we had that's when the RBNZ started to really 0:03:29.440 --> 0:03:33.239 aggressively increase the rates. That was when that seventy five 0:03:33.680 --> 0:03:37.760 basis point hype took off. I mean, so you don't 0:03:37.800 --> 0:03:40.520 see another six months of aggressive cuts. It's more like 0:03:40.640 --> 0:03:43.040 sort of eighteen months of slowly getting there. 0:03:44.560 --> 0:03:46.240 No, I think they'll get to about as low as 0:03:46.280 --> 0:03:48.560 they're going to go before the end of next year. 0:03:48.720 --> 0:03:51.320 Now the Reserve Bank they project the cash rate will 0:03:51.360 --> 0:03:54.160 finish twenty twenty five at about three point five percent 0:03:54.480 --> 0:03:56.640 and the gain get down to three percent at the 0:03:56.720 --> 0:03:59.760 end of twenty twenty six. I think the easing cycle 0:03:59.800 --> 0:04:02.680 will be done and dusted well before the end of 0:04:03.000 --> 0:04:06.720 twenty twenty five, with the cash rate bottoming out somewhere 0:04:06.760 --> 0:04:09.720 between three three and a half percent if you're lucky. 0:04:10.280 --> 0:04:12.240 I think. I recall one forecast I was reading just 0:04:12.280 --> 0:04:15.880 earlier on talking about maybe a four percent low. Well, 0:04:15.920 --> 0:04:17.640 we're at four twenty five percent at the moment, so 0:04:18.080 --> 0:04:20.240 I don't think that's going to happen. But yeah, I 0:04:20.240 --> 0:04:21.839 think it's going to be done and dusted by the 0:04:22.000 --> 0:04:26.400 end of next year, especially as the Reserve Bank anticipates 0:04:26.600 --> 0:04:30.440 extra strengthening and economic growth over twenty twenty six, which 0:04:30.440 --> 0:04:32.880 of course is going to make people start thinking about 0:04:32.880 --> 0:04:37.120 the cyclical upturn in inflation. And that's where my mind 0:04:37.200 --> 0:04:39.680 is focusing on at the moment, not the weakness in 0:04:39.720 --> 0:04:42.800 the economy at the moment, the falling away of inflationary 0:04:42.839 --> 0:04:48.000 pressures right now. But when does the cyclical recovery in 0:04:48.000 --> 0:04:51.200 inflation start? And that I think is going to be 0:04:51.240 --> 0:04:54.440 occupying people's minds in the second part of twenty twenty five. 0:04:54.640 --> 0:04:56.720 Why is that so important to be thinking about now? 0:04:58.040 --> 0:05:01.359 Ah, because it limits the extent to which the medium 0:05:01.400 --> 0:05:04.920 to long term wholesale interest rates are likely to go down. 0:05:04.960 --> 0:05:07.640 We see elements of that are now, and therefore the 0:05:07.720 --> 0:05:10.520 extent to which the medium to long term will even 0:05:10.560 --> 0:05:13.400 two years plus fixed mortgage rates go down. And so 0:05:13.520 --> 0:05:17.840 the time when people maybe more seriously start thinking about 0:05:18.200 --> 0:05:21.880 not fixing six months and fixing for two or three years, 0:05:22.080 --> 0:05:24.400 I think it's going to come sooner than people are thinking. 0:05:24.480 --> 0:05:26.400 If you're talking about that long term picture, why is 0:05:26.440 --> 0:05:28.360 that so important to be thinking about it now? 0:05:30.000 --> 0:05:32.840 Because at the moment there's a high degree of optimism 0:05:33.040 --> 0:05:37.760 amongst I think the general population, investors, potential home buyers, 0:05:38.120 --> 0:05:40.320 that the interstrates cycle is going to be a really 0:05:40.360 --> 0:05:43.119 generous one, that the interustrates are going to fall away 0:05:43.160 --> 0:05:47.040 to a strong level, the economy is going to grow strongly, 0:05:47.360 --> 0:05:51.680 and the risk is people start making mistakes. Investors will 0:05:51.680 --> 0:05:53.800 bet on the interest rates going to low levels, so 0:05:53.839 --> 0:05:57.680 they risk over committing themselves to interest our sensitive stocks, 0:05:57.920 --> 0:06:00.440 maybe commercial property, where of course the prices can be 0:06:00.520 --> 0:06:04.320 highly correlated with the other direction for the interest rate movements. 0:06:04.520 --> 0:06:07.719 For businesses also thinking oh my goodness, we're going to 0:06:07.720 --> 0:06:09.960 see a great upturn in the economy because interest rates 0:06:10.000 --> 0:06:12.200 are going to go so low. I do not need 0:06:12.240 --> 0:06:14.919 to restructure at the moment. I do not lead to 0:06:15.000 --> 0:06:17.880 lay you off as many staff and find alternative supplies 0:06:17.920 --> 0:06:20.320 of materials because there's going to be all these extra 0:06:20.360 --> 0:06:24.040 customers coming through. It's going to be okay. Well, you know, 0:06:24.160 --> 0:06:26.440 for many, many months, I've been trying to emphasize to 0:06:26.600 --> 0:06:30.560 business people in particular, the upturn will be mild. Don't 0:06:30.560 --> 0:06:35.600 think about just surviving to twenty five and thinking you're 0:06:35.640 --> 0:06:38.479 going to thrive in twenty five. It's going to be 0:06:38.520 --> 0:06:43.440 a relatively mild recovery. Therefore, continue with your cost cutting, 0:06:43.720 --> 0:06:47.440 continue with trying to find efficiencies and boost productivity. 0:06:47.640 --> 0:06:49.880 Can you see why the psychology might Can you see 0:06:49.880 --> 0:06:52.600 why the psychology might be affecting people that for so 0:06:52.839 --> 0:06:56.680 long interest rates will we're so low that perhaps there's 0:06:56.680 --> 0:06:58.560 still a little bit of that hankering back to that 0:06:58.720 --> 0:07:03.560 period of didictability and an expectation that somehow we're going 0:07:03.600 --> 0:07:06.680 to return to that as the norm when there's a 0:07:06.720 --> 0:07:08.760 completely different normal now available. 0:07:09.680 --> 0:07:13.600 Yeah. Yeah, But that's why in my weekly publication, I 0:07:13.760 --> 0:07:16.200 have a set of graphs at the on about the 0:07:16.240 --> 0:07:19.160 final page or the one before it, looking at where 0:07:19.200 --> 0:07:22.080 the fixed mortgage rates have gone over the past few years. 0:07:22.120 --> 0:07:24.720 I go back about fifteen years something like that, but 0:07:24.880 --> 0:07:29.480 I completely blank out the observations that the line stops 0:07:29.480 --> 0:07:33.600 and restarts again. For the period twenty nineteen, when the 0:07:33.600 --> 0:07:36.480 world was worried about deflation, the cash rate was only 0:07:36.520 --> 0:07:38.800 one percent in New Zealand, I wipe that out. I 0:07:38.880 --> 0:07:41.960 wipe out twenty twenty and twenty twenty one because they 0:07:42.000 --> 0:07:45.720 were pandemic years, very unusual circumstance. So what I'm trying 0:07:45.760 --> 0:07:49.640 to get people to do is realize, well, actually, the 0:07:49.800 --> 0:07:51.840 likes of the three four, five year fixed rates are 0:07:51.880 --> 0:07:54.239 pretty much already below their average levels for the past 0:07:54.480 --> 0:07:59.240 ten years or so leading into twenty and nineteen, and 0:07:59.360 --> 0:08:02.600 maybe that start people thinking a bit more about not 0:08:02.640 --> 0:08:05.520 so much fixed six months. Maybe I'll start fixing longer. 0:08:05.920 --> 0:08:08.240 Having said that, he was just love to fix for 0:08:08.280 --> 0:08:12.560 the short term interest rates. Hardly anyone ever goes beyond 0:08:12.600 --> 0:08:15.520 three years, and that'll stick around this cycle. 0:08:16.200 --> 0:08:18.320 We're a long way from that American example where people 0:08:18.360 --> 0:08:20.440 lock in for thirty years or whatever. Right, it's just 0:08:20.520 --> 0:08:22.240 part of the psychology. 0:08:22.360 --> 0:08:25.120 Yep, yep, and that generally that's worked out. Okay, So 0:08:25.160 --> 0:08:27.840 if you look at the plot post GFC environment two 0:08:27.840 --> 0:08:31.720 thousand and nine through two, you know, eighteen to nineteen 0:08:32.000 --> 0:08:35.720 actually just rolling one year fixed gave the lowest cost 0:08:35.760 --> 0:08:39.800 of funds compared with going two year FX, three, four 0:08:40.080 --> 0:08:42.400 or five years over that period. But of course you 0:08:42.640 --> 0:08:45.960 don't have much rate certainty. You're leaving yourself vulnerable to 0:08:46.040 --> 0:08:48.920 something coming along and comeblue it. And of course the 0:08:48.960 --> 0:08:53.080 world that we live in is one which is very uncertain. 0:08:53.440 --> 0:08:55.240 We're all trying to figure out, you know, with the 0:08:55.240 --> 0:08:58.600 Trump presidency, what does that actually mean for inflation. There's 0:08:58.640 --> 0:09:00.559 a strong view on what it means is the but 0:09:00.640 --> 0:09:04.360 what does it mean in New Zealand scope for inflation 0:09:04.640 --> 0:09:07.400 and interst rate surprises is going to be really strong 0:09:07.400 --> 0:09:08.320 in the next four years. 0:09:08.480 --> 0:09:10.120 I do want to try and get to some of 0:09:10.120 --> 0:09:13.080 that shortly, but let's just stay a little bit with 0:09:13.120 --> 0:09:16.960 that bigger picture here. If we've got a more subdued 0:09:17.000 --> 0:09:19.560 recovery through twenty twenty five, as you suggest, what is 0:09:19.600 --> 0:09:22.000 that going to do for some of the big pain 0:09:22.040 --> 0:09:26.640 points we've seen, like unemployment or the labor force participation 0:09:26.800 --> 0:09:28.800 rate and so on. We've seen some pretty high profile 0:09:29.200 --> 0:09:33.400 examples of entire businesses or even industries that are looking 0:09:33.440 --> 0:09:36.960 like they're really under pressure after the energy crunch, you know, 0:09:37.040 --> 0:09:41.000 mills shutting down in regional towns and just decimating that area. 0:09:42.040 --> 0:09:43.400 Is there more of that to come? Do you think? 0:09:44.559 --> 0:09:47.040 I think there's more to come across all sectors in 0:09:47.080 --> 0:09:50.320 the economy. For a long time I was warning that 0:09:50.400 --> 0:09:53.520 twenty twenty four would be a year of weeding out 0:09:53.640 --> 0:09:57.240 in the business sector across all sectors, so not just 0:09:57.480 --> 0:10:03.440 key pressure points like hospitality, the retail, house construction are 0:10:03.480 --> 0:10:05.880 widely defined. But of course, as we can see with 0:10:06.040 --> 0:10:10.160 the loss of a feeling of security about electricity availability 0:10:10.200 --> 0:10:13.120 and the price that's feeding through to those long term 0:10:13.160 --> 0:10:18.200 investment decisions in the electricity. In the manufacturing sector highly 0:10:18.200 --> 0:10:21.600 dependent upon electricity, and this is one reason the upturn 0:10:21.640 --> 0:10:24.560 in New Zealand's economy is going to be muted. Businesses 0:10:24.720 --> 0:10:26.800 are whether you're already here in New Zealand or eure 0:10:26.840 --> 0:10:29.600 overseas thinking about investing in New Zealand, are going to 0:10:29.640 --> 0:10:32.319 have to think about the electricity availability. And you look 0:10:32.360 --> 0:10:35.600 at something like the data centers which are opening up 0:10:35.640 --> 0:10:38.560 in New Zealand. Estimated within about five years they're going 0:10:38.600 --> 0:10:42.040 to be using five hundred megawatt of energy. By then, 0:10:42.120 --> 0:10:44.560 that'll be about twenty five percent of what's used by 0:10:44.800 --> 0:10:48.600 Auckland households. It says that the electricity availability is going 0:10:48.640 --> 0:10:51.200 to get even worse, especially if people keep plugging in 0:10:51.240 --> 0:10:54.880 more electric vehicles and maybe electric scooters and things. So 0:10:55.400 --> 0:10:58.880 that's quite a change in New Zealand's dynamic where since 0:10:58.920 --> 0:11:01.360 all the hydro electrics ends were developed into the late 0:11:01.440 --> 0:11:04.560 nineteen seventies, there's been a feeling of electricity is readily 0:11:04.559 --> 0:11:07.480 available in New Zealand. That's a sea change in view 0:11:07.520 --> 0:11:09.560 this year. So there's probably a bit more of that. 0:11:09.640 --> 0:11:13.000 Unfortunately it's rolled through part of the manufacturing sector. 0:11:14.600 --> 0:11:16.440 Let's try and give people some hope. Do you see 0:11:16.480 --> 0:11:19.559 any green shoots in there? Are the any investment decisions 0:11:19.559 --> 0:11:22.160 that are likely to proceed in this uncertain environment? 0:11:23.240 --> 0:11:26.480 Oh? Look, we are undoubtedly looking at an improvement in 0:11:26.480 --> 0:11:29.079 the New Zealand economy. When I've been giving talks over 0:11:29.080 --> 0:11:30.760 the past star three to four months and I've been 0:11:30.800 --> 0:11:33.440 running through my long list of reasons why we're not 0:11:33.480 --> 0:11:35.760 going to thrive, I have to stop myself about every 0:11:35.760 --> 0:11:38.160 seven minutes and say, now, just to remind you, we 0:11:38.360 --> 0:11:41.840 asked going to see a recovery in the New Zealand economy. 0:11:41.960 --> 0:11:43.800 But it's going to be more like when we came 0:11:43.800 --> 0:11:46.800 out of the global financial crisis, where the peak rate 0:11:46.840 --> 0:11:50.600 of growth was about four point one percent in twenty fifteen. 0:11:50.800 --> 0:11:52.960 It took a long time for things really to get 0:11:53.040 --> 0:11:55.600 chugging along. It's not going to be for this cycle 0:11:55.679 --> 0:11:57.920 or repeat of coming out of the recession ninety seven 0:11:58.040 --> 0:12:01.959 ninety eight when we were growing six percent within eighteen months, 0:12:02.200 --> 0:12:05.199 or coming out of the nineteen ninety one recession when 0:12:05.240 --> 0:12:07.760 we were also growing six percent within about two and 0:12:07.800 --> 0:12:09.800 a half years. This is going to be a relatively 0:12:09.800 --> 0:12:12.800 mild upturn and some of the factors contributing to it 0:12:12.840 --> 0:12:17.040 will be obviously the intrastrate or the foot on the 0:12:17.080 --> 0:12:19.720 pedal being lifted off the brake by the reserved bank, 0:12:19.960 --> 0:12:25.199 so taking off intrastraight restraint, not putting on intrastrate stimulus. 0:12:25.240 --> 0:12:27.079 As I think what I'm saying to people, they're not 0:12:27.120 --> 0:12:28.920 going to put the foot on the extra salrator by 0:12:28.920 --> 0:12:30.880 cutting the cash right to two and a half percent, 0:12:30.920 --> 0:12:33.040 but thank goodness, they'll be taking the foot off the brake. 0:12:33.240 --> 0:12:34.040 There's a lot of. 0:12:33.920 --> 0:12:36.520 Infrastructure spending to be done in New Zealand over the 0:12:36.559 --> 0:12:39.160 next world century, quite frankly, so there's going to be 0:12:39.200 --> 0:12:42.079 a lot of firms actively involved in that. There are 0:12:42.160 --> 0:12:47.920 some early signs of stand alone house construction starting to 0:12:47.960 --> 0:12:52.000 look better through twenty twenty five, not multi unit construction, townhouses, 0:12:52.000 --> 0:12:55.200 et cetera twenty twenty six if you're lucky, but for 0:12:55.240 --> 0:12:58.360 the standalone houses, things are starting to look a little 0:12:58.360 --> 0:12:59.400 bit better. 0:12:59.440 --> 0:12:59.640 There. 0:13:00.000 --> 0:13:03.319 There's been a good improvement in dairy prices recently, so 0:13:03.400 --> 0:13:07.480 that will feed through, especially into your Taranaki Wycaddow, South 0:13:07.520 --> 0:13:11.160 Canterbury Southland regions, So that's positive across here in Australia 0:13:11.200 --> 0:13:13.640 at the moment. There's just people are noting there's some 0:13:14.000 --> 0:13:17.000 reasonably good upward pressure on red meat prices for a 0:13:17.080 --> 0:13:19.679 variety of reasons. So maybe there's some hope for our 0:13:19.720 --> 0:13:22.160 red meat sector in New Zealand where about forty percent 0:13:22.200 --> 0:13:24.320 of them are still running at losses at the moment. 0:13:24.440 --> 0:13:28.520 So there are those positives. The tourism numbers slowly improving 0:13:28.840 --> 0:13:32.160 and the net migration numbers. I don't think they're going 0:13:32.200 --> 0:13:35.000 to go into the negative territory some people be forecasting 0:13:35.040 --> 0:13:37.400 a few months ago. Maybe we bottom out with an 0:13:37.400 --> 0:13:41.120 annual flow around about forty thousand or so, so down 0:13:41.280 --> 0:13:44.280 from a year ago one hundred and thirty six thousand, 0:13:44.400 --> 0:13:46.520 but are still in the positive territory. 0:13:46.960 --> 0:13:49.640 I want to pick up what you said about standalone 0:13:49.679 --> 0:13:53.200 construction there, and obviously that's an indication of some pretty 0:13:53.200 --> 0:13:55.800 firm intensions that people are prepared to take a bed 0:13:55.840 --> 0:13:58.040 on where interest rates are headed and so on. But 0:13:58.120 --> 0:14:00.600 I noticed in one of your recent Invests briefings you 0:14:00.600 --> 0:14:04.000 were saying that investors are really shying away from new builds. 0:14:04.360 --> 0:14:05.320 What's going on there? 0:14:06.280 --> 0:14:09.600 Yes, yeah, I think for the investors, they can see 0:14:09.679 --> 0:14:14.040 that there are many properties listed for sale, so the 0:14:14.120 --> 0:14:16.840 number stock of listings for buyers generally is the best 0:14:16.880 --> 0:14:19.960 since twenty fifteen, up about twenty six percent from a 0:14:20.040 --> 0:14:23.640 year ago. And the focus for buyers generally is on 0:14:23.680 --> 0:14:27.760 those existing properties maybe where they can make some changes 0:14:28.280 --> 0:14:31.200 and improve the yield. So as an investor, you're not 0:14:31.280 --> 0:14:33.320 just looking at this is what it costs, this is 0:14:33.360 --> 0:14:35.160 how much I'm going to borrow, this is the rent 0:14:35.200 --> 0:14:37.200 I'm going to get, And it's a simple equation. You 0:14:37.280 --> 0:14:40.360 just plug it in and where you go. As an investor, 0:14:40.360 --> 0:14:42.240 you might be looking at, Okay, well, here's a property 0:14:42.240 --> 0:14:46.120 with subdivision potential somewhere down the track. Here's a property 0:14:46.160 --> 0:14:48.720 where I could think about adding or taking away your 0:14:48.800 --> 0:14:52.240 room or garage or doing something. So frankly, it's more 0:14:52.280 --> 0:14:55.360 fun buying an existing property as long as it's not 0:14:55.400 --> 0:14:59.240 a townhouse, than would be the case just buying something 0:14:59.320 --> 0:15:02.400 essentially or off the rack. I can see from my 0:15:02.480 --> 0:15:05.680 various surveys, the real estate one in particular, that I 0:15:05.760 --> 0:15:09.840 do that the investors are now coming back into the 0:15:09.920 --> 0:15:13.440 market that are obviously encouraged by the restoration of interest 0:15:13.480 --> 0:15:18.240 expense deductibility, bright line changes and interest rates are going down. 0:15:18.520 --> 0:15:22.680 But yeah, they're very weary of what they see happening, 0:15:22.800 --> 0:15:27.120 especially in the multi unit housing area, the townhouse area. 0:15:27.400 --> 0:15:30.760 There are obviously some big problems in one or two 0:15:30.800 --> 0:15:34.440 areas there. There's an oversupply. For the moment, there's only 0:15:34.480 --> 0:15:38.360 temporary of townhouses up in Auckland, and there's I think, 0:15:38.480 --> 0:15:41.160 just to concern that they may look to make a purchase, 0:15:41.200 --> 0:15:43.520 but maybe I'm not going to get attend quite as 0:15:43.600 --> 0:15:46.600 quickly as they would hope. That will change down the 0:15:46.640 --> 0:15:50.280 track and the investors will start looking more favorably at 0:15:50.520 --> 0:15:55.000 new construction and townhouses in particular, but just not at 0:15:55.000 --> 0:15:55.400 the moment. 0:15:55.720 --> 0:15:57.520 But that's I guess going to keep a bit of 0:15:57.800 --> 0:15:59.920 a clamp on the supply, and that's going to dissuade 0:16:00.000 --> 0:16:02.320 some of those developers from developing at scale, right, which 0:16:02.360 --> 0:16:04.680 is just going to keep that, you know, keep people 0:16:04.720 --> 0:16:07.040 focused in that established property market. 0:16:07.320 --> 0:16:10.320 For the developers, certainly if the multi unit are complexes, 0:16:10.320 --> 0:16:11.920 they can't get the pre sales at the moment and 0:16:11.960 --> 0:16:15.120 they're not going to get the finance from the financial institutions, 0:16:15.400 --> 0:16:17.680 and so that that's why I think maybe for some 0:16:17.760 --> 0:16:20.880 of them. If they're still looking to be builders, they 0:16:20.920 --> 0:16:25.640 may be biasing back towards purchasing sections and building something 0:16:25.720 --> 0:16:28.080 rather than going down the townhouse route. For the moment, 0:16:28.480 --> 0:16:31.600 New Zealand cities need to intensify, so this is definitely 0:16:31.600 --> 0:16:34.840 going to come back again. The difficulty here is that 0:16:35.200 --> 0:16:39.800 we have decades of data on standalone house construction. You know, 0:16:39.800 --> 0:16:41.640 we've got the graphs going up and down. We can 0:16:41.640 --> 0:16:45.240 see what happens. The numbers usually bottom out around about 0:16:45.280 --> 0:16:49.200 fifteen thousand consents. We've done that, it's starting to slowly 0:16:49.360 --> 0:16:52.920 edge up for the multi units. For the townhouses, basically, 0:16:53.440 --> 0:16:55.960 we don't have any cycles at all. This is the 0:16:55.960 --> 0:16:59.640 first decent downturn, so we really don't know how low 0:16:59.680 --> 0:17:02.600 it's goning to go down. And that's why, frankly, when 0:17:02.640 --> 0:17:06.760 we're economists are talking about house construction the levels of activity, 0:17:07.400 --> 0:17:09.440 we're sort of all over the place at the moment 0:17:09.640 --> 0:17:12.320 because we don't We've got a feeling for the standalone 0:17:12.320 --> 0:17:16.960 house construction, but for the multi unit, no history gives 0:17:17.000 --> 0:17:20.119 me zero guide on when that's going to start picking 0:17:20.200 --> 0:17:22.240 up again. On the construction, I. 0:17:22.200 --> 0:17:23.920 Won't hold you to it until we get the results 0:17:23.920 --> 0:17:26.280 in I guess in terms of those new home buyers, 0:17:26.280 --> 0:17:29.760 obviously the debt to income ratio changes that have come 0:17:29.760 --> 0:17:31.760 in and so on, is that starting to filter through 0:17:31.800 --> 0:17:32.600 from what you can see. 0:17:33.640 --> 0:17:36.000 Yeah, for the DTI is there you know, twenty percent 0:17:36.080 --> 0:17:38.399 is a reasonable exemption quite frankly for banks, you know, 0:17:38.480 --> 0:17:40.919 to lend above us seven times income for the investors 0:17:40.920 --> 0:17:44.080 and six six times for other people. So you know, 0:17:44.119 --> 0:17:46.760 there are still quite some good scope in there. But 0:17:47.080 --> 0:17:49.960 as the as the market heats up and prices rise 0:17:50.400 --> 0:17:54.399 more for the existing houses, we will see people start 0:17:54.440 --> 0:17:56.960 to look back at getting something built, but that the 0:17:57.080 --> 0:18:00.919 numbers don't really work out out there. Relatively cheaper for 0:18:01.000 --> 0:18:03.760 most people to be looking at purchasing and already constructed 0:18:03.800 --> 0:18:07.280 property than getting something built. Now. You know, when I 0:18:07.280 --> 0:18:09.800 look at the cost of building materials, there have been 0:18:09.920 --> 0:18:14.760 some decreases, but it's relatively mild. I don't think there's 0:18:14.880 --> 0:18:17.560 much of an extra decline in the cost of construction 0:18:17.680 --> 0:18:19.560 that's going to come along. And you know, when we've 0:18:19.600 --> 0:18:23.240 been talking for some time about forty percent increases in 0:18:23.600 --> 0:18:27.000 the materials costs for building a residential property in New 0:18:27.040 --> 0:18:29.520 Zealand in the past four years, you find the same 0:18:29.600 --> 0:18:32.800 numbers if you're looking at material out of Australia or 0:18:32.920 --> 0:18:36.160 out of Ireland, for instance, and there is not an 0:18:36.200 --> 0:18:38.320 expectation that that goes backwards at. 0:18:38.280 --> 0:18:38.920 All of a sudden. 0:18:38.960 --> 0:18:42.600 Everybody's building lots of standalone houses, a lot of these 0:18:42.640 --> 0:18:45.920 extra costs are locked in. So for home builders, it's 0:18:45.920 --> 0:18:48.159 like they're going to have to actually wait until we 0:18:48.200 --> 0:18:51.440 get a decent increase in the prices of existing houses. 0:18:51.480 --> 0:18:53.480 And you know, for twenty twenty five, you know, I 0:18:53.520 --> 0:18:56.240 think it's reasonable to think that house prices on average 0:18:56.320 --> 0:19:00.400 rise five seven, maybe slightly more percent, and there maybe 0:19:00.440 --> 0:19:02.600 a little bit more than that over twenty twenty six. 0:19:02.880 --> 0:19:05.720 So the time will come for the higher residential construction. 0:19:06.160 --> 0:19:08.639 But I think the pace of price increase is going 0:19:08.680 --> 0:19:10.600 to be relatively mild the next couple of years. 0:19:10.760 --> 0:19:12.320 Now, you're coming to us from the Gold Coast, so 0:19:12.320 --> 0:19:15.520 I want you to quickly inflame people by telling us 0:19:15.560 --> 0:19:18.840 how the property market's been working over there. Just by 0:19:18.880 --> 0:19:19.720 way of comparison. 0:19:20.920 --> 0:19:23.720 Yes, well, you've got the baby Boober generation and the 0:19:23.720 --> 0:19:26.840 one below that cashing up out of the major cities 0:19:26.880 --> 0:19:29.719 and they're selling four or five million dollar houses and 0:19:29.800 --> 0:19:33.239 Mosman and other flash places across in Sydney and they 0:19:33.320 --> 0:19:35.720 prepared to lay it down on one hundred and fifty 0:19:35.800 --> 0:19:38.760 one to eighty square meter apartment. Here on the GC, 0:19:39.200 --> 0:19:41.800 there's all these towers going up all over the place. 0:19:41.800 --> 0:19:44.600 They build them really quickly, you know, two years from 0:19:44.680 --> 0:19:47.000 go to woe for a twenty seven story building just 0:19:47.000 --> 0:19:50.879 down the road for instance. The demand is massive for 0:19:50.960 --> 0:19:54.920 property here. There was an estimate from a evaluation group 0:19:55.160 --> 0:19:58.760 yesterday noting that on the GC they need to build 0:19:59.119 --> 0:20:04.960 for expect population growth, fifty skyscraper apartment blocks each year 0:20:05.240 --> 0:20:08.520 over the next few years for the population growth. What 0:20:08.560 --> 0:20:10.879 it adds up to is demand is so strong and 0:20:10.960 --> 0:20:14.240 supply is crimped. Remember cost materials have gone through the roof. 0:20:14.800 --> 0:20:17.600 Prices on the GC have gone up on average seventy 0:20:17.680 --> 0:20:21.720 to eighty seventy to eighty percent for apartments in the 0:20:21.760 --> 0:20:25.200 past four years. Demand versus supply, that's what happens. Get 0:20:25.280 --> 0:20:29.520 out really yeah, yeah, it's quite extreme. It's totally different 0:20:29.520 --> 0:20:33.000 from the cities, the eight capital cities around Australia where 0:20:33.040 --> 0:20:36.600 actually there's falling prices at the moment in Sydney and Melbourne. 0:20:36.680 --> 0:20:39.880 Not sure about Brisbane, but the markets can be heavily 0:20:39.920 --> 0:20:44.040 influenced in the cities by what's happening with migration numbers, 0:20:44.080 --> 0:20:46.639 which have been relatively strong. But there's a bit of 0:20:46.680 --> 0:20:49.520 a movement still of some people to the regions, and 0:20:49.520 --> 0:20:51.760