Here's our summary of key economic events overnight that affect New Zealand, with news of mostly second-tier indicators today.
And that is because it is a public holiday in the US, Memorial Day, and financial markets are closed there.
It is probably good that business is closed there for one major commercial real estate investor. Starwood Real Estate Income Trust has had to limit the amount of money that investors can redeem in the fund (see page 6), in an attempt to fend off a cash crunch as high interest rates hurt the market for commercial properties such as office buildings. They aren't the only REIT facing a liquidity crisis. With interest rates rising again, the tide is going out on these types of investments.
In Japan, yields for their 10-year government bond yield rose above 1%, its highest level in 12 years. This came as the Bank of Japan governor said they need to re-anchor inflation expectations and warned that estimating the neutral interest rate accurately is challenging. Meanwhile, a deputy said the end of the battle against deflation was in sight, adding that wages are likely to continue increasing.
Despite the punishment grip imposed by China (for voting for a candidate Beijing doesn't approve), consumer sentiment in Taiwan actually rose in May and by more than is usual. However to be fair the rise is just back to 'normal' levels after their recent election.
China released industrial profit data today for April, and although this came in almost +14% higher than in April 2023, it is a very low base that enhances the apparent performance. Compared with April 2022, these profits are actually down -17%.
In Germany, their closely-watched Ifo Business Climate indicator was steady at 89.3 in May, the same as a downwardly revised 89.3 in April, but both were well below forecasts of 90.4.
And we should probably note - again - that the local carbon price hit another new recent low yesterday, now under NZ$45/NZU. You may recall that the last Government auction price was fixed at in March at NZ$64/tonne (and that was after a series of failed official events when nothing sold).
The UST 10yr yield is now at 4.46% and down -1 bp from yesterday. The key 2-10 yield curve inversion is little-changed at -49 bps. Their 1-5 curve is also unchanged at -68 bps. And their 3 mth-10yr curve inversion is still at -93 bps. The Australian 10 year bond yield is now at 4.32% and down -3 bps. The China 10 year bond rate is also unchanged at 2.32%. The NZ Government 10 year bond rate is still at 4.84%.
Wall Street is closed on course for their holiday. But the S&P500 futures suggest it will open tomorrow up +0.6%. Overnight European markets closed up +0.5%, but London was also closed for a holiday. Yesterday, Tokyo ended up +0.7%, Hong Kong was up +1.2% and Shanghai ended up a strong +1.1%. Singapore ended its Monday session up less than +0.1%. The ASX200 ended +0.8% higher but the NZX50 ended -0.2% lower.
The price of gold will start today up +US$21 from yesterday at US$2354/oz.
Oil prices are up +US$1 at just over US$78.50/bbl in the US while the international Brent price is now over US$82.50/bbl.
The Kiwi dollar starts today up +¼c from yesterday at just on 61.5 USc. Against the Aussie we are unchanged at 92.4 AUc. Against the euro we are marginally firmer at 56.6 euro cents. That all means our TWI-5 starts today over 70.7, which is up +15 bps from yesterday.
The bitcoin price starts today at US$70,052 and up +3.4% from this time yesterday. Volatility over the past 24 hours has been modest though at just on +/- 1.7%.
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105 Comments
And lack of suppliers and buying power. We can’t source our veg from a wide range of producers and countries all around Europe like a UK supermarket can. And we are much more susceptible to currency fluctuations, shipping fluctuations, supply disruption, etc. But all of these issues would be expected for a small lowly populated island in the middle of nowhere.
AFR: Boomer ‘wave’ of outflows starts to hit super
Australia’s biggest retail superannuation funds are paying out billions more dollars in cash than they are bringing in as the wave of baby boomers reaching retirement age starts to hit the $3.6 trillion sector.
I wonder what boomer flow selling NZ Property to fund retirement looks like?
Yes and unlike most other investments, if its your own home it produces no rent unless you have flat mates or boarders and most boomers do not..... I know of people who want to move into a village but will not accept a $2.0 mil offer, they want $2.4..... by summer the offer will be $1.8mil and they still won't be in a village....
Its no wonder the village operators have fallen so far their business model is shot here.
Care to explain how they have been screwing the customers? Aged care has been subsidised by the capital gains that the companies keep, with full agreement of the customers. Now that subsidy has dried up the companies are struggling.
Seems to me the customers/government need to be paying more? Especially if greedy customers keep on claiming they have been somehow cheated out of capital gains that they signed away.
Try 20% management fee to start with. But how much choice did their customers really have? True caveat emptor is relevant, but most customers are not negotiating from a position of power. Those I know who have chosen to go down the retirement village route seem blinded to a degree to the selling hype rather than understanding the hooks.
There's many providers, with various different models. The hard fact is that assisted living costs a lot of money - without the property profits you'd be talking thousands per week to cover a retirement home with decent nursing coverage, other medical support, meals, cleaners etc.
It's basically a way to turn existing equity into an on-going service, rather than funding it out of pocket. Really we're just talking about how much inheritance the kids are going to get, which I have fairly strong feelings about (I'd prefer heavily taxed inheritance to get us off the current path to feudalism and the creation of a landed gentry - the current system does not provide equality of opportunity).
The cost of nursing home are high, but I wasn't talking about those. My reference was to the retirement villages where resident buy a house/flat on terms loaded in favour of the village operator. And there are many reported examples where those residents need to get out for some reason and extracting themselves from the contract is both painful and expensive.
Aged care has been subsidised by the capital gains that the companies keep
Not subsidised, but built on a model that assumes never ending capital gain to keep the profits rolling. If you think that people should pay more, then I'd ask why, historically with the money they've been creaming from cap gains and residents, do they pay their care workers rock bottom wages. It is an extractive model, and I have to wonder once the baby boomers are lesser in number moving into the future, whenever that tipping point is, if they will realise that the good times can't go on with capital gains forever and they will need to pivot.
The long term is a real problem. There'll be a big bulge of boomers flowing through in the next decade or two (most don't enter a home until 70+), which will then subside. That does rather suggest boomers will have to pay even more for the privilege as many of the homes will have to be converted to some other function as the demographic wave subsides.
Meanwhile, current incentives mean the retirement cos are slowing down development and the government is providing the bare minimum of funding. We will have a shortage before long.
It can’t end well can it. Well I guess it could end well for young FHBs. If I was a boomer with rentals I would have cashed out by now.
It feels like we’ve hit the end of investment property, the doubling every ten years, the “ladder”, etc. Unless we go back to the days of stupidly low rates.
Probably two years ago looked like the time to bail.
I'm a boomer, no rentals (I got out of it 20 years ago), and if young FHBs gain then I think great! But I feel that house prices essentially have to tank to get them back to the required levels of affordability.
I think the housing market has and is screwing this country, and is denying people a basic need. Internationally our homelessness rate is getting noticed for all the wrong reasons. No government in the last 20 years has had the vision or the courage to properly regulate the market.
Game theory says the first out is best dressed..... we are seeing that now, very high listings bright line changes coming... why wait to sell in a falling ,market? .... wait a minute house prices can fall?
Doesn't really matter for the boomers if they purchased 10-20 years ago... as TTP would say
Boomers just need to be mortgage free and have a few hundred thousand in the bank at current interest rates. When the super kicks in for me I will be making more money than I ever did actually working in this country because the average pay is total crap. Most people out there are still on $50-$60K and trying to survive.
Actually I am wrong there. If property values stayed stagnant (kept up with inflation but made no real gain), that alone would be better than TDs which are real loss after tax. Add in the rent and it would still be a better investment (although a lot more work and risk).
From May 2018,
"Just 8 per cent of households owe 40 per cent of the entire mortgage debt of New Zealand banks."
https://www.stuff.co.nz/business/money/104323467/reserve-bank-says-8-pe…
Would be interested to know the current concentration of debt.
My gut says in 2026 we will get a Labour/Green's/TPM coalition. National is wasting its political capital frivolously. We then get a CGT, land or wealth tax. Baby boomers will be struggling to offload their rentals at 70% of what they could have got in late 2021. This will be the start of a new era.
No, as long as the US keeps interest rates high we will not be able to lower ours without impairing the value of the NZD. If the NZD drops significantly our reliance on import costs will cause inflation to accelerate. On the other hand our exporters will have something to cheer about as their product becomes relatively more competitive on the world stage.
Despite the punishment grip imposed by China (for voting for a candidate Beijing doesn't approve), consumer sentiment in Taiwan actually rose in May and by more than is usual.
The newly elected leader of Taiwan says he’s the only legitimate ruler over all of China.
U.S. Lawmakers Visit Taiwan and Vow Support in Face of Chinese Military Drills
“People in Taiwan look at what happened in Hong Kong, they look at Afghanistan, they look at Putin,” Mr. McCaul said in an interview. “They’re worried that this is going to be the next shoe to drop, and they should be.”
“I don’t want anyone to think that we can’t support Taiwan because of Ukraine,” he added. “The stuff going to Ukraine is old and it’s old NATO stuff; this is all brand-new for Taiwan. But I just think our defense industrial base is overloaded right now, and it cannot handle this amount of conflict in the world.”
It's pretty revealing that if "The Arsenal of Democracy" is stressed providing munitions for 2 rather small conflicts-Ukraine & Palestine it certainly confirms the need to continually have Defense wares productions funded robustly; for If not the democratic world would be right back into the unbalanced position they found themselves in 1939. With the loss of so much Industrial output to Asia over the past 30 to 40 years this news confirms it would likely not be possible to ramp up production to the levels that we able to from '39-'45. Nato allies in Europe better get cracking on that 2% of GNP mandate.
Some recent reports about production woes. Russia is producing 3 time as much artillery as USA and NATO combined at 1/8 the cost, russsia is the most advanced industrial nation in Europe and has been handed to china.. USA also have a huge problem with drone cost and china having the worlds top 5 drone companys and 80 percent market share. Mnay of the USA's ship programses are years behind while china has some 70 percent of commercial shipping orders, a big problem should they covert this labour to war production.
People on here think all the Chinese are still getting by on only a bowl of rice and $2 a day. They are moving so far ahead its not funny and have the population that's so big to back it. Their own market is almost big enough to support multiple EV makers, the rest of the world just gets the excess capacity. Things happen over there on a mind blowing scale, little NZ is truly a joke when it comes to manufacturing.
Russia is producing 3 time as much artillery as USA and NATO combined
I reckon the western production figure is exaggerated by roughly 100%. Eg. the most optimistic US shell production figure is about 35,000 per month or 420,000 per year. The rest of the western bloc together can't come close to that number. Therefore Russia is outproducing the west by about six times and the gap is increasing not closing.
HFL rates have become.....JUST HIGHER. Stupid lows is not coming back, sorry spruikers, speculators and the greedy land bwankers:)
High inflation and high interest rates are the way of old and new in NZ.
Boomers liquidating their rentals, in numbers like we have never seen before. At ever decreasing prices, dictated by high interest rates.
The overpay on commercial space in NZ is massive as well recently- major haircut's coming here soon. I walked away from some new offers at the new Hobsonville commercial property zone -NW Auck. terrible yields.
USA is the big fat, dead canary in this gassy coalmine!
So, any bubble inflated BIG by cheap DDDebt, will have the assets hacked to pieces by the Debt reapers sharpened blade.
@NZ Gecko .....Absolutely, if the RB lowers interest rates, up goes inflation like a Tesla rocket on a hot, humid Texas morning ! ....then the kiwi peso will plummet down to USD 0.40cents or even lower ..... this is what ya get with a small, narrow minded, greedy, "property crazed" economy that's too afraid to take any risks....other than property !
The banksters love it !!! ....they have every renter piling in liquid cash, with their paltry wages....and because incomes are so crappy for so many, the stoopid gummint has to chime in with taxpayer money ! in the form of basically "landlord welfare" the accommodation supplement ... if a tenant can't afford to rent a property either A. landlord to reduce the rent or B. incomes need to increase .....and git ya hands outta the taxpayers pocket ! ya bludgers !!
they will be back printing money and dropping rates
Dropping rates, yes, at some point. "Printing money" - banks lend on security of income, if the economy really is in the poop, which it already is, that security is not particularly secure. Dropping rates will ease pressure on existing loans, however does not necessarily mean it will go gang busters. Look at literally every other recessionary bust. Covid times were an exception as we were at peak boom and dropped the clutch to red line the economy for a couple of years. Head gasket is lying in the middle of the road back in November 2021.
When everything is over valued (by international comparison) then devaluation may be the only answer. Go back in time 30 years to the streets of Tokyo and ask the average Japanese worker what their salary is. You would probably be impressed. Ask the same question today and you would be like WTF.
NZ Geko
What a lot of rubbish you spout.
"Boomers liquidating their rentals, in numbers like we have never seen before. At ever decreasing prices, dictated by high interest rates."
What numbers do you have? Please quote your source to back this up . . otherwise you are just spouting a lot of bullocks.
The boomers I know bought many years ago and have long ago cleared the mortgage on their rentals and have been enjoying far better returns than expected with significant increases in rent , , , and could still sell with significant capital gains. Absolutely no need to shed any tears there.
Sadly, those who are suffering from high interest rates are those - especially FHBs - home owners who have bought in the last three to five years and have large mortgages. Those are the ones suffering and likely to be having to sell dictated by high interest rates.
Oh yeah, those boomers in retirement and with term deposits now enjoying far better returns.
Seemingly, just a Monday morning anti-boomer rant to console your sad self?
malamah
I hope that is not a sad attempt to provide "a number" of increased number of boomers forced to sell to back up NZGeko assertion.
If so, a giant baseless leap of faith to assume that is due to boomers selling up . . . could, sadly, well be recent FHBs.
Also do a little further research . . . current number of listings still some what below 2011 to 2015 levels.
Just a number worth considering in the current economic climate, fortunately no sadness nor envy here.
You raise a good point though. GFC bust through 2008/9, rates plummeted and listings peaked several years later. A lot of pain ahead unfortunately for many, then maybe NZGeckos statement will prove correct.
Say as you like P8.....you deny reality at your financial peril.
The boomers are massive, net sellers, going forwards from here!!
Sure, liquidating with good profits, YET LIDUIDATING IN LARGE NUMBERS!
I know many aged in Auck right now trying the great housing "flog off"....but they are NOT SELLING in this oversupplied market, as they WANT 20 to 30% more, that this soggy 5% plus DDDebt market cannot pay!
They will flood the market further in years to come and sink this Housing boat that is now riddled with bullet holes from those others in expensive and inescapable DDDebt traps.
P8 Denies the largest Demographic in the world's history and now not earning wages, have all wealth locked stupidly in housing and NEED to liquidate.
It is that way it is.
NZGeko
What financial risk do I face “at my financial peril” as you claim? Another baseless rant of yours.
I am eight years in to retirement, and after fifty years of sound financial decisions and investments now live very comfortably (and the “bank balance” is still a little higher each year).
You need to take stock of your wild baseless rants . . . if they reflect your financial nous it is you that is certainly at high risk of financial peril.
Hope you have got your Monday morning anti-boomer envy-based rant out of your system and the week starts improving for you.
Cheers 😀
Colonial
Yes, but the issue is what evidence is there that it is under pressure boomer landlords who are forced to put their properties on the market?
I look forward to reading your evidence of that; I.e. to show that it is not just an anti-boomer envy-based rant..
P8 - Dont just take what I say as gospel, look yourself, at the real world, real experience!
Just go to your beloved Property Investor Chat Group on Facebook TODAY!!
Relatives are wondering how best to "Flog Off" the 4x crappy, non-upgraded, old rentals, of their elderly relation.......THIS X THOUSANDS in coming months/years.
This demographic is quitting the dyeing Ponzi Rentals, in large numbers, like a stampeding herd of Bison.
Undeniable Exhibit A on the FB site today. One of Thousands, in the same situation.
I rest my case, your Honour.
Not so fast. If the next six months we get the same net immigration as the same time last year, annual net migration will be ~50-60,000 in October/November this year. Except it doesn't seem like we will, people are leaving in droves.
The big pump of immigration is more likely attributed to the lack of departures of visitors and workers that never arrived in the first place in 21/22.
We're signing ~4,000 residents p/m. Back to basics. That's the housing demand. Meanwhile rental and sale listings are hitting highs. There is downward pressure on prices, unsure about rents - depends where. 1,000s of townhouses coming to market, but this construction will drop off and take thousands of jobs with it. Demand schemand.
I walked away from some new offers at the new Hobsonville commercial property zone -NW Auck. terrible yields.
What was the gross yield on the commercial property?
Was it currently tenanted?
The overpay on commercial space in NZ is massive as well recently- major haircut's coming here soon
With falling valuations, will that require owners to reduce debt levels to maintain the maximum LVR covenant by their lender? I think the maximum LVR on commercial is 60%.
Hi CN, It was expected to be around a 5 to 5.5% gross yield, just over a year ago. Not tenanted and was still in development then.
Yield too low (with some commercial borrowing) and the selling agent said to "expect capital gains" from it. I did say that's not a promise they could make, or I could expect, for a long time.
Not a believable sales job then.
Might look again when a lot more are finished (market flooded) and vacancies are high, with business now doing it tough, vacancies will rise.
It's a good location.
Cheers. NZG.
"It was expected to be around a 5 to 5.5% gross yield, just over a year ago. Not tenanted and was still in development then."
Gross yield is way too low in my opinion.
And it is still in development? The valuation might be a lot lower now with a larger share owned by the lenders on the commercial property. Investors at the time of the offer may have experienced large losses percentagewise. Assuming a 60% LVR, then equity investors are wiped out with a cap rate of 9.2%, assuming no new equity capital, and assuming the building is tenanted at the initial indicated rental level
Look at this example of a commercial building under development and the financial and mental impact on investors who lost money.
Claim over $41.3m Nido investor losses: Court action explained - NZ Herald
Investors who poured millions of dollars into the failed Nido homeware share ownership scheme have told of the misery they are suffering.
One investor with $1 million-plus invested has complained to the Financial Markets Authority, another who put in $1m fears he will have to shoot rabbits and dig vegetables to eat, while a third is suffering insomnia and nightmares after putting in $250,000.
A retired farmer, aged 79, said: "I can shoot rabbits and I grow my own vegetables. If I have to, I'll carry on working. I was getting around $5000 per month interest."
Another shareholder in her early 70s is one of 229 shareholders in Central Park Property Investment, which owns the failed Nido West Auckland homeware store and site.
The woman had a mortgage-free house and said she thought Nido was a good deal but said she had never visited the now-abandoned store, which shut two months ago.
"Covid came along and I worried my superannuation money in a managed fund would have a balance going down and down and down. So I grabbed it all out and I talked to a person at church who sent me a newsletter earlier last year from Maat.
"I hadn't heard of them at the time but felt that they had belief in faith like I do. I was drawn to the 8.5 per cent return. I was looking for somewhere to invest my money. I read a newsletter from May 2020 which said that the Nido store scheme in west Auckland was projecting 11 per cent although it came back to 8.5 per cent."
So she met up with executives behind the fund.
"I'm not investment savvy, although I've had rental properties in the past. Maat had 12 funds they were managing and had a good track record. I felt they could be trusted."
She then attended a presentation and although Nido founder Vinod Kumar was absent, she said she felt even more comfortable about the scheme.
"They knew what they were doing. So I invested in stages and in hindsight it was far, far too much. It should have just been a small amount but I was attracted to the return. It was so much more than putting my money in the bank," she said.
I see the new Hoby development setup for the land bankers/developers for a great return, but the new buyers/owners so much.
-Many units do seem to have business tenants now though.
The longer these higher for longer interest rates weigh on the whole market and holding costs escalate - a new lower valuation scene will have to develop. For many its a straw castle, that will not handle the stiff financial S/Wester coming.
As with Nido (went in once- could not see how they made significant cashflows??..now history) many are easily led along by a swish and fancy sales con job and just accepted the "promised" returns.
Many people should just accept the lousy bank returns, if they are not inquiring researchers or know financial history. Free world I guess.
https://www.rnz.co.nz/news/business/517987/prediction-lending-changes-w…
$1.63 trillion (some 5x our gdp) tied up in rundown shit boxes with around a 2% yield. Biggest misallocation of capital ever. Creates few jobs and has destroyed our productivity.
But we all know it's our governments' go-to to make us all feel prosperous.
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