WILSON COLLIN, 300238419
Assignment 1,
Post 1
“Commercial properties”.
http://www.stuff.co.nz/business/industries/9865977/Commercial-property-sales-rebound
The major news this week was the release of International
investors putting New Zealand in their top-10 list of Asia-Pacific real estate
investment targets (Gibson, 2014) . This has caused
Commercial property sales to rebound after the 2012 slump.
Investors will look for real-estate opportunities as demand
pushes prices up over the foreseeable future. Increasing foreign investment is
a main driver for the increase in Demand for commercial property in New
Zealand.
“Jones Lang LaSalle, said more than $2 billion worth of
properties sold for more than $5m last year, with office properties leading the
way.” (Ninness, 2014) This is positive news for Welly Real
Estate as office values will increase and this is an indicator that investors
are willing and able to pay upper market prices for office space.
Again with increasing foreign investment Industrial property
prices will continue to increase also. The main driver of these prices will be
the Auckland region as 76% of industrial property sales, in 2013, occurred in
the Bombay hills. (Ninness, 2014)
Individual firms will receive a boost in Assets as land
value increases. This will increase their lending ability, however the recent
OCR increase of 0.25% has increased interest rates in an attempt to cool the
housing market. This will discourage lending.
“To keep inflation expectations in check, interest rates
would need to rise towards a level where they were no longer pushing the
economy forward, adding to demand.” (WEIR, 2014)
Interest rates are expected to continue to rise to combat
inflation. However interest rates are at a 50 year low, so interest rates are
still relatively low. (WEIR, 2014)
A boost in land value will allow consumers and other
property owners in the market to increase their borrowing potential. This
allows struggling businesses to stay afloat in the short term as lacking cash
flow into the business can be boosted by borrowing.
This is positive for Welly Real-estate as opportunities
arise in the short term. I recommend that Welly Real-estate invest in both
industrial and commercial property in the immediate future. I predict the
market values will continue to increase as investors will look to increase the
Supply of commercial space in Major cities throughout New Zealand. "We
don't have enough real estate to satisfy that demand. So the natural result
should be there will be an upward pressure on prices” (Gibson, 2014) .
Any increase in Supply will be done by utilizing idle
resources, such as empty or idle land lots. However, NZ property market prices
will still increase due to a lacking supply.
This will increase the inflow of cash to Welly Real-Estate
in the short term as sale opportunities are expected to arise. This will help
to keep them operating in the foreseeable future.
Gibson, A. (2014,
march 25). Foreign funds eye NZ commercial real estate. Retrieved from
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11225553
Ninness, G. (2014,
March 25). Commercial property sales rebound. Retrieved from
http://www.stuff.co.nz/business/industries/9865977/Commercial-property-sales-rebound
WEIR, J. (2014,
March 13). Mortgage pain time: OCR rises to 2.75 per cent. Retrieved from
http://www.stuff.co.nz/business/money/9822918/Mortgage-pain-time-OCR-rises-to-2-75-per-cent
Post 2
“New Zealand Dollar”
http://www.stuff.co.nz/business/industries/10018244/RBNZ-may-intervene-in-currency-Wheeler
A large factor in the New Zealand economy in recent times
has been the strong New Zealand Dollar (NZD). Ellen Read’s article addresses
the New Zealand Dollar and her thoughts as to its future movements.
"The Reserve Bank considers that the exchange rate is
overvalued and does not believe its current level is sustainable” (READ, 2014) .
Due to offshore factors such as the US economy bouncing back
and the slowing growth of the Chinese economy the NZD will be forced to drop to
control inflation.
The NZD cannot sustain such a high exchange rate. It must
come down at some point. The Dairy industry, US economy and Chinese economy
will be major players in how fast the reserve bank will increase interest rates
to cool the NZD.
The chart below shows the trend of the NZD/USD over the past
year. The chart shows a linear increase over the past year. The NZD is at a 5
year high. The NZD has been on a steady increase over the past year and is
expected to drop over the next year. (READ, 2014)
Source: (Limited, 2014) (See Final Hand in for image)
When the NZD weakens foreign investment into NZ becomes
attractive. Outlined in Gibson’s article for the New Zealand Herald, rising
property sales and NZ becoming a popular country for foreign investment is
increasing the demand for commercial property in New Zealand.
"We don't have enough real estate to satisfy that
demand. So the natural result should be there will be an upward pressure on
prices.” (Gibson, Foreign funds eye NZ
commercial real estate, 2014)
Combining this increase in demand with a lowering NZD will make
NZ property very attractive in the foreseeable future.
For Welly Real Estate the strong NZD is holding foreign
investors at bay. This gives Welly Real Estate a window of opportunity to gain
a good foot hold in the Welly property market. There are large opportunities in
the New Zealand property market.
Increasing property values will increase rates and rental
prices. This will mean an inflow of new clients for Welly Real Estate’s
Relocation sector. This will be a way of keeping a healthy cash flow into Welly
Real Estate and will help keep them afloat in the immediate future. A healthy
cash flow will allow Welly Real Estate to keep covering operating expenses.
Works Cited
Gibson, A. (2014,
03 25). Foreign funds eye NZ commercial real estate. The New Zealand Herald.
Limited, N. (2014,
April 7). New Zealand Dollar Exchange Rates. Retrieved from NZ FOREX:
http://www.nzforex.co.nz/exchange-rate/NZD
READ, E. (2014,
April 07). RBNZ may intervene in currency - Wheeler. Fairfax NZ News.
Assignment
1,
Advice for Welly Real Estate
“International investors with a total of US$2 trillion
($2.34 trillion) in funds have put New Zealand in their top-10 list of
Asia-Pacific real estate investment targets” (Gibson,
Foreign funds eye NZ commercial real estate, 2014) .
Foreign investment in New Zealand property is an imminent
and ongoing occurrence and will create major opportunities for New Zealand
property owners. This shows the potential of foreign investment in New
Zealand. Welly Real Estate facing difficult financial times will limit the opportunities
they have access to however opportunities are there. I recommend Welly Real
Estate:
·
Loan to increase investment in commercial
properties
·
Concentrate on relocation and renting sectors
to keep cash flow healthy and cover Operating expenses
·
Follow the NZD and use as an indication of when
to sell to repay outstanding debts.
I Recommend that the above three options are in Welly Real
Estate’s best interests. Staying out of the housing market and concentrating
on commercial property will be a good move for Welly Real Estate. The New
Zealand housing market is overpriced at this time and prices are expected to
fall.
Investment into the New Zealand housing market has been up
40% over the past two years (Herald,
2014) ,
also inflation increase and a booming economy means the OCR is expected to
increase to sustain growth for as long as possible.
"The OCR will need to rise by about 2 percentage
points over the next two years for inflation to settle around the target" (Herald,
2014) .
The housing market in New Zealand has peaked and prices
will begin to fall as banks continue to put restrictions on first home buyers
and interest rate rise again. However commercial properties are an attractive
prospect.
Increasing foreign investment will be the main driver for
commercial property prices in New Zealand. Large foreign investors are moving
into the New Zealand market and a few good purchases now for Welly Real Estate
could give the boost needed and pull them out of debt.
I suggest investing in industrial lots. Increasing foreign
investment will cause property developers to look for idle resources to
increase the supply of property in New Zealand (Ninness G. ,
2014) .
This will be a low risk option with good return. However investing in
industrial lots will not increase cash flow into Welly Real Estate, it will
increase the Operating expenses as loan repayments become greater.
The relocation and renting sector for Welly Real Estate
will be a major sector to keep them afloat over the next year. As property
prices increase renting prices will also increase this will leave business looking
for cheaper alternatives meaning more clients for Welly Real Estate. A government
policy set on a budget surplus will also leave vacancies in office space as Government
contracts from spending, as I have addressed in an earlier blog based on Kate
Chapman’s Government surplus on a knife-edge article. This will provide good opportunities
to down grade client who are looking for a cheaper alternative.
The New Zealand dollar will be a good indicator on when to
sell. Strong commodity and dairy prices along with a decline in policy
interest rates are at a 50 year low have all contributed to the strong New
Zealand Dollar that is considered overvalued.
Government will use the Official Cash Rate (OCR) to combat
inflation and keep it between one and four percent. The OCR is expected to
increase over the next two years to combat inflation as net migration
increases continue to pressure consumer demand. This will see the NZD drop
from the recent peak.
As the NZD drops foreign investment becomes far more
attractive and affordable. This will be a major cost driver and can be a large
cash injection for Welly Real Estate in the long term.
Getting Welly Real Estate back on its feet will take planning
for the short and long term. Using foreign investment to make a gain is a good
prospect on the horizon for Welly Real Estate.
Works Cited
Gibson, A. (2014,
03 25). Foreign funds eye NZ commercial real estate. The New Zealand
Herald.
Herald, N. (2014,
Mar 13). Dollar Jumps on OCR hike. the New Zealand Herald.
Ninness, G.
(2014, March 25). Comercial Properties Rebound. Stuff.co.nz.
READ, E. (2014,
April 07). RBNZ may intervene in currency - Wheeler. Fairfax NZ News.
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