Reserve Bank: For every $100 of disposable income New Zealand households have, they have about $170 of debt. Photo / Mark Mitchell
The Reserve Bank of New Zealand (RBNZ) says the country’s financial system “appears robust and in a good position to face potentially looming challenges”.
The regulator recognises the system’s vulnerabilities stem from mortgage holders being very exposed to high interest rates.
This is because elevated house prices mean Kiwi borrowers are particularly highly indebted by international standards. They also tend to fix their debt at short durations, meaning interest rate changes are felt more acutely.
The RBNZ notes that overall, mortgage holders are meeting their repayment obligations and the banking system is in a much better state than it was during the 2009 Global Financial Crisis.
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However, problems could arise if unemployment shoots up or financial conditions tighten.
For every $100 of disposable income New Zealand households have, they have about $170 of debt.
The ratio is similar in Canada, but worse in Australia, where households have nearly $200 of debt for every $100 of disposable income.
In the United Kingdom, Europe and the United States, households have about $100 to $130 of debt for every $100 of disposable income.
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The RBNZ includes these figures in a chapter of its biannual Financial Stability Report, which it released on Monday, ahead of the document being published in full on Wednesday morning.
The point the RBNZ sought to draw attention to is that while it’s wary of the impact high interest rates are having on mortgage holders, New Zealand’s financial system is faring similarly to other advanced countries.
“To date, financial systems have been largely resilient to risks emanating from higher interest rates, but the full impact is still to be seen and some areas of concern are emerging,” the RBNZ said.
Mortgage holders are significant, as mortgage debt makes up 63 per cent of the $551 billion of loans on issue by New Zealand-registered banks.
Turning to other parts of the financial system, the RBNZ noted that while the New Zealand equity market did well during the initial stages of the pandemic, it has since become an underperformer by international standards.
The RBNZ said this partly reflects the higher weighting of interest rate-sensitive sectors in the NZX50 index relative to many overseas indices.
“US equity markets have been buoyed by the strong performance of the technology sector and stronger than anticipated economic activity. European equity markets have profited recently from declining energy prices that increased corporate profits,” the RBNZ said.
It recognised that both here and abroad the commercial property sector faces “considerable headwinds”.
“Higher interest rates and lower demand from tenants, caused by more workers choosing to work from home, have lowered asset valuations and worsened property owners’ loan servicing ability,” the RBNZ said.
“Funding is also becoming more constrained due to tighter lending standards. In the future, decreasing operating margins for property owners and growing difficulties refinancing loans are likely to raise the share of debt past due for repayment.”
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The RBNZ recognised New Zealand banks aren’t as exposed to commercial property as US banks are.
Furthermore, risks to the financial system have been mitigated by tight lending standards.
“So far signs of financial stress have been limited,” the RBNZ said.
Looking at the big picture, the RBNZ said, key financial stress indicators remain “mostly benign compared to expectations, although some areas of stress are emerging”.
“In part, this reflects robust macroeconomic fundamentals, such as low unemployment rates, and past regulatory tightening across many jurisdictions after the GFC,” it said.
“The channels through which higher interest rates impact economies are generally the same, but the impact and transmission speed vary across markets, countries and time.
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“Risks to financial stability will likely be most acute in countries with weakening economic fundamentals.”
Jenee Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
Higher interest rates, lower inventor keeps Kansas City housing prices high and homebuyers scrambling
It’s no secret that the housing market right now is complicated – or chaotic, depending on who you ask. There’s a couple of reasons why.The main reason is interest rates are going up – but prices aren’t going down. House prices aren’t going down because there’s no homes for sale right now.Look around most neighborhoods, and it’s tough to find a home for sale. It took six weeks, and $60,000 more than they initially budgeted – but Sarah Hogan and Joey Tangeman bought a home in Olathe. And they count themselves lucky.”We waited through 2020, 2021, and 2022. And then we’re like – okay – if we wait any longer, we’re going to get priced out of everything,” explained Hogan. “We gotta jump in, we gotta do it. Because if we don’t we’re never going to buy a house.”Hogan and Tangeman put in three offers this summer. For the first two, they put in offers more than $20,000 over the asking price – and still missed out. “We had to swallow the fact that we’re going to be paying more than we wanted to every month,” said Hogan, “but it meant we’d actually be able to afford a house and get a house. They say they never changed their standards, just their budget.Right now, there are roughly 5,000 homes for sale in the Kansas City metro; that’s down almost 13% from a year ago. And because the inventory is so low, home prices can stay high. They’er 4.5% higher than this time a year ago, according to the Kansas City Regional Association of Realtors.Mike Frazier explained how the market got here. “To explain this market, I think you have to go all the way back to 2008. The Great Recession that happened really pushed a lot of builders and developers out of the market. And those builders and developers – a lot of them haven’t come back. Inventory has been a problem for the last 5 years.””Most builders and developers don’t want to build in the 200,000, 300,000, 400,000 dollar range,” the President and CEO of ReeceNichols continued, “which is where we need all our houses. They can’t make enough money at that price point. They want to build in the higher price point, we need housing in the lower price point.”In the last 10 years, the average home price has doubled in the KC metro area, from roughly $140,000 to more than $350,000.Frazier quipped, “the best time to buy a house is yesterday.”There aren’t a lot of options for anyone looking to spend fewer than 400,000 on a home, and it won’t remedy itself for years to come.”Over the next, probably, eight years, you’ll see a lot of baby boomers moving out of their houses. And that will release some of the pent-up demand that’s there from a sales side,” Frazier explained.”But until we get there, you’re going to have to be patient, you’re going to have to overbid on properties,” the way Hogan and Tangeman did. “You’re going to have to look at your budget and decide what can I truly afford, and know that housing prices aren’t going down.””Prices aren’t coming down anytime soon – if ever,” said new homeowner Tangeman.”Interest rates are going up. We don’t have a crystal ball or anything to know if it’s going down or up. but with the way it’s been going the last couple of months,” Tangeman noted, “we locked in at an interest rate, and that’s already higher than where we locked in at, and that’s just two weeks ago.”
KANSAS CITY, Mo. —
It’s no secret that the housing market right now is complicated – or chaotic, depending on who you ask. There’s a couple of reasons why.
The main reason is interest rates are going up – but prices aren’t going down. House prices aren’t going down because there’s no homes for sale right now.
Look around most neighborhoods, and it’s tough to find a home for sale. It took six weeks, and $60,000 more than they initially budgeted – but Sarah Hogan and Joey Tangeman bought a home in Olathe. And they count themselves lucky.
“We waited through 2020, 2021, and 2022. And then we’re like – okay – if we wait any longer, we’re going to get priced out of everything,” explained Hogan. “We gotta jump in, we gotta do it. Because if we don’t we’re never going to buy a house.”
Hogan and Tangeman put in three offers this summer. For the first two, they put in offers more than $20,000 over the asking price – and still missed out.
“We had to swallow the fact that we’re going to be paying more than we wanted to every month,” said Hogan, “but it meant we’d actually be able to afford a house and get a house. They say they never changed their standards, just their budget.
Right now, there are roughly 5,000 homes for sale in the Kansas City metro; that’s down almost 13% from a year ago. And because the inventory is so low, home prices can stay high. They’er 4.5% higher than this time a year ago, according to the Kansas City Regional Association of Realtors.
Mike Frazier explained how the market got here. “To explain this market, I think you have to go all the way back to 2008. The Great Recession that happened really pushed a lot of builders and developers out of the market. And those builders and developers – a lot of them haven’t come back. Inventory has been a problem for the last 5 years.”
“Most builders and developers don’t want to build in the 200,000, 300,000, 400,000 dollar range,” the President and CEO of ReeceNichols continued, “which is where we need all our houses. They can’t make enough money at that price point. They want to build in the higher price point, we need housing in the lower price point.”
In the last 10 years, the average home price has doubled in the KC metro area, from roughly $140,000 to more than $350,000.
Frazier quipped, “the best time to buy a house is yesterday.”
There aren’t a lot of options for anyone looking to spend fewer than 400,000 on a home, and it won’t remedy itself for years to come.
“Over the next, probably, eight years, you’ll see a lot of baby boomers moving out of their houses. And that will release some of the pent-up demand that’s there from a sales side,” Frazier explained.
“But until we get there, you’re going to have to be patient, you’re going to have to overbid on properties,” the way Hogan and Tangeman did. “You’re going to have to look at your budget and decide what can I truly afford, and know that housing prices aren’t going down.”
“Prices aren’t coming down anytime soon – if ever,” said new homeowner Tangeman.
“Interest rates are going up. We don’t have a crystal ball or anything to know if it’s going down or up. but with the way it’s been going the last couple of months,” Tangeman noted, “we locked in at an interest rate, and that’s already higher than where we locked in at, and that’s just two weeks ago.”
Listed commercial property companies collectively own $20 billion worth of office, retail and industrial assets across New Zealand, but that value is expected to fall by millions more as higher interest rates take hold.
This cyclical event of declining asset values was more painful than the global financial crisis because it was coupled with rising debt costs, Forsyth Barr senior equities analyst Rohan Koreman-Smit told Markets with Madison.
“We’ve currently got interest costs where investors raising debt to buy some of these assets need to pay 7 or 8 per cent. Making that work from an investment basis … is tough.”
The market had already priced the pressure in, with real estate under-performing the broader NZX Top 50 index for the majority of the past 12 months.
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However, the firms were all trading at a discount to their net assets, suggesting they could be a value investment.
“That’s the million dollar question … Are they absolutely cheap?”
Watch Koreman-Smit answer that question in today’s episode of Markets with Madison above.
Plus, Vital Healthcare Property Trust fund manager Aaron Hockly reveals how it’s managing higher interest costs as it develops more private hospitals.
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He explains what Vital will do when it runs out of debt headroom in 12 months’ time – a hint, investors should expect lower returns.
Get investment insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.
Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Stake is the proud sponsor of Markets with Madison. Stake your claim today at HelloStake.com.
Madison Reidy is the host of New Zealand’s only financial markets show, Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
Eliza Owen, head of residential research Australia at CoreLogic, said the Reserve Bank’s increase of 400 basis points since May 2022 would result in approximately 350 basis points being passed on to variable-rate customers by the end of this month.
Since May last year, the Reserve Bank has doled out 12 rate hikes to address surging inflation. The central bank’s latest decision during the June policy meeting to increase the cash rate by another 25 basis points brought the cash rate to currently stand at 4.10 per cent, marking the highest cash rate in approximately 11 years.
And with the bulk of fixed-term home loans taken during the pandemic set to end this year, the expert predicts more households will be financially exposed to a spike in interest rates.
For instance, calculations showed a borrower with a $750,000 mortgage would have to pay an additional $1,550 per month in repayments.
But Ms Owen warned households in some postcodes would feel the pinch more than others.
Outer regions of major cities, particularly Melbourne, generally had the highest number of mortgaged, owner-occupier households.
Of the 25 SA3 regional boundaries with the highest number of mortgaged households, nine are in Melbourne, five are in Perth and Sydney, and two are in Adelaide.
The remaining four are large regional centres, including Ormeau – Oxenford on the Gold Coast, Geelong, Newcastle, and Townsville.
Wyndham led the pack with 43,807, or around 48 per cent of households, followed by Casey – South (38,614, or 56.2 per cent of households) and Wanneroo in Perth (38,320, or 54 per cent of households).
Ms Owen noted capital growth trends across these markets are an important consideration in the financial stability of the Australian housing market.
“This is because in the event of a ‘forced sale,’ growth in home values allows a seller to come away with some capital gain or allows a mortgagee in possession to recuperate the entirety of debt on a property,” she explained.
In these dwelling markets with high mortgage volumes, data showed capital growth since the 2021 census has averaged 3.1 per cent, significantly higher compared to national housing market growth of just 1 per cent in the same period.
However, a closer look at the data showed there is a large range in capital growth performance, from 40.5 per cent in Salisbury to -8.9 per cent in Gosford.
Ms Owen noted the majority of the “most mortgaged suburbs” do not exhibit capital growth trends that are “alarmingly out of step with the national housing market”, highlighting some markets even recorded extraordinary capital gains since the start of the pandemic and since the census snapshot.
“However, it is noticeable that new listings volumes are climbing in some of these markets, where the national trend is seeing a seasonal slowdown.
“This could make it more difficult for recent buyers to make a capital gain if they are struggling to meet mortgage repayments,” she stated.
As buyer demand weakens amid higher interest costs and seasonal trends, Ms Owen forecast there could be an extended downturn in some of the top 25 markets as stock builds up, such as in Melton – Bacchus Marsh, where 43,807, or around 48 per cent of households currently have a mortgage.
“In areas such as Blacktown – North, where values have seen a strong bounce back in the three months to May, as supply creeps up, it may put downward pressure on the growth trend in the coming months,” she stated.
While there is perceived risk in the areas that are deemed to be heavily mortgaged, Ms Owen said that “there is also a lot of nuance to consider across these markets that is not currently captured in census data”, including the size and maturity of mortgages, and serviceability.
“At the other end of the spectrum, markets with a low concentration of owner-occupier mortgages include inner-city areas and mining towns and will presumably carry their own risk of investment loans.
“The location of these investors and what mortgage stress they may be facing is unclear,” she stated.
Properly cofounder Anshul Ruparell is pictured with a Toronto property for sale in this file photo.Galit Rodan/The Globe and Mail
Upstart real estate brokerage Properly Inc. has hired an investment bank to consider options including a sale, just a few years after rapidly expanding in Ontario.
Properly is the second real estate entrant that has been forced to change course after the country’s housing market slowed when the Bank of Canada aggressively hiked interest rates.
Properly cofounder Anshul Ruparell confirmed to The Globe and Mail that his brokerage hired investment bank Raymond James to help with the process.
“We received inbound acquisition interest, and have hired Raymond James to help us evaluate,” Mr. Ruparell said in an e-mail.
He declined to respond to questions on who had expressed interest; what price he would be willing to accept; why he wanted to sell; and whether he would remain in the real estate sector if he sold his company.
It is unknown how much the brokerage is worth. Properly had positioned itself as a tech company with online analytics to help determine valuation, as well as a real estate firm with innovative products that were not offered by the traditional players like Royal LePage and Re/Max.
Its main feature, called sales assurance, offered home sellers a guaranteed sale and price. It was designed to act as a backstop for home sellers by providing them with a firm purchase agreement to buy their property at a set price.
But earlier this year Properly paused sales assurance citing “unprecedented volatility in the Canadian housing market.”
It once had ambitious plans to triple its staff and expand across Ontario and other major Canadian cities. Properly now has 79 employees, which is about half the staff it had in mid-2021, according to LinkedIn. Late last year, the company axed 71 jobs citing the rapid slowdown in the housing market. At the time, Mr. Ruparell apologized to his staff and said conditions had “deteriorated much faster” than anticipated and that he could not predict when the market would recover.
His company is among the many in the tech space that have suffered from cooling demand from customers who sought out their services during the pandemic lockdowns and low interest rate era. Over the past year and a half, tech companies have cut more than 360,000 jobs in a bid to slash costs as borrowing costs have soared, cooling investor interest in early-stage tech companies. Valuations of public and private technology companies have crashed and venture capital investment has dropped sharply, echoing past downturns.
Earlier this year, financial services firm Desjardins Group shut down its real estate brokerage FairSquare Group Realty and blamed the housing slowdown. It had bought FairSquare, which was previously called Purplebricks, in the first year of the pandemic but failed to gain any traction outside of Quebec.
With the Bank of Canada resuming interest rate hikes in June, it is unclear whether the four-month rebound in home sales and prices will continue. Activity had quickly picked up after the central bank said in January that it would take a break from raising interest rates. Now, the bank is warning that the housing recovery along with a tight job market and robust demand for goods and services are signs of persistent inflation.
Mr. Ruparell started Properly in 2018 in Calgary where he grew up. He expanded to Ottawa and Toronto in 2020 as the real estate market boomed with interest rates near zero.
Properly had attracted high profile financiers and well known investors such as Bain Capital LP’s venture financing arm, as well as a $100-million credit facility from Silicon Valley Bank to help fund any purchases that were needed through its sales assurance.
Silicon Valley Bank has since failed after a run on deposits. Its Canadian loan business is now being auctioned off and it’s not certain what if any appetite a new owner would have for financing Properly’s business model.
Ryan Williams, CEO and cofounder of Cadre, which made the Fintech 50 list for a seventh straight year, even as other real estate startups have fallen off.
Cadre; Tahreer Photography/Getty Images
With the Federal Reserve’s dramatic interest rate hikes hitting the sector hard, this year’s Fintech 50 list honors only two real estate startups, down from five in 2022.
Since the Federal Reserve began driving up interest rates in March 2022, the average for new 30-year fixed rate mortgages has risen by 81% to 6.79%. To put that in perspective, the average U.S. home buyer is now committing to a monthly housing payment of $2,651, up $350 from a year ago, according to real estate brokerage Redfin. The costly mortgage rates, combined with a scant number of homes for sale, have reduced the sales of existing homes–down 23% this past April from a year earlier, according to the National Association of Realtors. Mortgage refinancing applications, meanwhile, have been decimated– down by more than half from a year ago in late May, according to Fannie Mae.
All this is terrible news for fintechs hoping to shake-up the mortgage and home sales industry. It’s certainly a far cry from the heady days of 2021, when low interest rates and the pandemic-era shift to working from home created a frenzy for home buying and all sorts of opportunities for entrepreneurs. Among the casualties of this shift: Ribbon, a fintech that helped potential buyers make all-cash offers. It dismissed 85% of its staff, and appeared on Forbes’ February 2023 list of 25 struggling fintechs likely to be acquired or shut down. Ribbon was bought in May.
As a result of the changed landscape, only two real estate startups appear on this year’s Fintech 50 list, down from five in 2022. Over the past year all three drop offs have reduced their headcounts substantially.
The first surviving real estate lister, appearing for its seventh consecutive year, is Cadre, a commercial real estate investment platform founded by Ryan Williams, a former member of Blackstone’s real estate private equity team. The other is Valon, a cloud-based platform automating mortgage payments and offering borrowers more visibility into their loans by displaying balances alongside other loan information. There were no newcomers in real estate for Fintech 50 2023.
Here are this year’s real estate honorees:
Cadre
Commercial real estate investment platform offering individual investors the opportunity to invest alongside institutions in this historically exclusive asset class. In 2022, launched the Cadre Horizon Fund, an income-focused fund that invests in multifamily homes, industrial complexes, offices and hotels. It has a $10,000 minimum investment. Cadre also runs a secondary market enabling investors to sell otherwise illiquid holdings. In June 2022, Cadre founder Ryan Williams stepped down as CEO, becoming executive chairman and naming former OppFi CEO Jared Kaplan as Cadre’s next CEO. Just 10 months later, Kaplan left Cadre and cofounded insurtech startup Indigo, and Williams resumed the CEO role.
Headquarters: New York, New York.
Funding: $133 million from Thrive Capital, Andreessen Horowitz, Khosla Ventures and others.
Latest Valuation: $800 million.
Bona fides: Served 52,137 investors at the end of 2022, up from 32,876 the year prior.
Cofounders: Forbes’ 30 under 30 honoree and CEO Ryan Williams, 35; Joshua Kushner, 37, and his brother Jared Kushner, 42, the son-in-law of former President Donald Trump.
Valon
A cloud-based mortgage-servicing platform, Valon automates payments and allows borrowers to see online their balance and other information about their loans. Its customers include mortgage servicers Seneca and Freedom Mortgage. Over the past three years, the company has expanded into mortgage originations and insurance offerings.
Headquarters: New York, New York.
Funding: $125 million from Andreessen Horowitz, 166 2nd, Rithm Capital and others.
Latest Valuation: $600 million.
Bona fides: Grew from 9,000 loans in 2021 to 50,000 by the end of 2022, and it aims to service 300,000 loans by the end of 2023.
Cofounders: Two Forbes’ 30 under 30 honorees: CEO Andrew Wang, 30, previously a principal at Soros Fund Management; CTO Jon Hsu, 31, formerly a software engineer at Twilio.
MORE FROM FORBES
PurpleBricks put itself up for sale in February, with CEO Helen Martson saying that the estate agent’s upside potential was “not reflected in our market valuation”. At the time, its market cap was £30 million.
It sped up the sale process last week despite a lack of interest at the board’s intended price, after warning it could run out of cash if it wasn’t sold soon.
Now, the estate agent has been sold to Charles Dunstone’s Strike, which will assume “substantially all” of PurpleBricks’ liabilities.
PurleBricks expects to be left with £2 million after the sale, to be given back to its shareholders.
Chairman Paul Pindar said he was ‘disappointed’ at the lack of value offered, but that there was no alternative but to accept the deal.
“I am disappointed with the financial value outcome, both as a 5% Shareholder myself and for shareholders who have supported the company under my and the board’s stewardship,” he said.
“However, there was no other proposal or offer which provided a better return for shareholders, with the same certainty of funding and speed of delivery necessary to provide the stability the company needs.
Shares are down 41.6% to 0.77p.
Dunstone said he is still confident in the business model of online estate agents.
“We remain committed to the online estate agency model, which offers customers a much better experience at a far lower cost,” he said. “This is a positive outcome for anyone looking to sell their home and save money doing so.
“Purplebricks has dramatically changed the industry by driving down the cost of estate agency and we aim to combine its significant brand recognition with an even more disruptive business model.
“In bringing together the two brands, we will supercharge Strike’s mission to democratise house selling by empowering customers to have more control over a process that has barely changed for 200 years.”
Downward pressure will remain on house prices for at least six months, and possibly up to 12 months, as higher interest rates take a drawn-out toll on the property market, a Jarden analyst predicts.
Grant Swanepoel told Markets with Madison that while the rate of price declines had slowed recently, he expected prices to keep falling by about 0.5 per cent per month for up to another year, in aggregate, with “no tick upwards” in 2024.
If homeowners held off selling, it would prolong the pain, keeping prices low for between two and three years, Swanepoel said.
“How far they fall, depends on how easily the market’s willing to give up on selling a property.”
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He expected the national median house price to fall between 24 and 26 per cent from its peak in November 2021 – it was currently down 15.7 per cent, according to Real Estate Institute data and ASB economics analysis.
Swanepoel said he used the Australian housing market as a guide, which was about nine months ahead of the New Zealand property market because the majority of its mortgages were on floating term rates, compared with about 90 per cent of ours being on fixed terms.
Watch him explain his research on today’s episode of Markets with Madison above.
Meanwhile, stocks were caught in a catch-22 dilemma, with valuations lifting in the past few weeks, ahead of an expected economic slowdown hitting company earnings.
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Harbour Asset Management portfolio manager Shane Solly said stock selection was important in this environment, with investors seeking to pick companies that could “tough it out” and avoid those that could be impacted by falling revenue.
He explained why his investment firm was shorting stocks such as ANZ bank in this episode.
Get investment analysis and insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.
Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
The federal government’s decision to introduce a “competitive income tax associated with foreign investment” by halving the withholding tax rate from 30 per cent to 15 per cent for eligible build-to-rent (BTR) projects for income earned from managed investment trusts, according to Colliers’ national director for BTR and residential, Robert Papaleo.
He commented that the budget’s doubling down on a recent National Cabinet commitment to expand the First Home Guarantee Scheme and the Regional First Home Buyer Guarantee will open doors for joint applications to both schemes, and will “enable more market entrants and provide support for those seeking properties experiencing higher demand.”
More broadly, several other commercial asset classes could experience an increase in investment interest off the back of momentum inspired by certain budget schemes according to Colliers’ head of healthcare and retirement living transaction services, Ian Sanders.
“While we saw a shift in cap rates for premium hospital and healthcare assets from 4 per cent to the mid-4 to 5 per cent range over Q1 2022 due to broader market fluctuations, the budget allocation and strong reputation of Australia’s healthcare sector will drive investment flows when interest rates moderate mid-year,” he said.
Mr Sanders welcomed budget support for the national aged care sector, before adding a moderation in interest rates will “also likely prove most powerful in supporting both aged care and specialist disability accommodation.”
He noted that top-tier operators have begun experiencing a movement of cap rates by 25 basis points (bps) and 75 bps, respectively, over the first quarter of the year.
Moving forward, Australia’s ageing population will see an increased demand for aged care facilities. Mr Sanders said, “Asset owners are facing crucial strategic decisions, with several choosing to future-proof by consolidating and enhancing scale.”
“While cap rates for land lease communities currently range from 4.5 per cent to 5 per cent, this remains the most resilient home and retirement living asset class, which is tightly held due to multiple income streams and strong demand at value-driven price points,” he said.
On the industrial and logistics front, Colliers noted the budget is conservative in comparison to recent years, with the government announcing a review of its Infrastructure Investment Program.
“We continued to witness soaring demand for industrial assets, with the highest performing market nationally — Western Sydney — experiencing land take-up by occupiers 54 per cent above the five-year average, establishing a record at almost 290 hectares last year,” explained Collier’s head of industrial capital markets, Gavin Bishop.
He added that the defence, energy, and renewables sectors are set to outperform this year, aided by increased population growth amidst other key fundamental drivers.
Cameron Williams, the network’s managing director of office leasing, said the sector’s current ESG trend will be boosted by the budget’s emphasis on sustainability and the introduction of increased energy ratings required for managed investment trusts.
“ESG increasingly wields influence over lease budgeting decisions, with occupiers now seeking offices with a lower carbon footprint due to development in addition to lower operational carbon during their tenancy,” he shared.
The office sector has seen a shift towards greater emphasis on employee experience and ESG over headcount to space ratios, Mr Williams explained, adding this trend is “ensuring greater rental recovery for higher quality assets in coveted locations.” It’s most notable throughout the nation’s CBDs, where average premium net face rents achieved 2 per cent growth over Q1 2023.
Moreover, the national retail property sector can breathe collective sighs of relief after the budget failed to amend the stage three tax income legislation, stated Colliers’ managing director of retail capital markets, Lachlan MacGillivray.
The managing director outlined this means that, from 1 July 2024, more than 95 per cent of taxpayers will pay a marginal tax rate of 30 per cent or less.
“There is significant potential for a tax concession of roughly 50 per cent to flow through to the retail sector,” he said.
All in all, Colliers’ stance is the first full-year budget delivered by the Albanese government boosts Australia’s strong economic platform.
The network’s national director of research, Joanne Henderson, concluded:
“The Australian property sector presents greater growth potential globally, due to our ability to weather market fluctuations, ensuring values and pricing certainty attract increased investment when interest rates are due to moderate mid-year.”
For SPI’s budget coverage, click here, and to see the residential sector’s reaction, click here.
City asked to reconsider role in commercial developments
Recently, I responded to the City of Flagstaff (COF) appeal to residents regarding current budgeting priorities and objectives. Earlier this year I had the opportunity to attend the City of Flagstaff’s budgeting retreats. Over multiple days, I learnt a great deal regarding the anticipated spending on operations and capital projects for fiscal year 2023-2024. The days were filled with charts, tables and diagrams.
At the end of one day, a COF staff member presented the refurbishing and rebuilding of a commercial property owned by the COF. The property is located before the entrance to Buffalo Park and it is primarily leased to the USGS. He proceeded to tell the budget meeting attendees, City Council and City Staff primarily, that a new investment in the USGS buildings would cost over $50 million. This amount was higher than prior year estimate of over $35 million! But not to worry, USFS and the COF were close to agreeing to a five-year lease with a five-year renewal! Not one question from the audience! Not a peep! Not a graph, table or diagram! I was stunned! I do not believe any commercial developer would spend over $50 million with a potential five- or 10-year lease in the future.
Developing commercial property is NO WHERE to be found in the Flagstaff Key Community Priorities and Objectives used in the COF budgeting. The COF mission does not mention the COF developing commercial property.
If the COF remains in commercial building business, this presents numerous conflicts of interest for the COF. This situation today is like having the fox guarding the hen house given the COF enforces and creates the building codes!
The COF should divest all commercial property; the residents tax dollars can be better spent on actual COF’s Priorities and Objectives.
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