- This is unchartered territory creating uncertainty for the property and development sector.
- Compared with the Global Financial Crisis, there is less risk, less exposure but higher levels of liquidity in the property sector.
- There will be new opportunities for those who have been waiting in the wings.
- There will be pressure to help the industry weather the storm.
- We will be left with legacy changes in the property sector from this global event.
Coronavirus and the response to the virus, will have a significant impact in the short term on the property sector. The reality is that the response at a global and NZ level to the virus, the stopping of borders and social distancing, will send both a short term ripple and potentially legacy changes through the industry. We know that the property sector will be affected, with predictions of potential recession and major economic hit coming from the major banks, Finance Minister Grant Robertson, and the Reserve Bank Governor, Adrian Orr.
The however is, while there will be a short term drop off to market activity and transactions, the silver lining is that we are not pessimistic about the medium term outlook. The levels of liquidity are high in the sector, and the fundamentals of supply and demand are strong, albeit temporarily uncertain. The level of exposure and risk in the development and property sector are nowhere near the levels that we experienced in 2008. Sound decision making, investments and risk management are all par for the course in the property sector in 2020 while the Global Financial Crisis is still fresh in our minds.
As both buyers and sellers wait on decisions in the face of short term uncertainty, we have seen all big banks pass on the 0.75% cut from the OCR which will provide continued affordable access to capital and lending. However despite this, we do see the banks tightening their lending criteria on home and development loans.
Over the last two years as we have seen bank interest rates dropping and yields on commercial property compress, there has been a search for safe and strong investments. With the volatility of the global share markets, there will remain a strong interest in bricks and mortar for those with liquidity. There is private equity and liquidity that is always searching for opportunities, and there is no doubt that opportunities in property will arise from this event.
Central Government funding, economic assistance package and infrastructure spending will soften the fall. We see simplifying the regulatory and red-tape processes as critical to unbridling investment and development. There are billions of dollars of projects that are viable and continue to be stuck in the starting gates off the back of red-tape and processes. There needs to be quick and decisive action to stimulate and unlock good investments that provide housing, employment opportunities and enhance our communities.
Morgan Jones, Managing Director