We thought this week we’d strike out into some interesting territory, and Tony Alexander’s BNZ weekly overview of 25th August 2016 gives some interesting reading.
With most Australians holding property or intending to invest in Australian property, the NZ outlook gives a good view of our own market. Though it should be remembered that NZ has no stamp duty for property, no annual land tax, and generally no capital gains tax – Nice!
In this weekly digest, Tony mentions “Since the GFC things have changed in the world of economics and frankly we are struggling to understand what those changes are and what they imply.”
A somewhat alarming statement. So these are the things that are being guessed wrong:
- Economies growth rates are being constantly overestimated. This seems to be mainly due to the fact that with interest rates so low and so much low cost money sloshing around the world then the expectation is that businesses should be happy to invest, and consumers happy to spend. But in fact this doesn’t seem to be happening.
- Wages growth also doesn’t seem to be happening, and this seems to be something that can’t be determined as to why not. Certainly with massive disruptive forces due to technology, connectivity and offshoring, there is an element of instability in this area.
- Inflation is being overestimated, and low wages might have something to do with this. Technologies seem to be a factor here with new technologies cutting production costs and challenging old operators (Uber to taxis, Airbnb to hotels). These changes are yet to be fully understood let alone experienced. Disruption in the fintech sector, blockchains, driverless cars and other disruptive technologies are yet to be fully felt.
Retail prices are now increasingly competitive, with anyone having access to an iphone (and everyone does) easily able to determine whether the price of a product is market price. Whilst people will wait for price declines for things that need replacing (like cars, household items), this doesn’t apply to technology/electronics. It turns out we like new cell phones and slimmer tv’s. And we buy our children the latest laptop so they aren’t at a disadvantage to other children, knowing probably full well that we’ll need to buy another laptop in a year or two to keep pace with technology.
Interestingly in the housing market, which like Australia is quite overheated (supply and demand), Auckland has strong population growth but at the same time there are things happening that people didn’t forecast. Instead of retirees cashing up and moving elsewhere, it turns out they like being close to their social networks, and they like being close to medical facilities. And business growth comes from the agglomeration of skilled, open thinking diverse people interacting with each other to quickly develop, apply, adjust and reapply ideas in a commercial space. This means remote working isn’t happening as expected.
Looking at the NZ market allows us to draw strong conclusions, and as Australian investors chase returns of the past, they’re turning to property as the stalwart of their investment strategies. Dividends and Interest seem to be entering a period of low returns. Where this all leads in the future has some of the best minds still guessing.