Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE RATE CHANGES
Kāinga Ora/HNZ raised all its fixed rates.
TERM DEPOSIT/SAVINGS RATE CHANGES
Kiwibank has sharply raised its NoticeSaver rates, taking their 90-day NoticeSaver rate to 4.75%. They also raised other NoticeSaver and call account rates. Westpac raised its 32-day NoticeSaver rate to 4.00% along with their Bonus Saver rate. (For reference, Heartland has a 32-day Notice Saver rate of 4.75% and a 90 -day Notice Saver rate of 5.00% both the market-leading rate.)
FACTORIES HUMMING ALONG
The manufacturing sector is still expanding. The February PMI brought a better result than the January expansion, putting the 2022 weakness further behind it. New orders moved from a contraction to an expansion, helping drive the gains. Employment was positive too. The February results would have been even better if the negative readings from the Hawkes Bay hadn't happened.
A RETAIL GLOBAL ESG EQUITY FUND
Passive index fund manager Kernel has launched a retail Global ESG Fund "in response to surging demand for climate-aligned investment products". This is a global equity funds that is both tax and fee efficient, with fees of just 0.25%. It’s also available in both NZ dollar hedged and unhedged versions. Details here.
MISLEADING INVESTORS
The Financial Markets Authority has issued a formal warning to Du Val Group (a Manukau-based property developer) for misleading investors over why it suspended cash distributions. This is not the first time Du Val has been subject to FMA action (in fact it may be the sixth time).
SIMPLICITY CUTS FEES
Fund manager Simplicity said it will cut its fees by -3.3% in total across its Conservative, Balanced and Growth KiwiSaver funds and diversified investment funds, effective 1 April. The fee cut is the fifth in five years. The latest Morningstar analysis shows Simplicity had $2.7 bln in funds under management at the end of 2022. Simplicity says their new total fund charge will be 0.30% from April 1. That means their total fee income will be about $8.2 mln pa. In no category are Simplicity fund returns market-leading, according to Morningstar records. On fees, Superlife has lower fees. On returns, many funds have higher results in the Default, Conservative, Balanced and Growth categories that they operate. But they aren't the lowest either.
NEW SCAM WARNING
CertNZ is warning of a new credit card scam, a text message phishing campaign. The messages claim to be from various organisations, including NZTA, Apple, Uber, postal services and many others. The messages will claim the recipient has unpaid tolls or fees or otherwise needs to pay a small sum. They also contain a link that looks like a shortened URL. More information here.
WORKING HOLIDAY RULES BROADENED
More Brits are coming for working holidays. The new NZ UK Working Holiday Visas (WHV) will now accessible from July 1 this year. The age of eligibility will increase from 30 to 35 years, and the term extended to three years. These 'rights' are reciprocal with the UK.
MIXED BUSINESS DATA
Wholesale trade sales were up a robust 13.7% in Q4-2022, but retail trade sales were only up +1.8% on the same basis. These two categories are the largest sectors of all business at 20.5% and 13.7%. The business data released today by Stats NZ are about the final pieces of the puzzle that go into our Q4-2022 GDP result. Massey's GDP Live monitoring sees that coming in at +2.9%. Other analysts are out with their forecasts and are less upbeat, like this one.
GETTING THEIR SHARE
Local authorities are managing to keep their income growth up with inflation. The latest StatsNZ monitoring shows rates-and-regulatory-income rising +8.3% in Q4-2022 from the same quarter a year earlier. From Q3 to Q4 it rose at a +7.5% annualised rate.
AN AMERICAN BANK RUN?
SVB Financial Group (Silicon Valley Bank) is scrambling to reassure its venture capital clients that their money is safe after a capital raise led to its stock collapsing -60% and contributed to wiping out over -US$80 bln in capitalisation. The bank launched a US$1.75 bln equity raise to shore up its balance sheet and navigate declining deposits from startups struggling for funds amid increased spending. Markets are wondering whether an SVB collapse could create a domino effect. It comes after crypto bank Silvergate abruptly shut down. It certainly is already downgrading bank share valuations in the US. One to watch.
SWAP RATES RETREAT
Wholesale swap rates are likely sharply lower today across the curve, except for the 1 year. However, the real action in swap rates comes near the close. Our chart will record the final positions. The 90 day bank bill rate is down -1 bp at 5.22% which is +47 bps above the current OCR. The Australian 10 year bond yield is now at 3.63% and down -6 bps today. The China 10 year bond rate is down -1 bp to 2.90%. And the NZ Government 10 year bond rate is now at 4.51% and down a very sharp -13 bps from yesterday and still above the earlier RBNZ fix at 4.60% which was up +2 bps today. The UST 10 year is at 3.86%, and down a very sharp -13 bps from this time yesterday on the same negative sentiment. Remember it had hardly changed this week before today.
EQUITIES TURN SHARPLY BEARISH
In its Thursday session on Wall Street, the S&P500 gave up more ground increasingly as the day wore on, down -1.9% at the end. Equity investors stopped fighting the Fed. Tokyo has opened its Friday session down -1.0% but still heading for a weekly rise of +0.6%. Hong Kong has opened very weak again, down -2.4% and if that holds it might be down an eye-watering -5% for the week. Shanghai has opened with its own weakness, down -0.8%. That could mean a -2.5% weekly retreat, itself rather chunky and maybe enough for the home team to come to the rescue. The ASX200 is responding to the weak China sentiment and down -1.9% in early afternoon trade. The NZX50 is not immune and is down -0.9% in late trade and heading for a weekly drop of -1.3%.
GOLD RISES
In early Asian trade, gold is up +US$19 at US$1832/oz.
NZD SOFT
The Kiwi dollar is unchanged this time yesterday, now at 61.1 USc. Against the Aussie we are also little-changed at 92.8 AUc. And against the euro we are softish as well at 57.7 euro cents. That means the TWI-5 is lower at 69.5 with a -20 bps dip.
BITCOIN SHARPLY LOWER
Bitcoin has moved lower today briefly dipping below US$20,000. It is now at US$20,073and down a sharp -7.6% from this time yesterday. It's the sudden shutdown of Silvergate Bank this is the trigger here. Volatility over the past 24 hours has been extreme at just on +/-5.1%. Recall, the bitcoin price started the year at US$16,600, so from there is is a +21% rise. But in between it hit US$24,840 on February 21, and it has been downhill since. Bitcoin's all-time high was US$67,634 in November 2021.
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71 Comments
The Nats now believe build-to-rent projects should get blanket exemptions from the OIO.
So we cant source highly specialised services such as residential rentals in NZ, and have to rely on imports.
We can get 25k new rentals they believe, which looks like a lot but we will need 30k (conservative estimate) in new rental stock each year to accommodate net migration at pre-Covid peaks.
Don’t stop at where and how they are all going to reside. Question too, how to find the necessary increased health services for them and family and teachers for the children.
I don't understand the business case for build-to rent projects. Residential yields are already very low. Risks are high. Construction costs are high. Rents are already about as high as most renters can afford, so little upside there. The prospect for selling down the project, either to the renting tenants or to other investors, seems to have vanished as dwelling prices fall. How would a build-to-rent promoter/developer ever make any money - whether they are local or from offshore? Can someone help me see why it could be commercially viable?
Because National proposes that this asset class is allowed interest cost deductions and generous depreciation rates. It may well put the big boys in a way better position then Ma and Pa investors, also they will let international investors in to build fund run. The advantages are they will stay rentals, single landlord in big complexes will evict troublemakers where councils seem to be useless..... They are not building for cap gain, tho i guess the entire complex could be sold... long term rental contracts will be available or you can stay month to month with no issues. It's actually IMHO a good idea.
They could let Hong Kong based Wilson Parking build and own them...wonderful operators with reasonable rates.
Thats a great idea, Other big companies who are amazing at customer service like Spark and Air New Zealand could also be encouraged to pivot into thie space. On a more serious note in Aussie they have been trying to encourage the super funds to get involved... NZ Super? nothing is as safe as farming people, and they don't fart as much as cows.
and they don't fart as much as cows.
Speak for yourself!! 😅
Its pretty cruel, sending someone to work for their whole life, working for the man (the landlord)
This says it all
The tenant retires, living for another 15 years, rent cost of virtually half a million for a poxy box that cost half that to build
The property we bought in 2011 earns 25 percent yield without maximising rent. And people continue to question me on the viability of resi rents 🤣
The last Resi property Spruiker left on here
This says it all
https://www.youtube.com/watch?v=D6Aw3ZnqQrY
And the Big O's greatest tune
Sorry Houseworks... you walked into that one
There is a reason I am still here
Thanks for your acknowledgement.. Sarc
Sounds good to me. Each floor can be open plan and have rooms delimited like parking space painted lines. Rooms per family demarcated by a yellow line
Common ablution and cooking facilities with a parking style meter to pay your rent. If you don't pay your rent a customised parking barrier won't open for you.
Triple bunks too. Have to make the most of ground to ceiling space.
Lol
Not very often I agree with you but that's a goodie!
I agree it has good potential
KPG are the obvious home-grown company that are going down this path (listed on the NZX so we are all free to participate). They are building mixed developments, combining build-to-rent with mall, offices and good transport links. The idea being, they can charge a premium rent as the apartments will have long tenures (if desired), professional Landlord support, and you likely don't need a car as the majority of your needs are on your doorstep.
I don't think it's been well tested in NZ yet, but KPG are building ~300 flats at Sylvia Park right now and reckon there will be 60,000 people living in their new Drury development in a few decades (not all built/owned by them, and not sure if these will all be rentals)
Alarm bells should be ringing for Directors at KPG. Borrowing more when interest rates blowing out to build green fields and residential with yields lower than interest rates. Meanwhile their valuations on decline as market yields shift higher. Might breach their 50% LVR covenant. Another Ryman?
Gearing at 32% at the last report, I bet there's some nervous BTL investors out there who would be envious. Weighted term is 4 years, so they will not be immediately exposed to higher interest rates. Still kicking out dividends, so the directors can't be too concerned.
Certainly some risk, and they are priced accordingly.
10-20% value reduction and/or a bit more borrowing they will be knocking on the breach door. May not happen, but totally possible based current outlook.
Drury will be a massive capital drain for years and apartments too!
I don’t think the greenfields stuff like Drury will go well.
Townhouses there will have a development contribution of 80k per dwelling, compare that to circa 10k in more central locations. Even accounting for lower land value, the selling price of a townhouse will therefore need to be comparable.
While a masterplanned community like Drury might have superior amenity, it loses out big time in terms of location.
I think it will flop.
Reminds me of when Sylvia opened and people called it Spooky Park cause there were no customers. Plot twist: it got much busier.
Unfortunately for shareholders there hasn’t been an upside twist. KPG share value the same today as it was 15 years ago. By comparison GMT is up over 75%. KPG seems more about vanity projects for management and board than generating wealth for shareholders.
Isn’t a big part of it around the fact that the developer builds and holds. They don’t need a 25% profit margin on the sale of each individual apartment and they don’t charge 15% GST on a sale.
This means the rental yield might be 7-8% gross on the apartments they build and hold rather than 3-4% in the case of the traditional build and sell to individual buyers and investors model.
Bit of a simplification I am sure
exactly, and they will IMHO build high, think shitty London housing blocks... opps I mean well designed communal living at height..... its rental stock that will always be rental stock, so you have constant school zones, if some are 1 /2 /3 bdrms could be a waiting list to move etc.
Agree, if you follow Kiwi Property shares there is clear evidence the market doesn’t support it either. Lost a good billion or so in value whilst pumping build to rent. Selling good stock and borrowing more… recipe for disaster.
I seem to think like you DC, high capital cost and lowish yield.
But what are some of the numbers 5k per sqm (plus gst?) build cost. Plus land, which in the case of kiwi property they already own it. Any land value upside is from the project itself and spread over a large number of units. Land cost is minimal. A 50 sqm 2 bed auckland unit rents conservatively for 600pw (in Cambridge they are virtually that high) costs 250k build cost, that's 12 percent gross yield in year one. The capital cost payback time is 8 years without any income growth. One would hope the life of the building is 100 plus yeas, the owner will recover the construction cost 12 times.
Yield investors make gains through inflation as rents double over time. Rents grow in fits and starts but ultimately inflation proof.
Residential property has lower vacancies than commercial property and has lower risk of loss of income. Resi is easy to re-let, sometimes just one day vacancy. Stay Long-term
Tenant selection is important. Location of property is important.
If govt wants to incentivise BTR construction, they should allow the developer/owner to claim back gst. Obviously resi rent to remain gst exempt.
Ahhh HW2 you can do the math when required, yes it works for RTB but not for everyone else till prices drop by 50% bless you......
A 50 square metre apartment build cost is north of 7-8k per square metre for a 3 storey building, and north of 11-12k per square metre for a mid rise building.
Average building cost | interest.co.nz
https://www.interest.co.nz/property/113184/new-homes-are-getting-smalle…
Auckland apartment $3098 per sqm Q3 2021
I see you were disputing it even then saying 4500 for 3 storey. Now you say 7000 to 8000.
Thats quite some inflation!
4500 was actually too low. That was more the price at that time for a three storey terrace. Was probably more like $5500 for 3 level apartment. And that has easily inflated to at least 7k.
I am not saying that you are wrong, do you have any evidence for that. You may be talking bespoke build
Kiwi Property are building some build to rent apartment blocks .
The one in Sylvia Park has 295 units.
I guess they get some economies of scale in a build that size.
Also the residents will spend a lot of money in the KPG owned mall, and can work in the KPG owned office buildings...
Yes it’s potentially a really good model for them. It would be a real bonus for the mall business if they could get up to around 1500 residents living in the apartments on the site. So about 600-800 apartment units.
There are holding a lot more development sites around the mall, so that's possible.
Also will be interesting when Ikea opens up on Carbine Rd entrance.
Surely build to rent is better than emergency housing providers being our main source of rental accommodation?
"One to watch"
Sure is.
Does that pre-empt a funding squeeze as interbank lending dries up in the face of counterparty uncertainty a la GFC, and so lending rates soar? Or does The Fed step in, again GFC like, and drop rates to forestall anything nasty happening?
Maybe neither. But watching isn't going to hurt.
Bitcoin has moved lower today briefly dipping below UAS$20,000. It is now at US$20,073and down a sharp -7.6% from this time yesterday. It's the sudden shutdown of Silvergate Bank this is the trigger here
Silvergate likely to be one of the triggers but there's quite a bit of FUD at the moment. The Mt Gox coins are being distributed as well. Remember many of the owners purchased for under USD1k. Also, what I find interesting is that the U.S. govt is shifting some of the Silk Road confiscated coins. It's war between the U.S. ruling elite and the crypto industry at the moment. You only really understand these things if you follow it closely.
Gotta love these markets. Couldn't help myself and added to my sack of rat poison this morning.
It got delayed until October I think.
I know a large whale with funds stuck there - he doubts anything released this year
I know a large whale with funds stuck there - he doubts anything released this year
Appears that there are delays and distribution is staged anyway. Not really FUD.
The old timers in the banking and investment world have been warning us of a crash for some time
they all talked about the companies that had high levels of debt and as interest rates rise they would be the first to start bleeding
Perhaps the silver gate and Silcon Valley Bank troubles are the start of something worse
The world has gorged itself on cheap money ,perhaps the day of reckoning is near
Perhaps the silver gate and Silcon Valley Bank troubles are the start of something worse
Silvergate is just the ruling elite trying to pin the blame on crypto. There are already calls for bailouts for SVB.
Also the potential that the Greyscale investment fund might get turned into an ETF, this would unlock a lot of selling of spot Bitcoin to close the -30% discount window.
The significant issue with the banks is that they had a massive in flow of deposits over the last few years, so they were mandates to buy a lot of bonds, all at record lows of 1.5% ish with 10 year durations.
This creates a massive duration miss match between the capital that is locked (hundreds of billions) vs the liquid capital available for when depositors want to withdraw their funds (only about 1-2b). the FED really has screwed this up.
https://twitter.com/jamiequint/status/1633956163565002752?s=20
This is only the beginning of the flow on effects from the ZIRP over the last few years. We saw earlier the British Pension funds have to get bailed out because of using Liability Driven Investment Strategy (ie buying bonds on leverage) at record low rates. The rate and amount of hikes lead to massive losses, and because of leverage, these were well over 100%!!
Not a mortagee sale, yet. Will be interesting to see sale price on this one, there are over 400 current trademe listings in Rolleston, a town of only around 25,000 souls. A good number of the other listings in this town openly talk of pressure to sell.
https://www.trademe.co.nz/a/property/residential/sale/canterbury/selwyn…
RE can be honest:
The owners of this property built it less than a year ago with the intention to keep it as their perfect investment. Unfortunately, due to the current market situation, rising interest rates, and high inflation, they are no longer able to afford to keep it. This means that this property is now on the market for an urgent and quick sale
The smaller banks are more exposed then the bigger ones due to regulation. The regulaters tend to do forced takeovers and marry the losers to winers. Could be bad but IMHO the financial conditions causing this are what needs watching.
Biden proposes 30% excise tax on crypto mining firms + 39.6% Capital gains tax?
What next...
Re Kiwibank comments today, with internet banking it is so easy to move savings from one bank to the another. Like others ive noticed on this site, I moved my on-call savings out of KB last week, they were way too slow adjusting after the OCR rise 2 or 3 weeks ago. With the 100k deposit guarantee limit to come in, many will have multiple banks now. Paying loyal customers less than the forced OCR rate is miserable. I however had never had a problem with KBs internet banking, but from my experience ANZ has the best internet banking site and app, and also the best phone customer service. But I have no loyalty these days, not while they pay less than the OCR to customers.
I use ANZ for a business client - their legacy banking platform is crap. No direct bank feeds to FX accounts, I can see why they make so much in profit.
Note their bank fees seem to be the highest asw well. Now ASB thats another level down..
interesting so you would like downloadable FCA balances like NZD accs? or better integration into online banking?
Some people are a bit confused IMO. Silicon Valley Bank was the 16th largest bank in the US. It is not Silvergate (crypto-related DGM). It is potentially a far bigger issue than many realize.
https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanki…
How I feel right now:
Good news for those who complained about heavy coal use in 2021:
"In the last quarter of 2022, hydro dams, geothermal plants, wind and solar farms provided 94.7% of all power – the highest share since records began in 1974"
"In recent years, large supplies of Indonesian coal have been imported to feed the grid. But imports plummeted late last year."
Every raincloud has a silver lining...
https://www.stuff.co.nz/environment/climate-news/131459073/electricity-…
If that's the case I expect Labour and Greens to shutdown Huntly in the next year, max 2 years. I'll await the unreliables to deliver.
No plans to do that. We don't have a dry year solution yet, we have to wait for the results of the battle between the Government (Onslow) vs the Gentailer Alliance (Huntly running biomass rather than coal, Meridian/Contact building a hydrogen plant with variable demand, massive renewable deployment, grid scale batteries etc).
Give it 10 years and we can do away with the dirty coal. It's a shame we didn't start the process earlier.
You are implying Onslow can replace dams in a dry year?
No, but the dams will still run in a dry year, just less than normal. In 2021 hydro generated about 24 TWh vs 26 TWh in 2022, meaning we burned an extra couple of TWh of coal to compensate. Onslow should be capable of storing 5 TWh of energy.
Admittedly, 2021 should not be assumed to be the driest possible year. There was lower generation in 2012-2013 (22.7 and 22.8 TWh) but it is difficult to immediately disentangle the year-to-year noise from the clear trend of rising hydro generation over the last few decades.
Onslow also means we can build more generation with daily variation like solar and wind, by soaking up plentiful generation and filling in the gaps.
https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resourc…
Interesting data in that spreadsheet. Clear trends of increasing wind and very strong solar generation growth (from a low base). Coal and gas clearly trending down since around 2005.
"the clear trend of rising hydro generation over the last few decades. "
Where do you get this rising hydro trend from? 1995 27.3 TWh, 2004 27 TWh for example vs your 2022 26 TWh . What pays for Onslow when it is sitting around in wet years, in the driest part of NZ, with the highest evaporation at about 1 metre per year? An expensive amount of that stored water is going to end up as that nastiest, elephant in the room, greenhouse gas - water vapour. Let's not get in to Snowy River 2 cost blow outs.
https://www.smh.com.au/national/five-years-on-snowy-2-0-emerges-as-a-10…
Download the data tables, and plot the annual Hydro generation (table 2, row 12). Certainly increasing more slowly in the last couple of decades, but it grew significantly between the '70s and '00s. Plotting the graph also shows what a great job you've done in cherry picking data points.
https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resourc…
Dry year storage is not how Onslow would pay the bills (if it can at all). It makes money in shorter term arbitrage. Pump water uphill when the wind is blowing and the sun is shining and power is dirt cheap. Let water flow downhill in the evenings after solar has peaked, for example, when power is expensive.
As a public good, this service means that we can build a lot more solar and wind than we have currently with less risk of having excess power with nowhere to go, and less risk of power cuts when they are not generating.
Watch out Profile will be on any minute to counter...
Beat me to it 🤣🤣🤣
Did a horrible payroll number get leaked? Bond yields all over the planet screaming lower in lockstep. Even Japan's beleaguered 10-year dropping like a rock (yield). Link
Bunds, Treasuries, JGBs, OATS, they're all being bid. Asian stocks selling hard, including HKs Hang Seng. Coming to grips that China's reopening is toast? Link
nah its the fact that banks cannot defend bank runs with bonds way out of the money....
The mighty Chris Joye. And yes people, commercial and residential property is more or less illiquid.
We are welcoming the dawn of a new investment age – the rise of risk-free yield, which is powering the search for security and liquidity. The old epoch was the search for yield, which was really a “reach for risk”. This was encouraged by the central banks relentlessly debasing the price of money to zero and bidding up the value of all assets. You took more risk and got more return because risk-free cash and bonds offered none.
And if you could get that return in an asset class that was illiquid, you also pretended to profit from capital stability. If it never trades, its value never falls, right? It was the great zero-volatility mirage: if it does not move in value, it must be safe! That’s what we have seen in thinly traded sectors such as commercial property, which have failed to properly adjust in price since the advent of risk-free returns of 5-6 per cent on cash and government bonds.
https://www.afr.com/wealth/personal-finance/investors-are-going-to-lear…
We are welcoming the dawn of a new investment age – the rise of risk-free yield, which is powering the search for security and liquidity.
By relentlessly depriving investors of risk-free return over the past decade, the Federal Reserve has spawned an all-asset speculative bubble that we estimate will provide investors little but return-free risk over the coming decade. Link
More like:
Welcome to the age of Yield Free Risk! Especially in real terms!
That is where we have been at the last few years (could actually argue since 2008)
98 yr old Charlie Munger. If you have 4 good investments you are doing well
Thanks gd link, I like it.
That’s a pretty crappy week for shares, overall
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