Some of the best debates on this bog have come as a result of discussions centered around the prognosis of the future of the property market in NZ. I have for the past few days been listening to podcasts and reading news article from international sources to endeavour to get a read on the longer term outlook for the NZ economy in general and NZ property market in particular. I have deliberately been avoiding the local media.
My take on what I have read and heard leads me to a belief that we have become far too introverted and are in danger of becoming the victims of a self fulfilling prophesy. The analogy I would draw is to an amusing incident that I recall was reported in the UK many years ago. At the time BMW had just introduced their econometer on the dashboard – a driver was stopped having brought a major highway to a grinding halt as he had become so fixated on this gauge, measuring his mpg; in an effort to maximise his economy that he forgotten that the consequence was he was driving at around 15kmph!!
Let’s examine some key facts – the health of the NZ property market is a function of the health of the NZ economy and affordability of housing is a function of the price of property and the salary levels of those looking to buy property. The “recession” or pseudo recession that is afflicting the US is a function of over exuberance, it is placing major constraints on the credit market. The sufferers of this are largely the consumer and not business. As I have heard business globally is performing exceedingly well making significant profits and in the case of US companies exceedingly good profits as so many of these companies are now significant exporters who will reap huge benefits from the low dollar.
The other major economies of China and India as well as Russia are all performing well; less so from export (although for Russia the oil and other commodities is their golden goose) as from significant domestic consumption which in the case of China is actually sucking in imports helping to balance their trade imbalance. The estimate for the growth of China is 9.4% and India 8% – both down on prior years but on the scale of their economies these growth rates equate to enormous growth in absolute dollars.
So what of the NZ economy in all of this. Well if you look at our trading partners you only need to look at the focus of the NZ business community who are in China this week to not only celebrate the signing of the FTA but to cement their already well established trading relations. Australia, our biggest trading partner is according to this economist report from the IMF predicted to continue to grow at a rate of 3.2% in 2008 and 3.1% in 2009, not far off the 3.3% average of the past decade. If our key trading partners are growing at these rates and we have the products from our agrarian economy to meet their need we should be able to tick along nicely for the next few years.
And let us not forget that we are not a solely agrarian economy – look for example at the super yacht industry, whilst it may not amount to more than a $100m a year industry to NZ it is globally riding high – this article in Time magazine highlighted how the $25 billion industry is being driven by the super rich of not the US but emerging markets. The statistic that grabbed my attention – there are over 85,000 people nowadays who have over US$25 million or more in liquid assets! – and this group is growing. To this elite group a super yacht from Alloy yachts is exactly the way to celebrate global success, and for NZ another demonstration of the skills of our yacht builders.
So what of the NCIER survey? Well to me it feels very much like the traditional survey response – when asked in the context of the global credit crisis and a protracted and severe economic downturn in the US – people focus on the econometer and take the foot off the gas pedal and before long there is a long line of gloom merchants stuck in the middle of the road!!
Now this greater confidence in the NZ economy to withstand these global shocks and continue to grow exports bodes well for business. That in its self will not solve the issues of affordability which does drive the property market. We will see the expected stagnant property market, off at least 50% in sales and coupled with this highly volatile prices. Considering all of that I would not be at all surprised that as we head into 2009 we will not be pleasantly surprised by our balance of payments and our companies strong profitability; which coupled with tax cuts borne of greater tax receipts from continued high employment and corporate earnings may well be significantly bolstering the take home pay of most of NZ thereby beginning to reduce the affordability gap.
Anyway just my take – as ever your thoughts would be of interest to debate the issue.