What can New Zealanders expect from the budget? The short answer is money.
If you have been reading the press and following the various opinion pieces and announcements over the last week or so the general consensus is that the budget is going to be a huge round of Government spending that will desperately, as someone mentioned to me the other day, ‘stop the sky from falling’. It was announced yesterday that the QE scheme (money printing) has been extended to $60bn and a number of economists are picking government debt to balloon to $180bn over the next 3 – 4 years.
There is likely to be something for everyone in there, although it will be interesting to see where the major flows of capital go. Expect to see Infrastructure projects be fast tracked, bailouts for tourism, increases in welfare, extensions of the wage subsidy and other industry bailouts.
What does this all mean for developers and investors? Well there are a three things I am picking will come out of this. Please note this is all my opinion and predictions – not cold hard fact.
This is a sector I think is going to see a real boom. In October last year we saw the restructure of the government housing departments into Kainga Ora and a focus on how things could be done better. There was some retrenching and caution around the use of Hotels and Motels for transitional housing with them all receiving huge lease income and that leading to bad press.
What I have seen however in the last 3 months and I expect to rapidly expand is an injection of cash into this sector, albeit applied differently. I currently have 4 projects on that involve leases to CHP’s on completion with terms ranging from 6 years through to 15. I also have 2 clients who are looking at leases through to CHP’s for their Hotels (one in development the other a completed asset).
There will be capital provided to various Charitable Housing Providers (CHP’s) to develop their own projects and lease others from private developers. We will see Hotel and Motel operators be given leases (on more commercial terms – not the nightly rates they were getting) to ease some of the demand for housing in the sector and alleviate their cash burden over the next few years as tourism recovers. Expect to see some ‘de-badging’ of accommodation properties and repurposing to social stock.
The opportunity is for developers to be engaged in this process and develop product alongside these providers to either be sold into the government or leased back on strong terms.
A slight variation on the above, affordable housing being properties that are leased and owned by the private sector. I expect to see a lot of government support to increase the supply of affordable houses across New Zealand. This was already a focus of the government and I would expect that they will be pouring cash into getting these going.
With unemployment likely to hit record levels and those that remain employed to have stagnant or negative wage growth (not to mention real wage growth) affordable housing will become ever more important. These developments will employ people and provide assets that fit the public need.
Property developers are likely to be given incentives to develop affordable assets for the market. These will range from the consenting process through to possible funding options and will all be focussed at fast tracking these projects.
We may also see the government provide an incentive / protection for clients to buy off the plans which is the largest road block to development at the moment. This could be some form of a rebrand of KiwiBuild (an underwrite) or something linked directly to the end buyers.
I expect to see a huge amount of government spending into this sector. This will be to keep businesses viable and establish new opportunities for when the borders eventually open. Make no mistake, our biggest export is tourism and we cannot afford to let that industry fall over.
There will be fast tracked consents for tourism focussed projects, infrastructure provided into those communities and a lot of spending on getting kiwi’s out and about to see our own country.
My big prediction (albeit a bit of a punt) is that we will see some form of funding or financial support for the investment into this sector. Right now it is a real challenge for any funding from traditional sources into this market but I think the government would be remiss to allow NZ to go without investment into this sector for the next 2 – 3 years and will therefore need to not only re-assure traditional lenders but provide platforms for tourist operators and developers to invest into the sector. Watch this space.
Overall, I expect to see massive stimulus announced this afternoon across the board. The government has mentioned this will all be about getting kiwis to work and I think that will centre around building.
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