TelferYoung (Taranaki) Limited
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Taranaki Newsletter - August 2008
28 August 2008
Bumper dairy payouts and soaring energy prices are propping up the Taranaki economy.
BLACK & WHITE GOLD
This heading, describing Taranaki's oil and milk industries, is from the Business Herald of 23 May 2008. It highlights the fact that while the rest of New Zealand is beginning to feel the effects of a recession, bumper dairy payouts and soaring energy prices are propping up the Taranaki economy. These benefits are seen to help our region outperform the rest of the country. Contacts in the oil and dairy industries confirm that, in most instances, businesses and staff have all the work that they can handle. It is a shortage of skilled labour that is limiting growth and output at this stage.
However, even in amber and black territory, perhaps soon to be renamed Black & White Gold, the continued negative publicity that we have been bombarded with is impacting on both buyer and vendor confidence. In the year from June 2007 the number of house sales nationally declined by 42% from 7474 to 4306 (REINZ). In the June 2008 quarter the average national selling period was 53 days while in Taranaki it was 49 days.
Taranaki Residential Statistics
Quarter | Median Sale Price | No. of Sales | Median Days | % National Sales |
April-June 06 | $235,000 | 2018 | 33 | 1.84 |
April-June 07 | $270,000 | 1952 | 32 | 1.72 |
April-June 08 | $267,000 | 1438 | 49 | 2.52 |
While the figures show that sale numbers are down and the median price has reduced over the last 12 months, the Taranaki market is still performing better than the national average. The most telling statistic is the number of sales. Taranaki's percentage has changed from 1.84% of national sales in the June 2006 quarter, to 1.72% in June 2007 and 2.52% in June 2008. The median sale price between June 2007 and June 2008 has changed from $270,000 to $267,000, a reduction of less than 1%. Please note that we have adopted quarterly figures for improved consistency.
These are not figures that would warrant widespread concern, but considered in total, they do indicate a change in the market. Our buoyant local economy has provided some protection to our residential market but in light of what is happening both nationally and globally we can no longer expect continued growth. When a market slows, buyers have more time to look around, more time to think and more time to make comparisons. Presentation, layout and location assume greater importance, and negative attributes will impact on value; sometimes in excess of the cost to remedy. The market is changing rapidly. Sale prices and valuations that were relevant 12 months ago cannot now be relied upon to reflect the market value today. Up to date advice should be sought if buying or selling while more attention to security margins by both lenders and borrowers is now necessary.
Commercial & Industrial
Today we are often questioned as to how commercial properties are performing. This question in itself is interesting in that six months ago it would not have been asked; investors still had confidence in a buoyant market and already knew or thought they knew the answer.
In answer to the question, yes we can expect some changes to the market but most of these will be a natural correction to levels of yield or return to fairly reflect differences in risk. We have been through a period of intense market activity and growth, during which the yields achieved on second and third tier investments have become very similar to the yields obtained on quality properties. If you think about it, this does not make sense. Yields on industrial properties, where buildings generally have a shorter life and higher maintenance requirement, should give the owner a higher return than a similar commercial investment. In the same way older or higher risk commercial investments should give their owners higher yields than "blue chip" properties. Over recent years the gaps in investment yield have narrowed and as the market takes on a more cautious approach one of the outcomes will be a widening in the range of yields.
The same comment could also be made when considering the relationship between the cost of finance and yield on property. Following the "87" crash, the market went through a long period of stability with limited growth and relatively level yield rates. The graph shows that during this period there was a noticeable margin between yields from government bonds, 90-day bank bills and commercial properties. During periods of limited capital growth this variance reflects the added risk between the types of investment. The merging of the various yields in the 2005-07 period can be attributed to the expectation that capital gain would offset reduced yields. With the market showing signs of slowing, history would suggest that the margin between cost of funds and yields on investment will return.
In response to the initial question, at present there is little evidence of any significant market slide. Although sales numbers have reduced, there are few, better quality properties being offered for sale. Provided inflation is kept under control we would expect better quality properties to maintain both current value and yield levels. However, with the market now showing more caution, investors will require a greater return for additional risk which could see increased yields and possibly lower prices for second and third tier commercial properties. Current trends do not justify major concern; merely more market awareness and greater due diligence prior to taking action.
Back issues of the newsletter can be obtained from TelferYoung (Taranaki) Ltd
143 Powderham Street,
P O Box 713,
New Plymouth,
New Zealand.
email: telferyoung@taranaki.telferyoung.com
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+ John Larmer + Mike Myers + Ian Baker + Mike Drew + Adam Boon + Fintan McGlinchey
Opinions expressed in this newsletter are of a general nature and should be used as a guide only. TelferYoung should be consulted before acting on this information.