Posted on Aug 31, 2017
Traditionally the period immediately prior to a general election has seen activity in the market stall. That’s not confined to the real estate market. Activity in most commercial markets slows dramatically. Even in the time we were in the food industry, sales more than halved in the weeks leading up to an election.
We have always put this down to a nervousness about the form of a new government, and what they will or might not do. Deep down we know that they almost certainly won’t do what they promised to do - either because they only promised it because they never had a hope of getting elected, or they promised so that they might have a hope of getting elected knowing they wouldn’t have the money to do it anyway.
But does it really matter?Will the result of an election make that much of a difference that it should cause us to make decisions to buy or sell that we otherwise might not have? Or even to wait out making a decision until we know whether red or blue flags will be flying? We know for sure it won’t be green.
Stock markets tend to fluctuate significantly more than the rest of the real estate market, and are more vulnerable to geo-political influences. The last year has seen some massive political changes, yet even they have had minimal lasting influences on stock markets. The Brexit vote sent European stocks down 7 percent the day after the surprise outcome. But within a month of Brexit, they had recovered nearly all of the losses. When the news broke that President Trump had tried to stop an FBI investigation of his former national security advisor, the Dow Jones fell 373 points in one day. But within a week it had recovered all that and more. Similarly in May, news broke that Brazil’s relatively new President Michel Temer had taken millions of dollars in graft payments. Brazilian markets fell 10 percent, but within a week had mostly recovered. The losses are often a knee-jerk reaction to the unexpected, and seldom have a lasting impact.
Real Estate markets are substantially more stable, and the highs and lows take much longer to be reached.
We can examine what likely impact a change in government, or a continuation of the existing government, may have on the Auckland commercial real estate market. But, whatever that impact, the change will take some considerable time to be apparent. Which makes the stall in the market during an election campaign somewhat bizarre.
Our analysis of the current drivers of the market is that they are primarily immigration, buoyant economic activity, interest rates and build costs.
Immigration and economic activity are to an extent linked. But even if the brakes are put on immigration, the spending promises both parties have made with respect to infrastructure will mean a continuation of substantial funding of major projects. Interest rates are not going to rise dramatically in a hurry - if at all - over the next couple of years. And whilst there is still major pressure to build more residential housing, we don’t foresee a decline in build costs.
So all the signs are aligned to at least hold prices where they are currently. The biggest risk to the market is therefore not what politicians of either colour in Wellington may do - it’s the potential for external geo-political shocks.
Looking back at various economic meltdowns over the past 30 years (crash and recession of ’87, Asian Financial Crisis of ’98, Global Financial Crisis of 2007), the factors which impacted on our real estate market were imported. And this is where the potential risk lies. Just as the sub-prime stupidity in the USA kicked off the GFC, the danger to our market is more likely external than internal.
And we am sure that any external threat will not be triggered by New Zealand having an election. Our expectation is therefore that we will experience the usual three yearly stall in the market for a few weeks (longer if there is a stalemate and any of the minor players are wanting to exert their self importance) and then we will be back to normal.
And normal is that whole mix of factors that influence price and demand - including banks desire to lend, vacancy rates and business confidence. We just need to be grateful that we only have elections every three years.