A recent briefing from Bayleys NZ looked at the repercussions of rising inflation and interest rate rises when it comes to the outlook for property prices next year.
The report from Bayleys’ property partner Knight Frank indicated that economic upheavals in the New Zealand property market are “far from done”.
Read the report:
Investor hopes that the final months of 2022 would mark the peak of the year’s economic volatility have been quashed in a climate of inflation and ongoing global upheaval.
October’s shock inflation announcement of 7.2 percent, may have been down slightly on June’s 32-year high of 7.3 percent but was significantly higher than the figure of around 6.4 percent that had been predicted by the Reserve Bank of New Zealand (RBMZ) and economic commentators.
The announcement immediately caused significant surges in the interest rate swap rate curve – up 20 basis points on two-year swap rates – and led to forecasts that the RBNZ’s next Official Cash Rate (OCR) announcement in November would hit 4.25 percent.
The inflation announcement coincided with a webinar by Bayleys’ international real estate partner Knight Frank on global active capital, which backed up the realisation that this period of economic upheaval is far from done.
Bayleys national director commercial and industrial Ryan Johnson (left) says the Knight Frank global metrics indicate now that hopes a peak was in sight, were optimistic.
“What we can expect now is more of the same – and even more of it. That inflation announcement was a huge indicator of how things are going to play out over the next few months.
“A lot of people were hoping for, and predicting, signs that the volatility was reaching its peak. The fact it didn’t happen that way meant people reacted strongly in the other direction, particularly in the significant surges on the interest rate swap curve.”
With key economies including the US, UK and Australia predicting they will be in recession in 2023, the message for investors is really to hold, but watch for opportunities, Johnson says.
“That expected forecast change in the OCR is going to create another pause on a lot of institutional capital as investors wait out interest rate volatility.”
The clear overall picture coming through from Knight Frank data is that ongoing, even escalating, global economic and political upheaval is still making investors more cautious.
Energy crises in the UK and Europe, war in Ukraine and continued lockdowns in China all add up to too many unknowns for investors. That perfect storm also comes against a backdrop of increasing interest rates from central banks around the world as they battle to bring inflation back to manageable levels.
The report includes OECD GDP growth forecasts that make for sobering reading. GDP growth in the US is predicted to drop from around 1.8 percent in 2022 to around 0.5 percent in 2023, while the EU’s GDP growth is expected to sit around zero percent. Australian GDP growth is predicted to drop from four percent to two percent in 2023. One country bucking the trend is China, with predicted GDP growth rising from around 3.5 percent in 2022 to around 4.5 percent next year.
Meanwhile, investment volumes in Europe are predicted to be around EU$45 billion for the third quarter of 2022, down from their peak of more than $140 billion in the last quarter of 2021. In the Asia Pacific region, investment volumes for the third quarter of 2022 are at a five-year low of around US$28 billion, down from the 2021 high of close to $75 million.
The report indicates that with investors holding their assets and the impacts of tighter monetary policy still playing out, the effect of the rapid market changes on global property values is yet to fully play out. However, yields are predicted to widen as buyers expect higher returns from property compared to alternative fixed-income investments.
Source: Bayleys New Zealand