Property ‘train wreck’ ahead: Key
ANZ chairman says commercial owners facing a sticky time
Former Prime Minister Sir John Key expects the coronavirus pandemic to slow house sales and says commercial property could be a “bit of a train wreck”.
The former National Party leader, now ANZ chairman, predicted fewer house sales rather than “dramatically lower prices — but they’ve got to track down”.
In an informal video Q&A with Ray White Remuera real estate agents, Key offered a sweeping assessment of how he saw the economy recovering from the pandemic.
He didn’t subscribe to the prediction that New Zealand life would be markedly different post-pandemic.
“We’ll all get out and go back to doing things again. We might not have as much money to do everything but pretty soon, we’ll go back . . .”
And while he urged Kiwis to think “fortress balance sheet”, there would be opportunities in the downturn.
“I think people will be more conservative but if you are reasonably confident your income or your job is sustainable, knock your socks off because there will be good opportunities.”
Key believed that although small provincial towns would be hurt by the downturn, Auckland would continue growing as a desirable city. He tipped its population to grow to two million and the property market to strengthen in two or three years.
Property developers and commercial property owners faced a sticky time, he predicted.
“With the working capital programmes the banks are running, the way they work is $6.2 billion has been allocated with the Reserve Bank on the hook for $5b and banks for $1.25b.
“The ANZ owns about a third of that because it’s the biggest. We reckon we have about $300 million at risk. If your company is between $2 million and $80 million, we can give you a working capital loan of $500,000 or less.
“The issue is the RB has told us we are not allowed to fund anyone we think is not going to make it . . . and the Government has specifically excluded two groups — property developers and agriculture. I think we’re going to see some property developers who haven’t got great financing behind them, who’ve sold off the plan and some people have walked away . . . get a little bit edgy — when they go into the bank to fund it, the initial answer is going to be no.”
The commercial property sector, which had performed strongly for many years, “could be a bit of a train wreck” because tenant companies can’t pay rent and want rent holidays, said Key, also on the board of ANZ’s Australian parent and who holds positions with technology companies in New Zealand and the US.
“I know people with massive commercial holdings. No one is paying them rent.” He believed firms would, after lockdown, run with significantly fewer people — another looming issue for commercial landlords.
“Everyone is going to kick out 20 per cent of their people . . . even if the company is doing well . . . their worst performers. Never waste a crisis.
“I don’t want to be doom and gloom but property might take longer [to recover] — it just has to go lower over time.”
Asked by an agent if current low interest rates and the fact many people still had steady jobs could offset a market decline, Key said interest rates fuelled the market, but another big driver was jobs and confidence.
“Some people are not going to have a job or income or confidence. We’re dreaming if we don’t think people are going to be stressed.”
In answer to questions, Key believed interest rates could “technically” go lower still, possibly to zero but unlikely to negative. “What you can bet the ranch on is they’re not going up in the next few years.”
Nor did he think the Government would impose a capital gains tax.
He said Prime Minister Jacinda Ardern would have worked out the politics — not all house buyers were “fat cats” and that many New Zealanders owned one rental house or aspired to be property investors.
Key said double-digit unemployment was likely but on the low side of that. Migration would be going to zero next year which would help ease unemployment and was already being seen in the kiwifruit industry. He said people who had lost jobs would try something different.
Key said his career was taking a more advisory path — he stepped down as an Air NZ director last month. This brought him into contact with overseas business people and entrepreneurs.
He believed stress levels in places like Silicon Valley, where he has business connections, “are greater than people think”.
It would take development of a successful coronavirus vaccine for the world to get back to normal, he said. The head of pharmaceutical giant Johnson & Johnson had been on a call Key was recently on and was “very confident” about a vaccine start in September.
“But you’d have to say by any conservative measure for a vaccine to be rolled out we are 18 months from normal behaviour.”
Discretionary travel was “out the window” for some time, Key said.
He would not be going to Melbourne for ANZ board meetings because he would have to selfquarantine for 14 days afterwards.