Effect of politics and election on sales
Bayleys recently sold this 100 Carbine Rd, Mt Wellington industrial property - roughly identified by a red border - for over $36.8 million. Photo / Supplied
A slowing of commercial property sales activity earlier this year was not mainly due to politics but to other factors, says John Church, national commercial director of Bayleys.
However, he says ‘pre-election positioning’ might be responsible for more recent increased market activity.
Writing in Bayleys’ latest Total Property magazine, Church says there was a drop in sales activity in the first five months of this year compared with the same period in 2016 and this drop might be seen as reinforcing a perception that the market traditionally slows in an election year.
“However, you’d be drawing a long bow to suggest it had anything to do with the forthcoming election,” Church says.
“The main reason the market slowed was the banking sector constraints on access to finance. There have been other factors at play as well. The past few years have seen year after year of record sales activity, which wasn’t sustainable longer term. The market was bound to take a ‘breather’ at some stage.
“There has also been a shortage of good quality listings taken to market. And another perception - that the commercial property market is close to the peak of its current cycle - has made buyers more cautious.”
A recently released Bayleys Research report indicates residential sales don’t exhibit the drop off widely believed to occur in the lead up to an election.
An analysis of the five elections held since 2000 shows little variance between sales in the election quarter compared to the pre-election quarter in most election years. The 2011 election showed the biggest variance, but this was actually a rise of 7.1 per cent in sales during the election quarter from the previous quarter.
Lower turnover means there is no similar research on the commercial property market, says Church. But, he says, the commercial market perked up again mid-year, with both the value and volume of sales showing an improvement in June and July, with August also exhibiting solid activity particularly in Auckland.
“Perhaps most encouraging - given that they generally entail a significant amount of leveraging - has been the increase in $5m-plus sales,” says Church. “Recently, Bayleys agents have negotiated a $36.8m-plus industrial sale in Mt Wellington, a large provincial industrial sale for in excess of $20m and the biggest yet industrial land sale in the Tauriko business estate in Tauranga for just over $12.5m. We have also been involved in two central Auckland office building sales for close to $19m and $141m; and two substantial CBD land sales for hotel development totalling in excess of $70m.”
Church says some of this increased activity could be the result of pre-election positioning. Recent polling suggests that neither National nor Labour may end up with enough seats to form a government in which case NZ First, and in particular Winston Peters, will end up as “kingmaker”.
“In a worst-case scenario, it could take several weeks, even months, for a coalition government to be formed. Investment markets don’t like that sort of uncertainty. It is therefore perhaps not surprising that more vendors are putting their properties up for sale and that some are prepared to accept offers they may not have taken a few months ago.”
Church says while Labour’s policy on a capital gains tax is unclear at this stage, it is advocating an extension of the current “bright line test” from two years to five. This would require investors to pay tax on any capital gain arising from the sale of an investment property within five years of purchasing it.
Labour’s tax policy also includes proposals to close what it describes as a loophole allowing investors to write off losses made on rental properties against other sources of income. “This will have more impact on negatively geared residential property investors rather than commercial investors,” says Church. “Labour’s economic policies are also generally regarded as likely to be more inflationary than National’s which may push up interest rates – and hence commercial property yields – faster.
“However, of most importance to commercial property owners will be a continuation of the good level of economic growth that has served the sector well in recent years. This is what fills up buildings and puts upward pressure on rentals and property values.”
John Church, national commercial director of Bayleys