Recent world events and conflicts including; Ukraine Rebels, Syria, ISIS, China slow down, Europe Slow down, Australian slow down have meant that the world economy is tracking around the 2-3% growth mark. This has translated to a drop in Brent Crude Oil to USD$84-85 as at 21st of Oct 2014. Oil is a great indication of the supply demand curve for world growth as Oil underpins almost every industry. When Oil got to USD$147 per barrel a few years ago there were subsequent food shortages worldwide as the cost of food rose as a result of increase petrol costs. So we can see today that oil at USD$84 means that demand has now dropped as there is plenty of Oil supply. The US has recently gone from a Net Importer of Crude Oil to a Net Exporter as a result of the flourishing Oil fracking industry in the US.
Also New Zealand’s 2 biggest trading partners China and Australia are buying less of our exports which have hit New Zealand especially hard in the Milk Powder export prices. It is of course hoped that Milk Export prices have bottomed but only in retrospect will we know for sure.
The Christchurch Property Market has increased in general by 10%. 506 homes were sold in Christchurch last month which is 16% higher than a year ago as Homes with repairs completed start to be sold in Christchurch. We have seen more investors buying property so there has now been an increase in availability of rental properties up to 1249 today on TradeMe.co.nz for Christchurch City where a year ago this figure hovering around the 1000 properties available mark.
Consequently, we have seen rental amounts for all properties stabilise. As well we still see an oversupply of Fully Furnished properties which currently stands at 570 available fully furnished properties today. We believe the demand for fully furnished has dropped considerably and this will continue. We do not see rents rising again for some time or at least until early next year when the major government projects are at full capacity and needing more workers.
We think it is a good time for Property Investors to purchase while interest rates remain low and residential property yields across Christchurch range in the 5-7% return. We see that the world growth forecast will continue to be around the 3% mark which means there will continue to be lowish interest rates offered in New Zealand. The Reserve Bank of New Zealand has projected the OCR to be stable at its current position for at least another year.