Investor Newsletter – August 2023

9 August 2023
I hope everyone is doing well and staying healthy as we navigate through the colder months.

With the 2023 election drawing near, it will be interesting to see how the outcome influences the business landscape and shapes our nation’s path ahead. I eagerly await October 14th.

In this month’s newsletter, we update you on the property market, our predictions for the lending industry over the next 6 – 12 months, and the results of our Investor Satisfaction Survey.

Market & Lending Update

Over the past couple of months some telling economic data has been released, prompting a wind of positive change in the air for the economy and our property market. It’s clearly early days, and we see it taking at least 6 – 9 months before the market gathers any convincing momentum, but it’s great to see some promising green shoots there for owners, investors, builders, and developers alike.

In the June quarter, annual inflation dropped to 6.0% and it’s now 1.20% lower than its peak in December last year. In July, after 12 consecutive rate hikes, the Reserve Bank felt confident enough to put on the brakes and didn’t raise the OCR. We think enough has been done to belt inflation back down to acceptable levels by this time next year, but stubborn food prices and other living costs are a worry and could stymie that timeline.

The other positive news came from REINZ data on property sales volumes and prices. In July, NZ had its first month-on-month increase in the House Price Index since November 2021; economists agree, it’s a compelling sign the market has reached a bottom (at an NZ-wide level). In addition to this, sales volumes in June were up 15% vs June last year and 19% up on the prior month. This is good news, but it’s important to note, sales volumes are still over 40% lower than June 2021, reiterating the fact that we are only at the very beginning of any market recovery.

On the lending side, over the past several months we’ve experienced lower than average borrower and broker enquiry levels. Earlier in the downward cycle, the quick exit of Bank’s from property lending prompted a surge of strong enquiry in the non-bank space, particularly as developers worked through their existing projects, or sought to settle existing purchase commitments. New resource consent applications and development activity deteriorated as the market decline lengthened, and as a result, we’ve more recently seen fewer Borrower’s seeking funding in our space too.

Around 18-months ago, non-bank lenders began imposing tougher lending criteria in response to the deteriorating market conditions. Investors saw AFS reduce its maximum LVR appetite significantly and become stricter in its risk parameters and lending criteria over that time. In response to the positive economic filtering through, we’re seeing our competitors start to loosen lending conditions.

In the coming 6 months, we expect competition in lending terms to increase. As financiers see more positive economic data filter through, risk concerns about property value declines and builder cost pressures will reduce, giving lenders confidence to offer more flexibility on terms.

AFS is committed to continuing our rigorous risk assessment process, which carefully considers the prevailing economic and market conditions. Our partner, Omega Capital, works with a large non-bank lending network in addition to AFS, providing valuable insights on our competitors that ensure we can continue to attract and win lending opportunities.

Investor Satisfaction Survey Findings

Thank you for taking the time to share your experience with us. We had close to 50% of investors complete the survey, which is an excellent result by industry standards. The feedback has been overwhelmingly positive.

As per last year’s findings, investors continue to hold our product in high regard, particularly appreciating the property-backed loan security, loan and borrower transparency, and monthly interest payments. Among all respondents, 94% intend to invest with us again, while 6% have registered but not yet invested, indicating a high level of satisfaction amongst our investors which pleases us greatly.

Our more personal approach was highlighted as a competitive strength that you greatly value. As we move forward with our growth, we are dedicated to preserving this personal level of interaction that sets us apart. Your satisfaction and connection with us remain our priority.

Once again thank you for completing the survey. We will conduct it annually to stay updated on your satisfaction and identify areas for improvement. Your feedback is invaluable in shaping our services. Your support is appreciated!

As always, we are available to answer any questions you have about your loans or any other matter, so please do not hesitate to visit our Cambridge office in person, or contact us by email, or phone on 0800 555 621.

Kind regards

Olivia Fraser
Director, Alpha First Mortgage Investments