Investor Newsletter – March 2023

1 March 2023

2023 has started with a lot of market uncertainty, and caution is driving investor decisions – where do you place hard-earned savings and capital to achieve a good return whilst minimising the risk of loss?

Inflation is certainly challenging the world at present as it increases the cost of living and production of food and other essentials and chews away at capital and savings. However pain equals gain as interest rate rises reduce spending power but on the flip side, the gain is getting inflation under control as quickly as possible to reduce longer-term pain.

The clean-up in the areas devastated by Gabrielle will be a long haul, cost $13billion +, a cost borne by taxpayers. While the short term is financially crippling for many of those affected, whole communities will benefit from the massive clean-up and reconstruction spend by the government in the short term.

Longer term, roads, and services need to be redesigned, relocated in many cases, bridges built, communities relocated and rebuilt away from low-lying land, new housing developed etc. A massive task that hopefully will be well planned and executed. One thing we are comfortable with is that New Zealand is well able to afford what some are suggesting is a cost of up to $ 100 billion. Comparatively, government debt is relatively low.  Is this government up to the task?

The war in Ukraine is certainly on most peoples minds because of the devastating effects on the Ukraine people with the loss of life and the destruction of whole towns and communities, but also the effect it may have here economically. Hard to see an end to the conflict any time soon unless sanctions and economic pressure forces Russia to relent.

Construction in the residential sector has slowed and Alpha is taking a very cautious approach to any new development loans particularly in Auckland where it is almost impossible to make presales off the plans as house prices continue to slide and financing for house buyers for un-built houses is tight at best. In addition, the market is awash with completed spec houses sitting unsold because buyers are waiting and watching. Developers who are being realistic are making sales but those doggedly sticking to asking prices are finding the market very tough. Alpha’s exposure to this part of the market is limited.

Interest returns to our investors will remain as they are currently at 9.25% to 9.95% per annum, with interest paid monthly and no deductions apart from RWT.

The latest OCR rise to 4.75% has had little effect on retail rates being charged by lenders with most appearing to have priced in an OCR of up to 5% already. Some trading banks are already offering lower rates to attract new borrowers in anticipation of interest rates reducing as early as 1 year from now.

New Loan applications are coming into Alpha daily, albeit are we being very conservative in our considerations. LVRs are generally less than 50%.  Pre-sale agreements are audited to ensure buyers are locked in and financially capable of settling.  Investors can be certain that any new loan being offered to investor clients has been thoroughly scrutinised and otherwise would not be the subject of an offer to lend.

As always, if you have any concerns in respect of the loans you have invested in, or wish to talk with us on any matter, please do not hesitate to call or email.

Kind regards,
Scott Massey and Olivia Fraser