The team at Calnan Flack are always on the lookout for indications of where we are in the cycle and what opportunities arise. Investor Mentor Cathy Stacey wrote this blog following her recent trip to New Zealand.
‘On a Winged Keel and a Prayer’
I have just returned from 10 days in New Zealand with family. It was a joining of my husband Nic’s Greek family and my Kiwi family and we all had a wonderful time together.
Of course while I was in Auckland and Hawkes Bay (North Island) I was on the lookout to see if there were any signs of ‘The Cycle’.
Well they are everywhere! Especially construction and when I dug a bit deeper the signs of the Cantillon effect were shining bright!
Phil Anderson writes on Page 367 of the “Secret Life of Real Estate and Banking” in relation to the Cantillon Effect:
“The world’s tallest buildings have a consistent habit of being completed right at the top of the real estate cycle, producing for us, at least so far, the most reliable indicator of an approaching peak.”
This phenomenon occurs at the peak before the mid cycle slowdown and at the peak before the major land and credit bust.
The Kingdom Tower in Jeddah standing a 1,000 metres is due for completion in 2020 – it will be the world’s tallest building. In Auckland the Cantillon Effect is in full swing. It’s like it’s a competition to see which developer can build the tallest!
The Pacifica, a luxury $300m residential skyscraper has been designed for downtown Auckland. Construction is expected to start this year and the 178m or 57-stories tall building which should be ready for occupancy in September 2020. It will stand as New Zealand’s highest residential tower.
However its mantle as the tallest building is not likely to last for long – you see in the next 3-4 years a massive 192m monster ‘Customs St East’ is set to be added to Auckland’s skyline. The cost of this project is unknown, but the council values the ‘LAND’ on which it will be built at a meer $28.6m, which of course will well and truly be amortised over the 50 new stories being built. Again the timing of this construction catches our eye.
Not to be out done, the proposed NDG Auckland Centre a residential and hotel skyscraper is also due for completion around 2020. When completed, at 209m this will be the second tallest structure in Auckland only shadowed by the 328m Sky Tower.
What does this mean for us in Australia?
That the cycle is turning in New Zealand as it is in Australia, the US, the UK and Europe. The same indicators that have occurred in previous cycles are occurring in this one. Indicators such as the Cantillon Effect are valuable with the timing of entering and exiting investments.
For those of us that remember our recent economic history, you will recall that NZ was one of the first real-estate markets to show signs of trouble before the onset of the GFC. The New Zealand stock index, NZSX50, was one of the first stock indexes to clearly peak pre GFC.
The trading day starts in New Zealand and it certainly looks to be leading this cycle.
The timing of 2020 for the completion of these landmark buildings is something certainly to watch for and be aware of.
Australian Share Market
As you can see from below the Aussie Share Market has been trending sideways for some time now. It’s not in decline (you can see from the higher bottoms) but moving in a tight sideways band. Be patient as when this moves and breaks out of this band all indicators are suggesting a hard and fast upward move. Again we will guide you and keep you posted.
Looking forward to Adelaide
I am looking forward to catching up with our South Australian Investors and Investment Club members at the launch of the Adelaide Investment Club next week. It will great to be able to put a face to the names.
One Final Thought
At Calnan Flack we have often spoken about the effect that an Olympic Games or even a World Cup can have on an economy. For New Zealand the 2021 America’s Cup in Auckland is likely to have a massive impact on the actions of developers and property speculators as they leverage themselves ‘On a Winged Keel and a Prayer’….
Cathy Stacey – Investor Mentor