Director’s Thoughtpiece: Listen to William Wallace


Who will ever forget Mel Gibson as William Wallace commanding his kilt-wearing kin to ‘hold’ as the English charged them on mighty steeds? Then at the last possible minute, he yells ‘NOW!’ and they lift sharpened poles to massacre the unsuspecting enemy. Perfect timing takes a perfect mix of imagination, hard work, and chutzpah.

When is the perfect time to attack in this weird environment of storms, rising interest rates, failing companies, falling house prices, and election year pauses?

When you see an opportunity upon you, if you don’t act fast it will fly over the top of you. The problem is, most people don’t take advantage of great buying because they either don’t recognise a great opportunity, or when they do, they haven’t built their property confidence muscle so they can flex it and take advantage.



We are all currently fixated on storm impacts, what inflation will do, what Orr will do, what interest rates will do, what house prices will do, and what Luxon and Hipkins will promise to do. Of course, we have to deal with the urgent. We manage hundreds of residential properties, and our team is exhausted working empathetically with flood-affected tenants and stressed landlords. In times like these, it can be hard to look beyond the startling headlines.

But we know that behind clouds, no matter how dark, is always a blue sky. Perhaps the most important thing to do at times like these is to focus on the hope the future offers, while working through flood and financial challenges.

In our Christmas commentary, we said that the back of inflation had been broken, and that there would be plenty of pain in 2023, but the job was largely done. Our opinion remains unchanged. Yes, there are a few factors that could lead you to argue Orr needs to do more…e.g., a recent jump in the share market. However, on balance, we think the negatives outweigh the positives. Increased business failures, more mortgages to roll on to higher interest rates this year, higher unemployment, the floods…Very hard to see inflation thriving in this environment. So, let’s assume that rampant inflation has had its day.

What do we see if we step back for a minute and wonder what might be around the corner? Doing this will help motivate us to prepare for what is ahead.

Let’s think about some scenarios:

Jonah Needs to go Overboard

You know the Bible story – Jonah gets thrown overboard because the captain thinks he has caused the storm – and he ends up in the guts of a big fish.  Captain ‘Banker’ is currently blaming ‘over-leveraged’ commercial investors for ruining their banking ratios. That in turn means they must hold more capital. Therefore, some property investors have been told to lighten the load and fast – that means selling their properties. When you must sell you become more of a price taker.

Actually, this is not a possibility – it is happening now. The result is that there are an increasing number of opportunities to buy at prices not seen for a while, often being marketed quietly to parties known to real estate agents.

No Room at the Inn

Banks aren’t that interested in construction finance at the moment. That means we are not seeing a lot of new build in the office or industrial space. No big deal though, because the economy is set for a recession and the demand for space will plateau…right? Well, we will eventually come out of the recession.

Remember Joseph and Mary arriving in Bethlehem and there was no room at the inn? Basic demand and supply. Everyone wanted to be in Bethlehem that night – Joseph had left his run too late. Similar story…. for example, Christchurch office vacancy rates have dropped to nearly 6%*. Industrial vacancy in Christchurch is even tighter at about 3%*. Go to Auckland and industrial space is even more scarce.

Eventually, the economy will turn. Then businesses expand and they need more space. There isn’t enough space to go around, so people pay more to get the space they need. The cap rates might not have moved, but the rent has, so the property value goes up. That’s nice. Well, it is if you are holding property. It’s not if you were a Frank Spencer and forgot to invest.

 Falling Interest Rates

Why will interest rates fall?

    • Orr knows he’s done his job, and that OCR increases will take months to have their full effect, so there will be continued belt-tightening even if he doesn’t roll out another OCR increase on Feb 22. Hard to see OCR increases beyond Feb. And with the recent weather events, will burdening the economy with more rates increases be seen to be almost callous…uncaring?
    • Residential sales volumes are very low, which means less demand for bank borrowing.
    • Business failures are increasing.
    • Unemployment is on the rise.

All these factors will very likely result in an economic slowdown of some description. Then, the next cycle begins…the government and RBNZ will be under pressure to stimulate economic activity and so it is likely monetary policy will loosen, interest rates drop, serviceability criteria is loosened and finally debt becomes easier to get… again. And so, the merry-go-round continues.

Falling Deposit Rates

Retirees have more options now. Some bank bonds are at higher rates. That has attracted some capital away from property. However, when the economy slows and interest rates drop, so too will deposit rates. Then property quickly becomes a preferred option again. That contributes to property demand.

To summarise, I can easily imagine a scenario in the not-too-distant future where all of a sudden interest rates are dropping, debt is then easier to get, and demand for commercial and residential property picks up. We don’t know when, but we can see it, and we want to be ready for it. We also know that this is a buyer’s market and that it won’t last forever. We’ve been through a few of these cycles now. I’d like to pretend I am Neo, looking into the Matrix and making sense of it all. But the reality is that the cycle is so very predictable, you don’t need superpowers to see the future.


Do the Work

If you believe there is a different environment approaching, i.e., one of rising property prices, then you need to do the work now to take advantage of it. That means:

    1. Get finance in place so you can buy. It’s hard. You need to understand what the banks like, what they are most happy to lend on. This of course assumes you meet their LVR and serviceability criteria.
    2. Be very clear about what property types and locations you will target, and why.  For example, we don’t typically buy strip retail.
    3. Develop good relationships with key agents so you see good deals. Agents want to work with people they know and that have a proven track record in settling deals.
    4. Looking at and analysing hundreds of deals so you have the confidence to know what a good deal looks like when you see one.


Be Brave

So…you can see the future clearly, you believe the market is ripe for an increase in the not-too-distant future. You understand that this is a buyer’s market. You have done the work – you have your finance, you are looking at a lot of properties, agents are talking to you, and…you have a deal in front of you that you believe is great.

Will you act? Will you commit?



Some may read all this and like the idea of it, but are just too tied up with work, storm-related issues, and therefore can’t act. Those are the very people we set up Erskine Owen for. We take immense satisfaction in the lasting wealth we have helped so many people create. People who would otherwise have done nothing. It’s why we launched our new Erskine Owen Growth Fund – to make it easier for people to take advantage of outstanding buying opportunities.


* CBRE Christchurch Property Market Overview Q3 2022