We have passed the halfway point of 2021 and it is now less than six months until Christmas. Quite a bit has happened in the first half of the year so let’s look at how the NZ economy has tracked to June 2021.
The global economy continues to face a number of challenges, which are impacting many countries to varying degrees:
- Countries are fluctuating in and out of lockdowns as a result of ongoing COVID-19
- Shipping delays are continuing
- There are materials shortages affecting many industries
- Consumer demand for goods continues to rise while international travel continues to be restricted
We see the building industry as one to watch. In New Zealand, COVID-19 brought a further increase in demand for housing as New Zealanders returned from overseas, many of them with house deposits. Because of ongoing shortage of housing supply (materials and labour), upward pressure is being put on housing prices. While the building industry appears to be picking up, the travel bubble between Australia and New Zealand may entice some builders to Australia to take advantage of the better wages and lower cost of living on the other side of the ditch, which will not help New Zealand’s house shortage.
Core Logic has reported that house price growth slowed down in May and June 2021, especially in the larger centres. It is too early to know whether this decrease in growth is the result of changes to the interest deductibility rules for property investors and/or an increase in the bright line test from five to ten years. Interestingly, mortgage rates under two years decreased while mortgage rates over two years increased in June 2021. As we now know, the short-term interest rates have since increased. We will also need to wait to see whether property investors start to exit the market, once they are faced with higher tax obligations on their rental properties, and whether fewer property investors will enter the market now that the bright line test has doubled.
As we anticipated in May 2021, we are seeing early signs that inflation is returning to the economy. Expectations out of Wellington are that inflation will be above the 1% to 2% target in the June and September 2021 quarters and will then return to within the target range after that. Experience would suggest that prices are quick to go up but are slow to come down and it is unlikely that the shipping delays and supply shortages currently being experienced will be resolved by the end of the year.
Off the back of the inflation figures, economists have been reviewing their OCR predictions and many are now expecting to see interest rates rise further before the end of the year. It is not surprising that the banks have already increased interest rates. Many are now expecting that the OCR will be back up at 2% by the end of 2022 to keep inflation under control. For new home owners, the predicted increases in mortgage rates could see those currently locked in at low rates really struggle with repayments when those fixed rates expire.
Company Insolvencies – Liquidations, Receiverships, and Voluntary Administrations
Company insolvency appointments for June 2021 were:
- similar to May 2021
- higher than June 2020
- similar to June 2019 – the first time the 2021 monthly figures have been close to the monthly figures in 2019
Insolvency numbers have increased steadily over the June 2021 quarter and are higher than the same quarter last year. This increased activity is likely the result of a jigsaw puzzle of factors including the increased pressure being put on companies by the IRD, labour shortages in many industries, seasonal show downs in some sectors, and the very limited number of overseas tourists that have visited since New Zealand’s boarders were first closed. While we saw Wellington move to Alert Level 2 for the last week of June 2021, affected businesses who met the Resurgence Support Payment criteria were able to apply for a lump sum government support payment.
Notable insolvency appointments for the month:
• ASB Showgrounds (Auckland Agricultural Pastoral and Industrial Shows Board) went into liquidation. It has been reported that the cost of the ground rent made it unsustainable for the venue to continue operating.
While there were no other companies of note that had insolvency practitioners appointed in June 2021, there were quite a few appointments in two industries, despite perceived booms in both industries:
• building and construction
• transport and logistics
Personal Insolvencies - Bankruptcy
The June 2021 personal insolvency figures closely mirror the May and April 2021 figures, in both numbers and breakdown by type. If inflation and mortgage rates both rise, as predicted, we expect the increasing cost of living will see more payment defaults, which will likely result in more personal insolvencies.
Winding Up Applications
The IRD’s activity continued to ramp up through to the end of June 2021. It was responsible for advertising 76% of all June 2021’s liquidation application.
There has been 341 winding up proceedings advertised in the year to June 2021 and 210 of those (61%) have ended up in liquidation. The IRD has been the petitioning creditor in 130 of those applications (62%).