Inflation is now back within the Reserve Bank’s target band. All of this points to New Zealand’s economy heading in the right direction.
As the Global Financial Crisis showed, however, there’s always a lag when it comes to insolvency figures. Businesses may be performing better, but if they’ve used up all their working capital to “survive in 25”, there won’t be an easy “fix in 26”.
In fact, it could take until 2027 before insolvencies start to fall again.
However, it’s not all doom and gloom. Here are the key trends – positive and otherwise – to watch for in the insolvencies market.
Property and construction
Many developers have struggled this year, particularly those who bought land at the peak of the real estate market a few years ago, only to find build and holding costs going up and demand plummeting.
Housing stock, particularly apartments, hasn’t sold, and many sections are now back on the market. Lower immigration is also suppressing demand, while new building consents have grown significantly.
The end result is that housing stock levels have picked up dramatically, and more will be coming online soon.
However, the Reserve Bank’s hawkish stance on interest rates, indicating the Official Cash Rate is likely to remain at its current level of 2.25% for some time, has resulted in wholesale rates for home loans going up rather than down.
This could have a dampening effect on the market, and property developers whose balance sheets aren’t strong could find themselves in trouble.
In the commercial property sector, capital is freeing up for new investments. However, while premium spaces are still in demand, it’s tougher to get tenants for mid-tier offices.
Property owners who bought when yields were low have experienced significant changes, and these conditions are likely to continue for some time. Economists are predicting interest rates have fallen as far as they’ll go.
Primary industries
The beginning of the year brought a boom in the dairy sector, with high commodity prices and good property sales as confidence came back into the market.
Although dairy prices dropped for the eighth consecutive time at the first December Global Dairy Trade auction, money from the sale of Fonterra’s consumer brands will flow on to farmers next year. This should keep the rural economy performing strongly.
The US also recently dropped its tariff on New Zealand beef, which is welcome news for beef farmers.
On the other hand, viticulture businesses are likely to face much greater headwinds in 2026. A combination of US trade tariffs, oversupply and changing drinking habits has affected the outlook for the industry, despite growing sales to Asian markets in the year to June.
Competition will likely be hotter, potentially leading to some business closures and amalgamations.
Meanwhile, there has been a correction in the craft beer market after too many players found themselves competing for fewer dollars.
Hop Federation, Cowabunga, Epic Brewing Company and Deep Creek all went into liquidation in the past two years (although some have continued under new ownership), along with keg supplier Konvoy and distributor Hop and Vine.
Major urban economies
While retail and hospitality in Wellington have famously suffered over the past couple of years as the public sector has cut roles, Auckland, in particular, has experienced major impacts from the loss of international students attending inner-city language schools since Covid.
This shows the importance of diversification, even in non-agricultural areas.
The good news is that enrolment numbers for international students recently drew closer to 2019 figures, according to Education New Zealand, helping bring life back into cities.
The challenge will be the long wait for spending to recover.
Retail NZ’s recent Retail Radar quarterly survey found that 62% of retailers have not met their sales targets for the past six months. The economy is also likely to stall in the lead-up to the election, as businesses defer decisions until the result is known.
On the bright side, the Government’s new Events Attraction Package and Events Boost Fund will support more than 70 major events from next year. The tourism and hospitality sector, accommodation providers and retailers in all these centres will benefit.
What are the other positives?
Government investment in infrastructure will be positive for businesses, as are measures to encourage investment in existing firms, such as the new Business Investor Work Visa. Lower interest rates may also spur investment and commercial property sales.
Also, it must be noted that insolvency isn’t necessarily the end of the road. This year there have been good outcomes for businesses going into insolvency when they have really good fundamentals.
If a business is well-located, with strong community support and potential for future earnings, there are still buyers willing to see value in an investment and continue operations.
For example, while some childcare centres faced closure this year, three Peacocks early childhood centres in central Auckland were sold as a going concern, with all workers being retained. Many dairy farms were also quick to find a buyer.
As the economy picks up, more businesses may look to go into acquisition mode, meaning fewer insolvencies resulting in closures and redundancies.
The key to getting the best possible outcome is to consult a business adviser or an insolvency expert early.
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