YOUR DREAM HOME Downsizing might not be the answer
UP & UP: YOUR CITY GROWTH GUIDE
CONSUMER TRAP
Donʼt become a competitive spender
HORROR STORIES
Is it time to close the Bank of Mum & Dad?
FORMERLY
Will your area keep seeing price increases?
9 secrets of capital growth properties Business vS houses: which gets the best returns? What will 2022 hold for the share market?
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Will your properties still be profitable after the tax changes? opespartners.co.nz
The government tax changes will significantly impact property investors who own existing properties. From 1st October, the government’s interest deductibility tax changes started to come into effect. Investors will pay more tax on some properties, and this new reality will change the types of properties Kiwi investors choose to buy. Here’s what that means for you as a property investor. Any properties within your portfolio will gradually start to pay more tax. Once fully implemented, a property with a $600,000 mortgage will be about $5,000 worse off per year. While your properties might be cashflow positive now – providing a small passive income – you may soon need to top-up their bank accounts. But there are strategies you can use to avoid being punished by the new changes. Government announcements suggest that New Builds will not be impacted by these changes. With no extra tax paid, newly built rental properties will soon have a significant tax advantage compared to other properties on the market. This may make New Builds a more practical investment for you if you want to get ahead and earn the flexibility to live life on your terms. Opes Partners’ Finds New Builds Properties For Investors You can view New Build investment opportunities from developers around New Zealand when using Opes to find your next investment property. This includes projects from developers with a national brand name and smaller organisations that only the locals know. • Investment properties sourced from 47 different developers • 63 projects currently under construction • We find investment opportunities across the country • Investment recommendations based on solid economic analysis • The New Build-finding service is provided complimentary. We are paid by the developer when we find the right investment property for you.
The simplest way to become a property investor. Go to www.opespartners.co.nz to learn about our New Build finding service.
Contents IN THIS ISSUE
PROPERTY
20. More People, More Growth?
64. Your Dream Retirement Home
Population growth and capital growth don’t always walk hand in hand, says Ed McKnight.
Downsizing by the beach may be your fantasy. But it might not be a money-maker, says Amy Hamilton Chadwick.
24. A Bigger House Isn’t a Retirement Plan
68. The 2021 Property Report
Maybe it’s time to leave the property ladder and see a house as a home, says Martin Hawes.
An imbalance between supply and demand continues to boost property prices, says Jen Baird.
28. Is it Time to Close the Bank of Mum and Dad? Amy Hamilton Chadwick finds that being your kids’ bank can damage your wealth, income, and lifestyle.
32. Get Debt-Free Faster (and Save Money) Save thousands by changing to a revolving credit mortgage, says Peter Norris.
36. Is It Land of Plenty or a Money Trap?
PERSONAL FINANCE
76. The Solo Sacrifice
You won’t get rent from it, but can you get rich anyway? Amy Hamilton Chadwick looks at land banking.
Single parents are more inclined to put their kids first, leaving retirement savings until later. Ben Tutty looks at the one-parent dilemma.
44. Rent-vesting: The Best of Both Worlds
80. What Does 2022 Hold for Investors?
Ben Tutty looks at the rising trend for people to rent where they live and buy a property somewhere else.
In 2021, many of us piled into a buoyant share market. But investors might see lower returns in 2022, suggests Mark Riggall.
48. Property Investment at Arm’s Length Owning commercial property in New Zealand is out of reach for many Kiwis. Listed property shares are a great alternative, says Chris Smith.
52. The Game of Competitive Spending Why do we feel we have to fill our homes with shiny new things? Lynda Moore says we’re being hijacked by our emotions.
56. So, You Want to Be a Property Developer Do you want to take property investing to the next level? Ben Tutty finds out how.
58. When the Sunset Clause Goes Down Some buyers are worried about ‘sunset’ clauses. Tessa Doherty explains what they are – and whether you need one.
60. The Nine Secrets of High Capital Growth
84. CEO Profile: Naomi Ballantyne, Partners Life
Naomi Ballantyne has helped shape the insurance industry. She talks to Brenda Ward.
86. Seven Steps to Wealth Turbocharge your money with these tips for investing from Andrew Armstrong.
88. The Long Game Investing isn’t about instant rewards. You should have a longterm horizon, says Mike Taylor.
90. Environment Under Siege Victoria Harris explains the issues around protecting investments against climate change.
Properties
94. Your Guide to KiwiSaver, Part One
Andrew Nicol of Opes Partners says there are nine principles that make it more likely your property will go up in value.
KiwiSaver is a great way to help you save for your first home or retirement. Here’s a guide to help you use it.
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SUMMER’21
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LIFESTYLE
100. Essentials: Subtle Elegance Make summer sensational with Scandinavian lines and naturals.
102. Get That Magic Street Appeal Ilse Wolfe has tips for every budget.
104. Travel: New Year, New You 102
Stressed and desperate? It could be time to head to Resolution Retreats, says Brenda Ward.
108. Motoring: VW California Camper Go in comfort to out-of-the-way places, says Alastair Sloane.
110. Fashion: Summer Style Relax in the sunshine confident that your look is on-trend.
MARKET INSIGHTS
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112. Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we are going as a nation.
114. Snapshot We look at some of the events around the world affecting the global economy.
116. The What, the How, and the Why Are a Santa rally and a sugar rush around the corner, asks Greg Smith.
118. The Double Whammy The UK is struggling to recover from the pandemic and Brexit, says Andrew Kenningham.
116 REGULARS
12. Subscribe to Informed Investor Subscribe to Informed Investor for just NZ$29 for 4 issues at www.informedinvestor.co.nz.
14. What We Like We find the hottest products, services, and places.
102. Book Reviews Informed Investor reviews two of the latest hot reads.
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103. Junior Investor Get your teens learning about money with our page to help improve their financial skills.
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L E X U S
E L E C T R I F I E D
EDITOR’S LETTER
Published by: Opes Media Informed Investor / JUNO Level M, 17 Albert Street, Auckland Central, Auckland.
My Home is Worth How Much?! Why bigger isn’t always better – and some exciting news. Upgrading to a bigger, flasher house every decade used to be seen as an investment strategy.
No, it’s not duplication, because each magazine serves its own readers in its own way.
The theory was that, at retirement, you’d sell a mansion and downsize to a nice little low-maintenance unit, banking a whole lot of cash.
•
There are several things wrong with this theory. You’ll find them in Martin Hawes’ story ‘A Bigger House is Not a Retirement Plan’, and Amy Hamilton Chadwick’s ‘Your Dream Retirement Home’, about downsizing. I also found another reason, recently. Using Homes.co.nz’s property price estimates I found that our first home is worth almost the same today as the home we now own. How disappointing. We could have just sat tight for 30-plus years, paid off the mortgage and invested all that money in the share market or rental properties. We’d be so rich. Why we do property Property is, of course, Kiwis’ favourite investment, so once a year at Informed Investor we do this special property issue. We talk about all kinds of investments, but we give property pride of place.
•
Informed Investor is much more than property. But if you like the idea of buying an investment property, you’ll find inspiration, strategies, and advice in it. However, if you already own rental properties or have a portfolio, NZ Property Investor will give you the nuts and bolts every month.
I’d like to welcome the team of our new sister publication, and I look forward to seeing it flourish with its new owners. The toughest job As a postscript, I’d like to celebrate the Kiwis out there raising kids on their own, with our story ‘The Solo Sacrifice’. It’s a really tough challenge to give children a great upbringing while at the same time trying to save for your own future. I admire you all. I hope you find lots that’s fascinating, informative and fun in this issue.
This year, we have something exciting to announce. Opes Media, the publishers of Informed Investor, has just bought NZ Property Investor magazine.
Brenda Ward Informed Investor Editor
Editor Brenda Ward – brenda@informedinvestor.co.nz
Resident economist Ed McKnight
Art Director Mark Glover
Printer Ovato Print
Senior Writer Laine Moger
Distributor Ovato Distribution
This magazine is subject to NZ Media Council procedures. A complaint must first be directed in writing, within one month of publication, to the editor’s email address, brenda@informedinvestor.co.nz. If not satisfied with the response, the complaint may be referred to the Media Council PO Box 10-879, The Terrace, Wellington 6143; info@mediacouncil.org.nz. Or use the online complaint form at www.mediacouncil.org.nz. Please include copies of the article and all correspondence with the publication. 8
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www.informedinvestor.co.nz Informed Investor is an investment magazine published quarterly by Opes Media. You need Informed Investor’s written permission to reproduce any part of the magazine. Advertising statements and editorial opinions in Informed Investor reflect the views of the advertisers and editorial contributors, not Informed Investor and its staff. Informed Investor’s content comes from sources that Informed Investor considers accurate, but we don’t guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk: Informed Investor magazine is not liable to anybody in any way at all. Informed Investor does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. Informed Investor magazine does not give any representation regarding the quality, accuracy, completeness or merchantability of the information in this publication or that it is fit for any purpose. To advertise in Informed Investor, you must accept Informed Investor magazine’s advertising terms and conditions. Please contact brenda@informedinvestor.co.nz about advertising. Informed Investor is printed on environmentally responsible paper. The paper is produced using elemental chlorine-free pulp, sourced from sustainable and legally harvested farmed trees. The magazine is recyclable. PRINT ISSN 2744-6085 DIGITAL ISSN 2744-6093
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Meet some of our Contributors
ANDREW ARMSTRONG
CAMERON BAGRIE
JEN BAIRD
Andrew Armstrong is a Mortgage and Finance specialist at Lighthouse Financial Services and a property investor. Before joining Lighthouse, he was a business manager at BNZ.
Cameron is the managing director of Bagrie Economics, a boutique research firm. He was previously chief economist at ANZ, a position he held for over 11 years.
Jen Baird is the CEO of the REINZ. She was previously the general manager of city growth at Hamilton City Council and led the marketing team at Barfoot & Thompson for nearly a decade.
ED MCKNIGHT
ANDREW NICOL
ALASTAIR SLOANE
Ed McKnight is Informed Investor’s economist. After working for the Auckland Philharmonia and Hatch, he now crunches data for Opes Partners.
Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has more than 15 years’ experience in banking, finance, and property.
Alastair Sloane is the managing editor of Automotive News. A newspaper journalist for 50 years, he was the motoring editor of the New Zealand Herald for 16 years.
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VICTORIA HARRIS
MARTIN HAWES
ANDREW KENNINGHAM
Victoria is a Portfolio Manager at Devon Funds. She has over 10 years’ experience in financial markets, across a broad range of markets, specialising in ESG.
Martin is the chairman of the Summer KiwiSaver Investment Committee. He’s an authorised financial adviser and offers his services throughout New Zealand.
Andrew is the chief Europe economist for Capital Economics. He was previously an economic adviser for the United Kingdom Foreign Exchange.
CHRIS SMALL
CHRIS SMITH
ILSE WOLFE
Chris Small is the Managing Director of ABC Business Sales. He has a 20-year background in banking and finance, and has completed over 100 M&A deals during his career.
Chris is the general manager at CMC Markets. He has more than 15 years’ investing experience in financial markets, global equity, commodity, and forex markets.
Ilse is the director of Opes Accelerate, a renovation coaching company, and is a property investment coach. She started investing at 23 and has an $11 million portfolio.
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Subscribe for just $29 For 4 issues of Informed Investor/JUNO (one year)
Never miss an issue! Informed Investor (formerly JUNO) magazine is a New Zealand luxury investment and lifestyle magazine which explains in plain English your financial options and how to build wealth. It covers the share market, property investment, KiwiSaver, personal finance, the economy, books, travel, and all the good things in life you can buy when you invest wisely.
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Terms & Conditions 1. All prices for magazine subscriptions include free New Zealand delivery. 2. Please allow up to 10-13 weeks for your first delivery. 3. Your subscription will begin with the next available issue in late February 2021, and in most cases your magazine will be in your hands before it goes on sale in the shops. 4. Informed Investor magazine is published by Opes Media Limited, which handles delivery and stipulates the lead time shown above. 5. Offer expires on 20 February 2021. 6. Offer available to New Zealand postal addresses only.
REGULARS
What We Like A showcase of the hottest products and places that are the talk of the town. English country house in NZ When Peter Allen and Paul Smith bought Hawthorne House in July 2019, they joke that the real estate agents described it as ‘shabby chic’, but they struggled to find the chic. It took them three months to restore the elegant period home in landscaped gardens near Havelock North and reopened Hawthorne House as boutique accommodation. They love the history of it. “The house was built in 1906 in Hastings for a doctor who imported all the stained glass from the UK in 1904,” says Allen. “It was moved to the current site in the mid1960s from Hastings on a Bedford truck, and was a private home for 30-odd years.” Set on around five hectares, the property is an oasis of calm in Hawke’s Bay wine country, and the ideal getaway for those seeking rest and relaxation. The pair have a backgrounds in fashion, food and education here and in the UK and they’d spent the previous 20 years in Auckland running their own businesses. They moved to Hawke’s Bay in 2019 to pursue their passions for hospitality, gardening, art, and heritage. “We’re avid collectors of art – paintings, photography, glass, sculpture and ceramics,” says Smith. “We love the opportunity to display our collection and we’re happy to talk with guests about the works, many by some of Aotearoa’s most highly regarded contemporary artists.” www.hawthorne.co.nz
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W H AT W E L I K E
Homage to the gumdiggers Boutique distillery Hastings Distillers has created a smoky, winebased sipping gin that tells the story of our pioneer gumdiggers. Founder Kate Galloway says the idea for Ignis Fatuus (IF) was sparked by a piece of kauri gum she found in the bush. It set her imagining what life was like for the Māori and Dalmation gumdiggers who worked side by side in the swamps. “I found the stories of our gum trade and heritage really interesting,” she says. “In really tough, damp conditions, they formed a strong bond as they toiled.” To make the gin, a base of Babich sauvignon blanc is triple-distilled and infused with kauri gum, juniper, kawakawa fruit and black cardamom. Galloway says every ingredient is organic, like all Hastings Distillers’ products. Galloway says she and her French partner, David Ramonteu, wanted to capture the sensory landscape of the swamp – dark, smoky, peaty. “Our hope is that is brings to mind the forest floor, the smoke of peat fires, resin, sandalwood, and that there is a vaguely numbing quality from the pungent and slightly medicinal kawakawa. “The sauvignon blanc is the perfect base, imprinting its personality on the final gin with notes of quince, pear, rose and citrus, which are all common flavours to be found in the desserts of the Dalmations.” Ignis Fatuus is available for NZ$265 for a 500ml bottle through the Hastings Distillers website. www.hastingsdistillers.com
A brighter idea Let’s bring a little joy to everyday life. That’s the goal of Jeuneora beauty products, says its Kiwi founder, Monique Kaminski. “Our mission is to create beautiful products that simplify your selfcare routine.” Kaminski has a background in packaging and website design, and a passion for all things skincare. She says she saw a need for products that could be a healthy support to a busy lifestyle and the “go-to foundation for beauty”. Starting in 2016 with Jeuneora’s Renew+ Marine Collagen Powder, Kaminski innovated by expanding the marine collagen supplement range and launching a plant-based supplement range. In May, she expanded into skincare with the Essential Seven skincare range – and two additional skincare products have joined the line up since then. Early in the Jeuneora journey, Kaminski’s friend Meg Falconer became part of the team, and influencers Millie Elder-Holmes and Amber Peebles have since become shareholders. The team recently launched a capital raise via Snowball Effect to raise up to NZ$3 million to grow the business, take it international and expand its range of products. “The capital raise will help us fulfil that mission on a global scale,” says Kaminski. www.jeuneora.com SUMMER 2021
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“ People who invest for the long term are often rewarded.” MIKE TAYLOR Founder & CEO
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When it comes to being successful as an investor, there are a few things that can help. Having a diversified portfolio that suits your risk level and doing your research first are a couple. However, I believe taking a long-term approach to your investing is one of the most important. When people invest, they often want instant results. With property, many of us are happy to buy and hold properties for years, even decades, and ride out market highs and lows. Investing in other asset classes should be no different. Buy a good quality business (or invest in a good quality fund) that has good prospects, and hold. Collect any dividends along the way. When to sell? Well, just like property, if there is something fundamentally wrong, then exit. Otherwise, why sell? Decide your long-term strategy and stick to it. Don’t let your emotions get in the way and be sure to ride out any market dips. Investing over a long period, say over 10 years, can bring big benefits. This is particularly true in the case of Pie’s Australasian Dividend Growth Fund. We are exceptionally proud of this fund’s 10-year performance, which has given strong long-term returns to our highly valued clients. This strategy does come with a high level of risk and success is not guaranteed.
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ND GROWTH F UN IDE V DI 19.2%
D
D
ND GROWTH F UN IDE V DI
YEAR
1
SED UALI ANN R RETURN A 0-YE
5.6%
LISED NNUA VS A TURN I NDEX0-YR RE 1 2011 - 2021
ANN
IVE
RSARY
2011 - 2021
Past performance is not a reliable indicator of future performance. Returns can be negative as well as positive and returns over different periods may vary. View the Product Disclosure Statement (including details of the risks associated with this fund) plus our duties and complaints process, at www.piefunds.co.nz. Figures are after fees and before tax as at 30 September 2021, showing annualised 10 year return. Market index used is XSOAI S&P/ASX Small Ordinaries Accumulation Index (NZD). Information is current as at October 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz.
ISSUE 31
SUMMER 2021
Property prä-pər-tē
Something owned or possessed, specifically a piece of real estate. – Merriam-Webster dictionary
“
Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. – Franklin D. Roosevelt
”
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PROPERTY
More People, More Growth? It’s a common belief among property investors that population growth and capital growth always walk hand in hand. Property economist Ed McKnight disagrees.
Most property investors happily agree that strong population growth equals a faster rise in house prices, otherwise known as capital growth. This traditional assumption seems sound. A rapidly growing population needs more homes. Ergo, more demand for housing would seem to drive the dollar figures upwards. And let’s not forget that growing populations can support more businesses, more business means more jobs, more jobs means more income to support higher prices. So, for investors, this means the best place to spend your money is on property in areas of high population growth to see a better return in capital growth. Right? Well… it’s not that simple. Investors often think about the demand side of population growth. But they forget the supply response. More houses You see, a growing population increases the demand for houses. But the supply of houses isn’t fixed. So if you boost demand for housing, people often build more properties. Developers are more certain that there’ll be people around to buy the houses. A slight uplift in prices from population growth will make more projects profitable, so more properties are built. So, just because more bodies need more places to live, that doesn’t mean prices surge automatically.
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YO U R I N V E S T I N G
Does Population Growth Influence How Quickly House Prices Increase? 1996 – 2018 12%
Chart: Opes Partners Source: Stats NZ & REINZ
House Price Increase Per Year
Queenstown had high population growth & high capital growth
10%
8%
Ruapehu had less population growth & less capital growth
6%
4%
Population Increase Per Year
2% -2%
-1%
0%
So let’s look at the data to see the relationship between annual population growth and annual house price increases (chart above). It’s important to note that the date range shown in the chart ranges from 1996 – 2018, which was the latest data we had at the time we went to print. So what trends do we see? There is a trend ... but it’s not 1-for-1 To begin, extra population growth does correlate with higher house prices. This we expected. But the effect isn’t 1 per cent population growth = 1 per cent house price growth. Instead, the trend over this period was 1 per cent population growth turned into an extra 0.4 per cent of annual house price growth. Take for instance, Dunedin vs Tauranga City. Dunedin had population growth of 0.3 per cent a year, while Tauranga saw 2.4 per cent a year. By this measure, the trendline says since Tauranga got 2.1 per cent more population growth, it should get about 0.8 percentage more house price growth.
1%
2%
Zero population growth ≠ zero house price growth All this said, you don’t actually need population growth for houses prices to inch upwards. In all cases, areas with declining populations still saw house prices increase. Take Ruapehu District, for instance. Between 1996 and 2018 the population declined by 1.43 per cent a year. This suggests a declining need and less demand for houses. But, over this time, house prices still increased 4.67 per cent annually.
In all cases, areas with declining populations still saw house prices increase. It’s a trend, not a rule While there is a trend, it doesn’t hold in every situation. There are some cases where population might be high, but that specific council area didn’t see higher house price growth over the period we looked into.
Dunedin City: 5.4 per cent a year. Tauranga City: 6.3 per cent a year.
For instance, Selwyn District had enormous population growth, but not an enormous amount of capital growth within this period.
A 0.9 per cent difference – not far off what the the trend suggests.
Why? Let’s take a look at Rolleston (in the Selwyn District) as an example.
So, how did house prices go over that time?
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3%
4%
5%
People moved to Rolleston after the Christchurch earthquakes. That’s because the land was cheap and the ground underneath was solid. At the time, the town had plentiful land supply and house building was strong. So, demand was strong, but so was supply … even as Cantabrians flocked there in droves. So, at this time, we didn’t see the demand versus supply imbalance that tends to cause house price rises. However, one thing we didn’t see in the data (since it stops in 2018) is that since then, house prices in Rolleston have skyrocketed by over NZ$150,000. Why? a) Because of the same factors that the rest of the country has seen: low interest rates, and high FOMO (fear of missing out). But, b) because the land is no longer as plentiful, house building is now restricted, while the population is still booming. So… what’s the takeaway? There appears to be a correlation between population growth and faster house price growth, but it’s not a slam dunk for population growth. In other words, when you’re searching for investment properties, population growth should be one factor you consider, but probably not the only factor.
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PERSONAL FINANCE
A Bigger House Isn’t a Retirement Plan Maybe it’s time to say goodbye to the property ladder and see a house as a home, says Martin Hawes. Buying ever-bigger places may not be the best use of your money. It seems to me that people no longer buy their first home – instead, apparently, they get themselves ‘on the property ladder’. This seems a weird idea: it assumes that people are going to climb up this ladder as they buy a home, with the idea of selling it so that they can move up another rung on the ladder. This then repeats for perhaps 40 years. Buying a house has become a financial strategy, rather than a place to call home. According to this strategy, we need to spend our lives buying and selling houses, rather than just living in them. These houses that we buy and sell seem to be a substitute for just owning somewhere to live while you build a business or a savings plan or invest. This used to be called the ‘Bigger House Plan’. Here’s how it worked: 1. You bought a house and worked to pay down the mortgage. 2. When the mortgage went down to a lower level, you’d sell the house and buy a new, more expensive house, courtesy of a new and larger mortgage. 3. Paying down this new mortgage would become the focus for a few years.
At this time, the family would probably own quite a lot of house, but not much else. And so, the family would downsize the house, freeing up some capital to live on in retirement. It’s quite true that this plan does have its appeal – living in a nicer house may give you greater satisfaction and even greater happiness. However, from a financial point of view, regardless of whether you call it ‘climbing the property ladder’ or the ‘Bigger House Retirement Plan’, I have always had my doubts that it’s a good thing. There are three main things that are wrong with it. The costs of moving The first is cost. To buy and sell multiple houses is expensive: real-estate fees, legal costs, and due diligence costs all add up to a lot of money on each sale and purchase. These are the out-of-pocket costs, but there are also personal costs. Everyone who’s ever moved house knows that buying and selling houses, and shifting are stressful and take a lot of time, effort, and energy. If you’re turning over the family home every five to ten years, you’ll just about always be thinking about the next move.
4. Then, when that mortgage was down to a lower level, you’d sell that house and buy another, more expensive house (complete with a bigger mortgage).
Moreover, I know of very few people who have moved into a house and done nothing to it – nearly everyone makes changes (big and small) or buys a new piece of furniture to suit the new layout.
5. You’d repeat this formula many times until retirement came.
Add up all these costs for each shift and, over time, you are in for hundreds of thousands of dollars.
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No diversification The second negative is diversification – or the lack of it. If you have most (perhaps nearly all) of your wealth tied up in the house, you’re taking a very big bet. Your retirement relies on a strong housing market that will give solid returns for decades. Yes, over the last 40 years or so, housing has had reasonable returns and the strategy may have worked out well enough. But that does not mean the next several decades will be the same, so you’re putting a lot at stake on just one asset class. Missed opportunities The third consequence is missing out. To have all your money in housing, and to spend any spare income paying off mortgages is to miss investing into some significant trends. The obvious trend that is around at the moment is technology, including automation, robotics, genetics, and biotech. Over the years there have been other trends that have proved lucrative at times, such as resources, electronics, and commercial property.
Your retirement relies on a strong housing market that will give solid returns for decades. To continue to climb a property ladder and pour all your money into one asset class is to miss a lot of other opportunities. Stay put and get rich I know plenty of people who stayed put and become very wealthy – Warren Buffett is the obvious most famous example, but this country also had Alan Hubbard, who lived in his modest Timaru house for decades. A book published about a decade ago called The Millionaire Next Door by Thomas Stanley found that the wealthy often do not live in expensive suburbs but instead live in relatively modest houses, maybe right next door to you. By staying put, they saved money and kept their focus on creating wealth. If you want to get off struggle street, you should forget about a ladder to who-knows-where. You should buy a house that you’re happy to live in, and then stay there. By doing so, you’ll get off the treadmill that we call a mortgage and stop paying a small fortune in interest, real-estate fees, lawyers’ fees, and home decorating. If you stay put, you just might enjoy life free of worrying about the next shift, and become wealthy in the process. The information contained in this article is general in nature and is not intended to be personalised financial advice. Before making any financial decisions, you should consult a professional financial adviser. Nothing in this publication is, or should be taken as, an offer, invitation or recommendation to buy, sell or retain a regulated financial product. Martin Hawes’ disclosure document can be found at www.martinhawes.com 26
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Find an insurance broker or adviser at vero.co.nz
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PROPERTY
Is it Time to Close the Bank of Mum and Dad? Is it fair for kids to expect help to buy a house? Amy Hamilton Chadwick finds that being your kids’ bank can damage your wealth, income, and lifestyle.
There’s only one bank that sometimes gives out huge cash gifts, may guarantee your loan repayments and treats you like its No.1 customer – the Bank of Mum and Dad (BOMAD).
But four years later, it all fell apart. They found out that Dan had drawn down almost all the available equity (via revolving credit) to try to prop up his struggling business.
Between half and 70 per cent of Kiwi first home buyers are assisted by BOMAD, says Katrina Shanks, chief executive of Financial Advice NZ, but she says rising prices add an extra tension to the situation.
The business failed, and Dan and Lucy split up.
“Historically, parents have always helped their children with first-home deposits.
“There wasn’t much left from the sale of the house, and Lucy was only working part time, so she couldn’t afford to buy a decent place.
“The big difference now is that the deposit is so much larger, so the stretch is so much bigger for both parents and kids. “There’s a lot more money at stake.” ‘We didn’t have an option’ Until 2018, Michael* and his wife Caroline were enjoying a very high standard of living. They spent two months a year travelling and lived in a spacious central Wellington family home. Their daughter Lucy was married and owned a home with her husband Dan. Michael and Caroline had contributed to that deposit with a large gift of cash.
“It was the most stressful thing we’ve ever experienced,” says Michael.
“We realised pretty quickly that a single mum with two kids and a big dog wasn’t going to be any landlord’s first-choice tenant. And our worst nightmare was that she’d move out of Wellington and we wouldn’t get to see the grandchildren much. “Honestly, not helping her didn’t feel like an option.” Michael and Caroline sold the family home and downsized into a townhouse, buying Lucy a three-bedroom home nearby. They’ve also been helping her pay the mortgage, rates and insurance.
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“We’re really stressed about the finances, because we’re servicing a lot of debt,” Michael says. “Instead of working less, I’ve been trying to figure out ways to bring in more money and work longer. I think it’s been worth it, but it’s certainly come at a big cost.” Children may pressure parents Grandchildren can be the make-or-break factor, says Hanny Naus. As the educator for Elder Abuse and Neglect Prevention at Age Concern New Zealand, she sees the worst-case scenarios for BOMAD. Sometimes it’s adult children whose parents have helped them into expensive houses, while the parents themselves live hand-to-mouth, trying not to turn on the heaters in winter. As house prices have risen, so has pressure on homeowning parents to help their kids onto the housing ladder, says Naus – sometimes from the children themselves. It’s hard to resist when your children say, ‘You wouldn’t want your grandchildren growing up in a house with no garden, would you?’, or ‘I couldn’t bring the kids to visit if we lived that far away!’ As parents age, children can become very bossy, says Naus, but don’t stretch yourself too thin. “Your money is yours until you die. It has to be there when you need it – $10,000 for really good hearing aids can be the difference between an older person being socially engaged, versus isolated and depressed.” Is BOMAD problematic? From basic living costs to missed investment opportunities, becoming your kids’ bank can have an impact on your wealth, income and lifestyle. BOMAD may also have an impact on the wider market.
However, that doesn’t need to be the case. As Davidson points out, renting is not a path to financial insecurity and as more protections come into place for tenants, perhaps New Zealand can decouple home ownership from the Kiwi dream. In places like Germany and Switzerland, renting is part of the culture and more than half of people rent for the long term.
“All else being equal, it’s adding buyers to the market that otherwise wouldn’t be there,” says Kelvin Davidson, Senior Property Economist for CoreLogic.
The other potential downside is that an over-generous BOMAD could leave your children without the skills they need to be independent and resilient.
“When there’s a tight supply of property, this adds price pressure. But parents don’t usually worry about that; they’ll just do whatever it takes.”
If you do fund your kids into a house, Shanks recommends you set them up with some financial advice, hopefully giving them positive money habits for the future.
In addition, if only wealthy people can afford to help their children into homes, there’s a risk that we widen New Zealand’s wealth gap by creating a chasm between homeowners and non-homeowners.
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Get it all in writing If there’s one vital element that everyone agrees on, it’s that you should document every decision and get professional advice.
Talk to your lawyer (not the same one your children are using!) and your accountant or financial adviser. You must fully understand the repercussions of the choices you’re making. Take time to consider all your decisions – don’t be rushed into anything. Explain your choices to your whole family, don’t keep secrets, and have your professional advisers in meetings to back up your choices with their expertise. “Sit everyone down and explain calmly and formally what you plan to do,” Naus recommends. “Your adviser can show them what money you need to keep and why. You can make it clear that you’re not being mean, you want to help, but you can only afford to do so much. “Don’t forget that it’s your money and you need to take care of yourself!” *Names and some details changed to protect privacy.
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E X P E R T O P I N I O N | C ATA LY S T F I N A N C I A L
Get Debt-Free Faster (and Save Money) Save thousands and be mortgage-free years earlier simply by changing to a revolving credit mortgage, says Peter Norris.
What if paying off your home loan faster didn’t have to feel like such a struggle? The end of that 30-year term seems so far away, and it is – but it doesn’t have to be. Revolving credit mortgages – if used correctly – can help significantly reduce the term of your home loan and in doing so, save you thousands of dollars in interest. Whether it’s owner-occupier debt or investment debt, the same rules apply. I’ve seen companies like New Zealand Home Loans being hugely successful in showing clients how to get debt-free faster, based almost completely on using revolving credit mortgages. What it is A revolving credit mortgage works like a giant overdraft. This is where a lot of people get concerned, because the term ‘overdrawn’ is often considered a bad word in banking. However, an overdraft can be your friend. With a revolving credit loan, one of your accounts has an ‘overdraft’ facility loaded against it. This amount, say $50,000, would then be set up as your transactional banking account where your income goes in, and your bills come out. This means that every dollar you earn and all your savings are going into that mortgage every month, saving you ridiculous amounts of interest. It makes sense, right?
account. That way the available balance of your revolving credit account goes up. At the end of the month, a direct debit from your revolving credit facility pays off your credit card in full and you start again. Remember, it must be paid in full, so you’re never charged interest on it. Because interest is calculated daily and charged monthly, every dollar in your account will help save you a significant amount of interest in the long run. Interest is far better in your pocket than the bank’s! Any money you don’t spend within that month effectively acts as an extra payment towards your mortgage. This is likely to give you a lot more incentive to save than getting a measly 0.5 per cent in an interest-bearing bank account. It works for investors, too The same benefits can be had for a loan against an investment property. Most property coaches and advisers will suggest you have your investment lending on interest-only, and I completely agree. However, running a small revolving credit facility alongside your interest-only lending will help get that debt cleared faster as well.
This is where your credit card can be your friend, as well. I know… this sounds crazy!
Your rent gets paid into that account weekly and builds up your balance over the month – saving you interest and allowing you to get the benefit of paying down principal without feeling it in your pocket.
Credit cards all have a certain number of interest-free days. That means you can use that card for all your monthly spending, instead of taking it out of your
Easy emergency money Investors would also be wise to have a revolving credit facility set up as a bit of an emergency fund. SUMMER 2021
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The size of your portfolio will dictate how big that facility needs to be but regardless, having a slush fund should be part of your investment strategy. Revolving credit accounts are easily accessible, which means you can use the available funds as soon as you need them. The numbers So, what do the numbers look like? Let’s say you have a revolving credit with a limit of $100,000 and you earn a monthly net household income of $10,000. At the start of the month, the full limit is used. At the end of the month, your income of $10,000 has gone into the account and you’ve used your credit card for spending. Your total monthly spending is $6,000, so that amount goes to paying off your credit card in full – so you get no interest charged. Then $3000 goes to paying your other home loan payments (the rest of your mortgage). The remaining $1000 then becomes your savings and stays in your account. If you can maintain these habits, then this structure would have you clearing your debt almost 12 years earlier than expected, and save you over $70,000 in interest. Sounds worth it to me. Warning: Be smart with money The risk with revolving credits comes back to your own behaviours with money. They can be hugely effective in helping you clear your debt faster, but you will need to maintain good habits. If you’re someone who spends whatever you have around, and you’re likely to use your credit card and also all the available funds in your account, then a revolving credit isn’t for you – and a credit card probably isn’t a great idea either. It will do more harm than good. However, if that’s you, then something like an ‘offset facility’ can work just as well. In terms of the credit card, start with a small limit and only use it for some of your expenses while you get used to managing your money that way. If it works, you can bump the limit up a bit and move more expenses to that. Make it fun Make paying off your mortgage a bit of a game, rather than seeing it as a burden. Games are fun, and watching your mortgage come down faster than expected can be super-fun. Structure your lending right without over complicating things and you’ll make an enormous difference to your long-term strategy, whether you’re an investor or homeowner.
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Make paying off your mortgage a bit of a game, rather than seeing it as a burden.
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PROPERTY
Is It Land of Plenty or a Money Trap? You won’t get rent from it, but can you get rich anyway? Amy Hamilton Chadwick finds out if it’s worth investing in undeveloped land.
Can you get rich from investing in land? Maybe – but it’s really what you can do with that land that counts. While the cashed-up super-wealthy can potentially spend tens of millions on land that generates no income, that’s just not realistic for the ordinary Kiwi investor. So, how can you make money from land, and is it worthwhile? Layer up your profits You can make money from land at any stage (remember these profits may be taxable). •
•
•
Speculation: You can make money by buying now and selling it later. For example, you might have bought a $500,000 section and then sell it two years later for $600,000. You’ve made $100,000 and your costs have been negligible – probably just transaction fees and the cost of the mortgage. Develop the land and sell it: By developing the land to be more usable, you can add value and make a better return. Consider that $500,000 section. If you drew up plans for three townhouses and spent $70,000 on infrastructure consents, now it’s ready for anyone to develop it. You might sell it for $750,000, a $180,000 gain. Become a developer: By developing houses on the land and selling or holding them, you can maximise your revenue. Let’s say you built three townhouses on your
empty section, at a total cost of $1.2 million. You sell each townhouse for $750,000, so you’ve made a total gain of $550,000 after subtracting your $1.7m land development and construction costs. Each stage makes money, and the more stages you layer up, the more money you’ll make from the land. That’s your reward for taking on a risky, capital-hungry enterprise that doesn’t produce an income for many years. Extra land doesn’t mean extra growth It’s not easy to make money from bare land – ask any farmer. As a result, buying land is expensive, but it doesn’t go up in value at a faster rate than homes do. Townhouses, which generally have smaller sections, for instance, generally gain value at the same rate as standalone homes, according to research by Opes Partners. That data showed any property with more than 100 square metres of land gained value at the same rate – extra land didn’t mean greater growth. So, should you buy a townhouse or a standalone home on a section? It all depends, says Steve McMenemy, Director at Loan Market Development Finance, a highly experienced developer. “If you want a lock-up-and-leave, go for the townhouse. If you’re an investor looking for future upside, you might buy the standalone home on a full site with some upside.
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“It will all be budget dependent, but for most sites that are zoned residential and have a storm water solution, you can probably do something with it.” Buying to subdivide or develop Buying a site large enough to develop into several townhouses can be a great investment in the right area. McMenemy recently sold an Auckland site that he’d bought with the intention of developing. He and the next-door neighbour were able to sell both their sites to a developer who was looking for exactly that sort of that project. It was a quick win for McMenemy because the market has risen so much, although he points out that developing it himself would have been more profitable. The best land profits come from building several dwellings at once, but it’s a serious undertaking and it’s risky. You’ll need to deal with specialist non-bank lenders, who charge higher interest rates but can be very flexible – and it can be highly stressful. One option is to partner with a builder like 38
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Buying a site large enough to develop into several townhouses can be a great investment in the right area.
You might be thinking about buying a section in the right spot now, before prices keep rising, and then building on it later.
Sentinel Homes or Ashcroft Homes that uses well-oiled processes to make it all run smoothly.
And building a single house isn’t likely to be a profitable investment strategy, considering the cost of building. It’s more of a lifestyle choice.
The quality and experience of the builder are a consideration for the lender. It’s also a good idea to engage a specialist broker because development and construction lending is very different to residential lending. Owning a house on a large section and subdividing it to build a second house or minor dwelling can also be profitable. Because it’s a small project, your bank will probably lend you money to do it. But do your sums before you buy: will the extra cost of the additional land really pay off? A dream for the future Do you have your eye on a dream spot for your grand design, retirement, or a future holiday home?
The upside is that you have perfect position for the future, but the downside is that you’ll pay holding costs for years without generating any income.
McMenemy says: “For me, it would have to be the dream section, otherwise you’ll probably be better off buying something that makes an income, like a rental property. “The first thing you should do is talk to your mortgage broker and find out if you’re in a position to buy, or whether you’re in a sweet position and you can easily buy a section without any income. “Then you can do some scenario planning on the numbers – plus there will probably be a lot of emotion driving it. “If I fell in love with a site, and I knew I wanted to build in 10 years, I would just try to buy it.”
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Expected average annual returns After fees, before tax on a suggested minimum investment term of 5 years.
To find out more call us on 0800 377 2277 or visit www.nzfunds.co.nz Total funds as at 31 October 2021 including both retail and wholesale mandates: $65 million. Total returns since inception in October 2020: +7.3%p.a. All numbers after fees, before tax. Past performance is not necessarily an indicator of future returns. Expected average annual returns are based on modelled returns only, which may not be an indicator of future returns. For more information on the calculation of expected average annual returns, see ‘Other Material Information’. Visit nzfunds.co.nz/income-generator to view the latest copy of the Product Disclosure Statement. New Zealand Funds Management Limited is the issuer of NZ Funds Income Generator. Total returns since inception calculated from 22 October 2020 to 31 October 2021.
Inflation and You As inflation chips away at the purchasing power of our money, commercial property is an attractive option, says PMG Investor Relationships Managers Ben Cant and Rory Diver. Central banks around the world have been pulling levers to combat the economic impacts of Covid-19. The Reserve Bank of New Zealand did this, too, utilising quantative easing and reducing the Official Cash Rate (OCR) to a record low. This led to lower interest rates, which encouraged people to spend. While consumer spending is important, when the supply of money entering the economy begins to outpace economic growth, we experience increasing inflation. Some inflation is good Moderate inflation is generally viewed as a positive for our economy. As prices rise, we’ll spend now, to avoid paying more later. As demand for goods and services goes up, we need more supply to meet demand and firms hire workers to boost production. Everyone benefits, the economy grows, demand increases, wages improve and the cycle goes on. The Reserve Bank is tasked with keeping inflation between 1 and 3 per cent. Each quarter, Statistics New Zealand tracks the prices of thousands of items we buy, in the Consumer Price Index (CPI). Since 2000, the index has tracked inflation at an average of around 2.15 per cent a year. But on 18 October, the Reserve Bank said inflation was at 4.9 per cent. This has many investors questioning the structure of their investment portfolios. High inflation can be damaging: •
It erodes your purchasing power. You may be left worse off if prices rise faster than your income.
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Inflation can undermine the ‘real value’ of an investment if the returns aren’t enough to cover the level of inflation.
•
Boom and bust cycles. Inflationary periods can be a sign of an overheated economy, leading to it expanding, then
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contracting, over and over again1. With inflation at 4.9 per cent, investors are losing $49 of purchasing power for every $1000 in the bank.
Commercial leases often include clauses that tie rent reviews to inflation. This helps offset the affects of inflation on rental income and can help preserve yields.
Many term deposit rates sit around 1 to 2 per cent2, which won’t offset inflation, especially once tax from returns are deducted.
This is evident when the average residential property yield in Auckland is 2.8%3 compared to returns of 5.5-6% from PMG’s funds4.
Since we first saw Covid-19 in 2020, the OCR has been cut numerous times, dropping to a record low 0.25 per cent before most recently pushing up to 0.5 per cent. This has kept interest rates across conservative asset classes like cash and bonds very low.
Delivering returns above inflation With inflationary pressures rising, the New Zealand commercial property sector is well positioned to continue delivering returns that can offset inflation.
Investors in these conservative asset classes have only been treading water since 12-month term deposit rates dipped below 3 per cent in August 2019. Now that inflationary pressures are growing, investors are right to be worried about what their money will soon be worth; and they are asking what asset classes typically perform well through inflationary periods. Look to physical assets Investing in physical assets such as directly owned property, precious metals like gold, and real asset shares have historically been reliable options to protect against inflation. These asset classes move in lockstep with inflation and in the past have benefited because capital values are going up at a rate at least equal to, or better than inflation. Directly held real estate generally delivers capital growth over time, while generating reliable cash returns from tenants. However, commercial real estate typically offers longer lease terms and better tenant stability, compared with residential property. With construction costs continuing to increase on the back of supply constraints and increasing inflation, valuations of existing buildings increase too.
Equity markets continue to experience greater volatility, and we are noticing that experienced investors and fund managers continue to gravitate towards investments in real assets such as commercial real estate. Traditional portfolio allocations to conservative assets in bonds and fixed interest are not currently delivering returns that can overcome inflation. If you’re concerned about that, consider directly held New Zealand commercial property as part of a diversified investment portfolio. Information is correct as of 1/11/2021 and contains the opinions of Ben Cant and Rory Diver, and general commentary and views from PMG. Any information provided in this article is for information purposes only, is not intended to be relied upon, and should not be construed as financial advice. Prospective investors are recommended to seek professional advice from a Financial Advice Provider who takes into account their personal circumstances.
Sources: 1https://www.rbnz.govt.nz/-/media/reservebank/ files/publications/factsheets%20and%20guides/factsheetwhat-is-inflation.pdf 2 https://www.interest.co.nz/saving/term-deposits-1-to-5-years 3 https://www.blog.reinz.co.nz/reports-1/capital-gainsreport-q1-2021 4 Returns are based on historical perfromance of the funds managed by PMG, as at 31 August 2021. Past performance is not a guarantee of future performance. Please refer to pmgfunds.co.nz for current metriocs and more information.
www.pmgfunds.co.nz
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Does Buying a Business Beat Property? Kiwis are wedded to investment property, but they’re missing out on the superior returns they could get by owning a business, says ABC Business Sales’ Chris Small.
Kiwis love property investing, but are they missing out on better returns and wealth creation opportunities in the business sector? I’d say they are. Perhaps the most straightforward way to understand the differences and why business investment or ownership has a massive advantage over property is to look at this simple table (below). The numbers make it obvious. The average house price in New Zealand is currently NZ$826,000, according to the latest statistics from REINZ as at July 2021. Based on a 5 per cent yield rate for an investment residential property, that equates to a gross return before tax of NZ$41,300.
The average business price is currently NZ$733,460, and based on a market average multiplier of 3.5x (29 per cent yield) equates to a pre-tax cash return of NZ$212,703. Clearly, there’s a big difference in the annual yields, with business ownership returns six times higher than residential property’s. This analysis excludes capital gains for either asset class. The pre-tax profit for business ownership is based on the company being fully managed, with limited input from the investor. Yes, maybe business ownership does have a higher risk profile than residential property, but at ABC Business Sales, we believe the
Segment
Jul-21
Avge Return
% Return
General Business Avge Price
$733,460
$212,703
29%
Residential Avge Price
$826,000
$41,300
5%
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risk premium for investing in a business is nowhere near six times higher than investing in residential property. Based on this data, we expect business values to continue growing and for more investors to realise this asset class can be lucrative – and rewarding. We need education I think there’s a big need to educate the new generation of New Zealanders. The old adage that buying your first property should be your first goal in life is outdated. We should be encouraging young people into businesses as their first investment. Business ownership offers an income for life and gives you more career choices. Too many Kiwis get caught in the trap of saving for their first home, using all their savings on the deposit and then spend the next 20 years of their life trying to repay the mortgage. They often sacrifice travel, starting a family, career opportunities, and many other life experiences. The current government and many economic
EXPERT OPINION | ABC BUSINESS SALES
commentators accept that having most Kiwis’ net worth tied to property is not good for our economy, nor is it good for the country’s growth prospects. Property as an asset class doesn’t provide jobs, doesn’t improve our nation’s productivity, and it doesn’t help with our export dollars. Property’s up against it We’ve recently seen new tax rules put in place to slash the benefits of property investment. With interest costs no longer tax deductible on investment properties, but business lending allowed as a tax-deductible expense, it gives you an inkling of where the government’s thinking is right now. Currently around 72,000 residential houses are sold a year, versus business sales of between 1,000 and 1,500. Clearly, there’s a big mismatch when we think of the contribution each asset class makes to our economy. Recent surveys are starting to show a tide turning away from investment property.
Tony Alexander’s most recent survey of property investors said only a net 15 per cent are likely to invest in property going forward, versus a net 58 per cent who would look at investing in business assets in the future. The price-to-income gap For New Zealand to see a major move in investment patterns away from property and into business segments, we’ll need the support of the education sector. It could well take a generation before we see significant changes. I really believe, in 20 years, if everyone under the age of 30 has a goal to own a business rather than a house as their first asset, it would hugely benefit New Zealand’s culture, community and economy. The new generation really needs to start thinking about the price-to-income gap created as the housing market gets harder to enter. They need start looking for alternative ways to bridge this gap. If housing prices aren’t going down, buyers will need to lift their income. The best way to do this is to buy a business. It’ll give
them a big lift in income, something that can be used later to help fund a home loan or a property investment. Relying on your salary, hoping you’ll get a pay rise each year, and then waiting to save a deposit isn’t the fastest way to bridge the income gap. New Zealand’s obsession with property investing stems from our culture and what our parents and family tell us. I believe, for us to make a move away from this obsession, one of two things needs to happen: 1. A property crash scares a whole generation away from the property investment class, in the same way as the 1987 share market crash made a generation scared and sceptical of investing in the share market. 2. The government provides fiscal stimulus and subsidies to encourage investment dollars away from property and into the business sector. We’ll need this to be supported by our educational sector, creating a new generation of young entrepreneurs. SUMMER 2021
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Rent-vesting: The Best of Both Worlds Want to buy a home, but priced out of your chosen location? Ben Tutty looks at the rising trend for people to rent where they live and buy an investment property somewhere else.
For many Kiwis, skyrocketing house prices, shifting demographics and changing lifestyles are making the good ol’ home ownership dream a thing of the past. Median house prices in New Zealand increased by 26.4 per cent, from NZ$570,000 to NZ$700,000 during the year to September 2021. In Auckland, the median price is now NZ$1.2 million. We’re also delaying getting married, having kids and settling down, and more of us live by ourselves. Fortunately for us ‘children of the future’, it’s not all doom and gloom. There’s a nifty little strategy called rent-vestment that allows us to live the lifestyle we want, while still riding the capital gains train. It’s an alternative to the Kiwi property dream that may sound strange, but for some it just makes sense (and dollars). A different property dream Rent-vestors are renters in their main home but they own one or more investment properties. It’s a strategy that’s becoming increasingly popular for a few key reasons, says Jen Baird, chief executive at the Real Estate Institute of New Zealand. “Rent-vestment can be a sound option to secure a financial future or get on
the property ladder without making big lifestyle changes, because it allows you to live where you want, instead of moving to an area where house prices suit you, but the location doesn’t.” For example, a rundown two-bedroom house in an average suburb can fetch NZ$1 million in Auckland’s market. Areas like Wellington, Tauranga and Queenstown aren’t quite as outrageously expensive, but they’re not far behind.
McKnight’s not just preaching, he’s one of many practising rent-vestors. “I live in Auckland and I own property elsewhere,” he says. “Andrew Nicol, the CEO of property investment company Opes Partners, was a rent-vestor until the ripe old age of 37. “At certain times, we have both believed there are more productive uses of our capital than buying a home.”
For people living in these cities, switching from renting to owning often requires downgrading to a less central area and a lower quality home. That might mean a longer commute, a commitment to staying in one place, more work on maintenance – and paying more per month for the privilege.
A leg up the ladder Speaking of practising rent-vestors, it turns out they’re everywhere. In fact, I’m one of them.
Ed McKnight, Informed Investor’s economist, says rent-vestment can help you reap the benefits of owning property without those lifestyle sacrifices.
So, instead of buying a NZ$700,000 twobedroom apartment, I moved to Dunedin and bought a three-bedroom standalone home for half the price.
“You might want to keep living near the city but are unable to afford to buy there, or maybe you want to stay in your twobedroom apartment, which wouldn’t make a good investment.
My partner and I used our KiwiSaver balances, the First Home Grant and our savings to scrape together a deposit.
“Rent-vestment allows you to keep your lifestyle as-is, and put your money to its best possible use in the property market.”
As lucrative as freelance writing is, my property prospects weren’t looking too hot in Auckland back in 2018.
We had to live in the home and work remotely for six months to satisfy the conditions of the First Home Grant but after that, we moved back to Auckland and rented the place out. SUMMER 2021
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Years later, we were able to use equity from our Dunedin property to buy a home in Auckland. Lauren from Gisborne, a 30-year-old interior architect, did something similar – she bought property in Gisborne, her home town, while renting in Auckland: “It really came down to the Gisborne market still being within my price range, the numbers adding up and the appeal that it could sit and work for itself while I was overseas,” she says. “The property values in Gisborne went through the roof, and rent closely followed. I would never be able to enter the market now. “This year, the equity held by the property in Gisborne was enough for the bank to consider lending on a second property, and I was able to buy the apartment which is now my home in Auckland. “The second key part of this was the boost the rental income gave to my overall income and my ability to service both loans in the bank’s eyes. 46
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“The Gisborne property now acts like having flatmates, and gives me the financial freedom to live without flatmates in Auckland.” Unfortunately for many, saving a big-city deposit just isn’t possible, especially in Auckland, where a 20 per cent deposit for a median priced home is NZ$240,000. By rent-vesting, you unlock areas where homes are much more affordable and values are likely to increase. If you’re lucky and your investment does increase in value, you may even be able to do what my partner and I did and use equity to purchase a home in your chosen area. You may, of course, have to deal with new laws that are cracking down on investors, such as higher deposit requirements (usually 40 per cent) and losing interest deductibility. Buyers should also do all the usual housebuying due diligence, including seeking legal advice when buying a rent-vestment. But chances are, that’ll be easier than saving up NZ$240,000 for a deposit on the average Auckland home!
The future of home ownership Back in 1991, property ownership in New Zealand was at a record high – 73.8 per cent of Kiwis owned their own home, according to census data. The rate of home ownership continued to decrease until 2018, when it hit 64.5 per cent. This worrying statistic proves that home ownership is only getting harder, and that creative strategies, like rent-vesting, are necessary for some of us to get ahead. But how many Kiwis are already rent-vesting? Nobody knows. There’s no data on the number of rent-vestors in New Zealand, and the census asks whether you own the home you live in, not whether you own property in general. That means, McKnight, my partner and I, and countless other rentvestors would be counted as renters, not property owners, in all census data. However, widespread rent-vestment is, there’s no doubt that it can be a great way to build wealth while maintaining the lifestyle you want. After all, in a hectic housing market like New Zealand’s, a little creativity can go a long way.
EXPERT OPINION | CMC MARKETS
Property Investment at Arm’s Length Owning commercial property in New Zealand is out of reach for many Kiwis. Listed property shares are a great alternative, says Chris Smith. But what to consider – and where?
You’d like to diversify into property, but you can’t afford to buy a building? There’s an easy answer. Thanks to the stock market and real-estate investment trusts (REITs), anyone can invest in residential and commercial real estate without having to buy or manage the physical assets. REITs are companies listed on the stock exchange that own or finance incomeproducing real estate or related assets. The financial services industry has made it easy to invest in a diversified portfolio of commercial real estate assets by developing ‘exchange-traded funds’ (ETFs) invested in the sector. Every major share market around the world generally has listed REITs – ranging from shopping malls to massive commercial office buildings, famous landmarks, and large-scale residential properties. REITs have historically given investors attractive total returns, with higher income from dividends and share price appreciation, rather than just capital growth. If there’s a market dip, REITs, being a property asset, are quite defensive. They’re usually a stable investment because leases are long term, so they keep giving investors dividends.
There are thousands of different REITs to choose from, so you can select your investment with less emotion than you do when you’re buying shares in a single company. The rise of the REIT Real estate is one of the oldest investments, but REITs are relatively new on the scene, having only been around since 1960. Their structure allows many investors to pool their money together, so there’s more capital for real-estate development. On the other hand, their business model means that companies don’t have to hold on to properties forever and can sell their assets if prices rise. This structure makes them attractive, so they’re popular among investors. There are hundreds of REITs listed, from the giants of the industry like Simon Property Group or local listed options, Precinct and Goodman Property. But they aren’t the only way to invest in real estate through the stock market. Some non-REIT companies own many real-estate assets and conduct other real-estate activities. There are also many other companies that don’t actively own or manage real estate but stand to benefit from strength in the real-estate market.
Pros and cons of investing in REITs Pros: • Dividends are usually higher than other shares • You can diversify your portfolio • They are a very liquid investment (which means easy to buy and sell) being listed on an exchange • They give you access to global investment markets. Cons: • Dividend payouts are taxed as ordinary income • They’re sensitive to interest-rate fluctuations • Specific types of properties may create added risk • You have less control, compared to physical assets • Debt ratios – some REITs are too highly geared. New Zealand options The Smartshares NZ Property ETF invests in property assets listed on the NZX Main Board and is designed to track the return on the S&P/NZX Real Estate Select Index. This index has exposure to all major listed property funds in New Zealand. These holdings can be invested in directly depending on your personal preference (weightings on 31 August):
Top 10 Holdings The table shows holdings as at 31 August 2021. Ticker
Issuer
Industry Sector
Weighting
GMT
Goodman Property Trust
Real Estate
18.32%
PCT
Precinct Properties NZ Ltd
Real Estate
17.20%
KPG
Kiwi Property Group Ltd
Real Estate
14.94%
PFI
Property for Industry Ltd
Real Estate
12.52%
ARG
Argosy Property Ltd
Real Estate
11.37%
VHP
Vital Healthcare Property Trust
Real Estate
10.52%
SPG
Stride Property Group
Real Estate
10.18%
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Global options • The Vanguard Real Estate ETF is a giant among REIT ETFs, with more than 10 times the assets under management of its nearest competitor. It invests in REITs and other real-estate shares. •
Simon Property Group is an American real-estate investment trust that invests in shopping malls, and community and lifestyle centres. It’s the largest owner of shopping centres in the United States, owning interests in over 200 properties totalling 22.4 million square metres.
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Realty Income Corporation is a realestate investment trust that invests in freestanding single-tenant commercial properties in the United States, Puerto Rico, and the United Kingdom. The company owns over 6,483 properties (making up over 9.8 million square metres) and includes as its largest tenants Walmart, Walgreens, and FedEx.
What else to think about The REIT is an investment that relies on dividend income, so its management cost is important. This varies according to the size of the fund, their own financing costs, and their portfolio. At the right end of low costs for funds is the Vanguard Real Estate ETF. With just a 0.12 per cent expense rate, it’s more than 50 per cent below the industry average of 0.28 per cent in America. Before investing, you should carefully consider the real-estate market, the REIT’s business model, payout ratio, leverage, and the stock’s sensitivity to interest-rate changes. Asset value increases, rent increases, and rising dividend returns are positives for investors, but the Covid-19 pandemic and the work-from-home movement could negatively affect the type of property assets you want your hard-earned investment dollars chasing. Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The author does own shares in some of the securities mentioned.
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EXPERT OPINION | CMC MARKETS
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The Game of Competitive Spending Why do we feel we have to fill our homes with shiny new things? Lynda Moore, the Money Mentalist, says we’re being hijacked by our emotions and by keeping up with the Joneses.
The magic moment when you walk through the door into your first home is very special and you can rightly feel proud. But now you have the home – and the eyewatering mortgage that goes along with it – the next question is, what are you putting in it? Whether it’s a shiny new home or a slightly used one, it’s tempting to fill it with lovely new things. Beer crate innovation I remember my parents telling me about when they emigrated from the UK as a newly married couple and saved hard to build a new home. “We couldn’t afford new furniture. Our table was a couple of beer crates and a plank. Friends gave us furniture, and we just did without until we could afford more.” Confession time. My parents were telling me this story while sitting on my new lounge suite, after having lunch at my new dining room table because yes, I had succumbed to the temptation of filling my new home with lovely new things. Fast-forward to today, where having everything new and shiny seems to be a must-have. People see rampant expenditure as part of the new-home experience. 52
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We have biases to get over Why do we do it? There are a few money biases that come into play here. Let’s explore them. “We already owe the bank so much, what’s a few thousand dollars more to get everything else we want?” This is called spending justification bias. It goes like this. If A equals B, then it follows that C equals D, even when A and B have nothing to do with C and D. In other words, if we can afford the mortgage on the house, we can afford the furniture to go into it. But justification is just a form of selfdeception, because it gives us permission to spend money we can’t afford, and it widens the gap between our spending habits and financial reality. “But honey, the new sofa is only $25 a week, so we just won’t buy lunch and use that money to pay for it.” Let me introduce you to spending rationalisation bias. It’s a great way to convince ourselves that we can afford something and rationalise a bad decision with what look like good reasons. It’s about now that our super-sensible partner, friend, or parent says no, it’s not a good idea to spend more money. So, we bring out the big guns and the bottom lip starts to quiver. “But when Jenny and Tim moved into their new house, they had all new stuff, so we should too.” This is ‘keeping up with the Joneses’, a form of competitive spending. This bias is all about competing with your social group for status, or peering over your neighbour’s fence and wanting what they have. The drive to keep up So, why do we do this to ourselves? This behaviour is rooted in peer pressure from our friends, workmates, news and social media. Sometimes we simply want to have the newest and the best.
Plus, it’s human nature. We love to show off and we want to be seen as successful. The easy availability of credit lets us do this, tempting us into debt. The drive also comes from deep within ourselves, stemming from our own level of self-esteem. We feel that to be happy, we need to look and behave a certain way and have the toys to impress others. There’s another catch. Before you start keeping up with the Joneses and potentially getting into more debt to do it, first ask yourself, what if the Joneses are faking it? What if the Joneses are broke? Reframe your thoughts So, here you are, proudly opening the door to your new home. What do you want to see after you’ve unpacked all the boxes? What is your style? What is ‘enough’ stuff? Often we’re so focused on buying a house that our plans stop there. Start to visualise the environment you want to create in your home and how you’re going to achieve it. • If you really do want a house full of brand-new things, plan for this cost now as part of your house-buying fund, rather than justifying that spending later. • Maybe you could be happy with just one lovely new piece of furniture now. You can get the rest from the flat or the op shop, and use friends and family hand-medowns until you’ve saved for replacements. • If you have a creative flair, make your home charming by painting, reupholstering and upcycling old bits and pieces you find or are given. The important thing is not to let yourself head down the pathway of justifying, rationalising or competitive spending. Pause. Take a step back and decide what’s important for you. Not anyone else.
C O M PA N Y P R O F I L E | T H E R E N TA L B U R E A U
When Tenants are Happy, Everyone Wins The Rental Bureau is a small agency that punches above its weight, winning a prestigious property management award. A business that started in its founder’s garage has just become the REINZ’s Best Property Management Company of the Year (Small Office). Owner Victoria Heyes says the winning principles of The Rental Bureau in Titirangi were based on her own experiences renting. “I thought tenants deserved better than they were currently getting, and that most property owners wanted that too. “When I started in early 2015, I had zero clients, but a firm belief that I had something new to offer.” She’s passionate about her vision to overcome the “us versus them” philosophy that she says seems entrenched in the industry. “I simply thought that there was a better way for everyone,” she says. “Tenants deserve good service, and owners want to know that good service is being given – but it felt that something was being lost in translation.” Heyes says the flexibility of being her own boss has been appealing, because she’s also raising two young children. “I work long hours and the journey has been anything but smooth sailing, having to be available day and night for my customers and clients.”
She recalls the stress of signing up her first client. “After five miserable viewings on rainy days, I had failed to get a tenant, and the client decided to take their business elsewhere. “I cried. I nearly quit then and there then – but I didn’t. I learned from the experience that rainy days do not show properties at their best, and I made a vow to keep learning from every single stumble.” As her client base grew, Heyes built a loyal team of five and moved to an office space in 2019. She credits her ‘amazing’ team with The Rental Bureau’s recent success. “Our fully qualified team excels in outstanding property management, uses
the most up-to-date technology, and most of all, works together as a close-knit team to provide first-class customer service to our tenants and property owners.” Heyes’s original belief shows strongly through the bureau’s work. “The truth is that unhappy tenants are the worst thing for a property owner’s business, so we make sure that all our clients understand that prioritising looking after tenants is actually the best way to look after their business, too.” “Our tenants are our customers, and our goal is to give them great customer service.” For more information, go to www.therentalbureau.co.nz. Or call the agency on 09 887 7420. SUMMER 2021
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FUND REVIEW
Booster Private Land and Property Fund If you can’t afford a vineyard or an orchard, you can still invest in one. Amy Hamilton Chadwick reviews this agricultural and horticultural fund.
If you like the idea of sitting back and celebrating with a glass of Marlborough sav blanc, knowing that you had a share in the grapes that produced it, the Booster Private Land and Property Fund (PLPF) might be for you. What does PLPF invest in? The fund buys freehold New Zealand agricultural land that generates an income from either selling its crops or leasing the land. The crops range from grapes to kiwifruit to hops to citrus, and the fund owns property in Northland, Hawke’s Bay, Nelson and Marlborough. The aim of the fund is to offer Kiwis an accessible, diverse way to invest in our agriculture, viticulture and horticultural sectors. To buy, say, a gold kiwifruit orchard, you’d need to spend somewhere in the vicinity of NZ$$1.5-1.75 million a hectare. PLPF lets you have a fraction of the ownership, plus more diversity, at a much more appealing starting price. The minimum investment directly through Booster is NZ$1000, or you can buy shares in the fund on the New Zealand Stock Exchange (NZX), which on October 30 were trading for around NZ$1.20 each. Some examples of properties owned by the fund include: • Vineyards in Marlborough which supply grapes to Awatere River Wines and Sileni Estates. • Vineyards in Nelson leased to Waimea Estates.
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Kiwifruit orchards in Kerikeri leased to Seeka Limited.
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Hop-producing properties in Nelson which supply to New Zealand Hops Limited.
“Our investors do enjoy buying a bottle of wine that probably contains our grapes, or slicing up a Yen Ben lemon for their G and T which came from one of our orchards,” says Duncan Wylie, General Manager, Strategic Development, for Booster. “Wine is such a New Zealand export success story, why wouldn’t you want to participate? But for me, I’m most excited about the hop industry – it’s a really interesting crop with solid returns, plus the ability to quickly adapt varietal mix to changing consumer demand, without losing years of production. “New Zealand hops are the cream of the crop when it comes to premium hops, and within two years we expect to have over 100 hectares of mature crops. It’s really quite exciting.” What are the risks? There is one unavoidable risk when you invest in any agricultural business or product: Mother Nature. Although the diverse locations within the fund’s investments help reduce risk, your investment could still be hit by adverse weather, a fall in global demand, low yields, diseases or pests. Other risks also apply, so you should read the fund’s Product Disclosure Statement found on its website for a comprehensive analysis. What are the fees? The annual fund fees are estimated at 1.19 per cent, with some potential variation in property operating expenses. If you buy into PLPF directly, withdrawal fees apply if you take out more than NZ$50,000 in a single year. If you buy PLPF on the stock exchange, there are no withdrawal fees; however, you will need to pay any fees that apply through your share trading platform or broker. What are the returns likely to be? The fund aims for returns of 6.5 per cent per annum (pre-tax), although you should expect results to fluctuate. Wylie says the fund has returned 10.6 per cent per annum (pre-tax) since inception. He believes the size of the fund will grow by at least 50 per cent this year, which will allow for more diversification of crops and locations.
we see this as a half-billion-dollar fund in the future – we’re short of investable properties rather than funds. “That’s because we don’t feel the need to invest in assets that are only just good enough. We want sustainable commercial enterprises that have a light environmental touch on the land.” Who does this fund suit? This fund will be ideal for investors who want some exposure to New Zealand’s commercial agricultural sectors, as part of a wider balanced portfolio. It’s important to understand all the risks, so take your time to read all the information available about the fund before you invest. You’ll also need to weigh up the pros and cons of direct investment versus buying on the NZX. Because agriculture is a long-term business, this is best approached as a longterm investment, particularly if your funds are subject to withdrawal fees. “I’ve worked in the investment industry for 40 years and this is most fun job I’ve ever had,” Wylie says. “When I visit one of our sites and look out at 100-plus hectares of vineyards, I think, ‘This is something is that has enduring value and there’s just no substitute for owning a piece of it’.”
FUND FACTS: PLPF •
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Capitalisation: Around NZ$87 million Minimum investment: NZ$1000, or via NZX Fund fees: Around 1.19 per cent a year Return: Forecast at 6.5 per cent a year Share price (30 October 2021): NZ$1.18
Call 0800 40 40 50 for investment documents or visit www.booster.co.nz
Booster Investment Management Limited is the manager and issuer of the Booster Investment Scheme 2, Private Land and Property Fund. The Fund’s Product Disclosure Statement is available at www.booster.co.nz
“The fund is at a fraction of its potential; SUMMER 2021
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So, You Want to Be a Property Developer Are you sitting a piece of land that can be subdivided, or do you want to take property investing to the next level? Ben Tutty finds out how.
New Zealand has a property obsession. For Kiwis, owning our own homes means financial security, certainty, and freedom from niggly property managers.
low-decile area in Christchurch and built a spec home. We needed capital so we offered our friend a profit share to secure the loan.”
Following that logic, a career as a property developer has to be the ultimate road to riches, right? Well, sort of.
That was the first and last profit share Blair and business partner Matthew Horncastle ever needed, but it built the foundations for what Williams Corp is today.
There’s money to be made in developing property, but it’s not all supercars and capital gains. From buying land, to getting council consent, to completing a build and selling a development – there are countless complexities to tackle before you make a single dollar. Putting down foundations Blair Chappell knows a thing or two about making dollars developing property. He’s one of two managing directors at Williams Corporation, which has become the fifth largest residential developer in the country* after just nine years of trading. He says his company sprang from humble beginnings. “We took a loan out from a contractor friend of ours, bought a $65,000 section in a 56
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Just like Chappell, if you want to develop property, starting with something manageable is a good idea. “Small scale and simple is better at first. Buy a property with a big section and build one house on the back, or subdivide and build a house on the back of a section you already own,” Chappell said. “This will give you a taste of what it’s really like to develop property. You’ll get a feel for the process of financing, contracts, consenting, subdividing, marketing and selling.” After a long, arduous and time-consuming process that could take over two years, you should also be prepared to barely break even – or even lose money. After all, property development is a high-risk game and the learning curve is steep.
Build a team then build an empire Building a home from scratch and selling it is a big job, to put it lightly. Ian Laywood, Director of Property Finance NZ, one of New Zealand’s leading independent property finance specialists, says you need to build a good team and strong relationships before you lay a single brick. “It’s vital that you have a strong relationship with your builder. If that doesn’t work, it’ll end up in tears, no matter what. “Make sure you get good references and have a thorough look at what the builder’s done in the past. Talk to people they’ve worked with previously to find out what they’re like. Don’t be scared to get a few prices.” Equally as important is finance, he says. “Talk to your bank but don’t be frightened of the non-bank lending market. Banks are very strict and may require you to cover as much as 1.2 x of your debt in pre-sales.” You’ll also need an architect, a good tax accountant, a geotech surveyor, a valuer, a lawyer, and possibly a real estate agent. Better get out the phonebook.
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Does it all add up? Before you apply for finance, you’ve got a few sums to do. Lenders like certainty – they need to know how much your development is going to cost to build and how much you’re going to sell it for, to make sure they’ll get their money back, says Laywood. “The lender likes to see a clear path towards a finished development. They want a good understanding of expenses in a solid building contract, preferably with 80 per cent of costs locked in,” he says. “Often, Prime Cost sums or PC sums (variable, non-fixed costs) make up 40 per cent of a contract and the end price can be all over the place.” The bank will also want to see that you’ve got a good margin on your development. Ian says a 25 per cent margin is a good place to start, and that you’ll most likely whittle that down to 18 per cent by the time you’re finished. Once you’ve done the sums on a project, you might find that it costs too much and making a profit may be difficult. If this happens, it’s important to move on to the next one instead of risking it.
Another thing you’ll have to consider is that you may have to cover a lot of expenses before you sell a single home, says Ollie, an Auckland IT account director who’s building his first development on the back of his investment property’s section. “The time between paying for everything and actually getting paid can be one to three years. And if you’re not careful, you could get $100,000 down the line and realise that what you’re doing is not going to be profitable and you’ll have to swallow the loss.” He also says that the current market is a big reason why he was able to do what he’s doing. “If property prices weren’t going crazy like they are, I wouldn’t have got finance approval. You need a good chunk of equity or cash to convince lenders and this market makes getting that a lot easier.” Still want to be a developer? Property development can be a moneymaker, but it’s far from a get-rich scheme. Chappell says he absolutely loves what he does, but there’s no denying it’s a fulltime job:
“It can be a long, slow, repetitive cycle of paperwork. It’s not glamorous. There are a lot of moving parts and there isn’t a huge margin for error.” As well as being repetitive, the way that you get paid with property development can make living tricky. “There’s a lag between paying for things and getting paid, so you have to figure out a way to fund your lifestyle in that gap.” You only have to look at New Zealand’s rich list to see that property development is lucrative. But for every Chappell, Horncastle and Ollie, there are thousands of wouldbe developers who’ve tried their hand and either lost money or filed property development in the ‘too-hard basket’. It’s not for everyone and it certainly isn’t easy. But if you’ve got the capital, the dedication and the uncompromising attention to detail it needs, property development could be a great way to earn a dollar while helping solve one of this generations most pressing problems – the housing shortage. *Based on number of consents issued. SUMMER 2021
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When the Sunset Clause Goes Down With many Kiwis now buying off the plans, some buyers are worried about ‘sunset’ clauses. Tessa Doherty of Morrison Kent explains what they are – and whether you need one, too.
When you’re buying a new build, sometimes things go wrong or there are delays. If that happens, either the builder or the prospective buyer might want to pull out.
which to cancel following the relevant milestone date specified in the clause.
That’s where a ‘sunset clause’ comes in.
If the buyer doesn’t give notice within that window, then they can’t cancel and the contract continues on. You can’t exercise the cancellation right after that.
In the case of a new build or buying off the plans, a typical sunset clause will allow the purchaser or the vendor (or even both) to cancel the contract.
Here are some of the protections a purchaser gets, where you have a sunset clause giving only the purchaser the ability to cancel (and not the vendor):
The overarching purpose of a sunset clause is to prevent the parties from being locked into a contract for what could potentially be a long and indefinite period of time. You might want to cancel A sunset clause may come into effect when the development hasn’t reached a certain milestone by a particular time, say if the title has not been issued within two years of the date of the contract. For the most part, sunset clauses in a newbuild contract will only allow the purchaser to cancel. However, in some circumstances, the vendor also has the ability to cancel – and this is more of a worry for the buyer. Sometimes a sunset clause will have a time by which you have to exercise the cancellation right. On occasion we see buyers given a window of time, for example five working days in 58
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If an unexpected event occurs which significantly slows down or halts the development altogether, like a major consenting issue, the purchaser can cancel the contract and find something else to buy, rather than waiting around for what could be a lengthy period of time.
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If the vendor doesn’t meet their obligations by the sunset date, they can’t cancel the contract and sell the property to another buyer for a higher price.
The sunset date is either a set date or a period of time following an event, such as 24 months following entry into the contract. The vendor usually sets the sunset date based on how long they estimate the development will take, what their funder requires, and a contingency period for unexpected delays.
As a purchaser, you should expect a sunset clause to be included in a new build contract. Two-way or vendor-only clauses Where a purchaser should be concerned is when there is a ‘two-way’ or ‘vendor-only’ sunset clause included in the contract. A two-way sunset clause lets both the vendor and the purchaser cancel the contract. In a vendor-only sunset clause, only the vendor and not the purchaser can cancel the contract. In both situations, there’s cause for concern
PROPERTY
for a buyer because there’s risk of the vendor cancelling if a certain event has not occurred by the sunset date. One clause you do probably want in your contract is a ‘solicitor’s approval condition’ – and this isn’t the same as a sunset clause. Typically, a solicitor’s approval condition will let the purchaser’s solicitor review the proposed sale and purchase agreement from a legal perspective, to either approve the terms of the agreement or to suggest amendments, additions or deletions to the terms.
I would also recommend a ‘due diligence condition’ is included in a new build contract . This is a condition which allows a buyer to make enquiries about the property to make sure it’s suitable for the purchaser’s needs and intended use.
first-home buyers, to get their foot on the property ladder. In saying that, it’s important to get proper and thorough legal advice when you’re buying off the plans.
A due diligence clause can be drafted quite widely and, in the context of a new build, can cover finance approval, zoning, and the development itself.
More often than not, a new-build contract is drafted heavily in favour of the vendor, and there can be less room to negotiate the terms of the contract to ensure consistency across the development.
Play it safe Buying a property off the plans can be a fantastic opportunity, especially for
So, it’s essential to know what you’re committing to, so there are no unexpected problems waiting for you down the line. SUMMER 2021
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OPES PROPERTY ACADEMY
The Nine Secrets of High Capital Growth Properties
Where did properties grow in value the fastest in Auckland? This map shows the average capital growth each Auckland suburb achieved per year, January 2000 – June 2021
Saint Mary’s Bay 8.75%
Why do some dwellings go up in value faster than others? Andrew Nicol of Opes Partners says there are nine principles that make it more likely your property will appreciate in value.
Auckland Central
Ponsonby 9.91% Point Chevalier 9.24%
With house prices skyrocketing, it can feel like you could buy any property and do well over the long term. But not all properties go up in value at the same rate. Some properties will see their values explode, while others will appreciate more slowly. So, what factors can you look out for so you can snag a property with a high capital growth rate?
Mangere 8.1%
Here are my nine principles of capital growth. 1. Buy close to the city centre Look at this map of suburbs within Auckland, along with their capital growth rates. The suburbs on the inner-city fringe have tended to appreciate more quickly than suburbs further away from the city centre. For instance, suburbs like Ponsonby, St Mary’s Bay and Point Chevalier have grown faster than suburbs 40 minutes south of the city centre like Pukekohe.
Takanini 6.94%
Capital Growth Rate Low
High
Chart: Opes Partners Source: Stats NZ & REINZ
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2. Apartments grow more slowly Over time, apartments have tended to get a lower capital growth rate than the likes of houses and townhouses. Over the 20 years from September 2001 to September 2021, Wellington City apartments increased at a rate of 5.08 per cent a year. That compares to 8.22 per cent a year for all other types of dwellings. But the trend doesn’t only hold for the country’s capital. In Auckland over the same period, apartments grew at 4.79 per cent. That’s significantly slower than the 9.09 per cent all other dwellings grew at per year. And in Christchurch, dwellings grew at 7.79 per cent annually, while apartments chugged along at 6.20 per cent per year. 3. Sections over 50 square metres Many Kiwis think that the bigger the size of land, the higher the capital growth. That’s not true. But data has shown that smaller sections – those with 50 square metres or less – tended to grow in value more slowly than those with more than 50 square metres of land. 4. Two bedrooms or more When looking at capital growth across the number of bedrooms, one-bedroom properties consistently get less capital growth than those properties with more than one bedroom. This trend was consistent across apartments, townhouses, and houses in New Zealand’s three main cities – Auckland, Wellington, and Christchurch. There’s no consistent trend for properties with two bedrooms and above. 5. Higher end suburbs While not true all the time, house prices have tended to appreciate more quickly in higher-end neighbourhoods compared to lower socio-economic suburbs. In Auckland, suburbs like Orakei, Mt Eden, Grey Lynn and Herne Bay are all higherincome suburbs that are also in the top 10 per cent of areas for capital growth. Similarly, in Christchurch, wealthy parts of town like Sumner, Merivale, Fendalton and Strowan all feature in the top 20 per cent of areas for capital growth in the Garden City. 6. New infrastructure In my experience, suburbs that are close to new infrastructure projects tend to experience a mini-bump in house prices once that infrastructure is completed and open. 62
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Dwellings – Annual Capital Growth
Apartments – Annual Capital Growth
Auckland
9.09%
4.79%
Wellington
8.22%
5.08%
Christchurch
7.79%
6.20%
Source: REINZ House Price Index – September 2001 – September 2021
A new motorway that cuts down on commuting time makes an otherwise remote suburb more accessible. This can increase the demand for house prices in these areas in the short term as the markets equalise. 7. Higher population growth When a town’s population increases rapidly, so does its demand for housing. Housing supply takes time to catch up. So, a fast-growing population tends to push prices up faster than would otherwise be the case. That doesn’t mean that areas with a declining population like Ruapehu or Kawerau will see their house prices decline. Just that there will be less impetus for that rapid capital growth to occur. 8. Don’t overpay Say you pay NZ$100,000 more for a property than its market value. Naturally, the capital growth you get on the investment property will be smaller than if you paid the fair market rate. So, if you get a good deal on a property, you are in a better position to get capital growth than a property you overpaid for. 9. The right place in the cycle Each region in New Zealand operates
within its own property market. And each property market has its own property cycle. Sometimes Palmerston North might be booming, while Taranaki is quiet. In other times Taupo house prices might be rising quickly while those in Invercargill stay stagnant. Generally speaking, if an area’s housing market has been flat for eight to ten years, there’s a good chance it could be positioned for growth in the future, especially if neighbouring regions have already taken off. Right now, the areas looking most ‘undervalued’ and in an opportune part of their property cycle are Canterbury, Auckland, Marlborough, and parts of Taranaki. You’re not going to find a property with all nine factors You’ll never find one property that has all nine of the factors mentioned in this list. After all, neither unicorns nor unicorn properties exist. The key message is to look out for as many of the factors as you can. This means that you’ll at least have a framework to assess whether one property is likely to increase at a faster rate than another.
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RETIREMENT SERIES
Your Dream Retirement Home Downsizing to a maintenance-free unit by the beach may be your fantasy. But it might not be the money-maker you hoped for. Amy Hamilton Chadwick investigates.
If you’ve been a homeowner for many years, you probably have a large chunk of equity locked up in your house. Freeing up that equity can help you fund your retirement, and it’s been a cornerstone of Kiwi retirement plans for generations. But although downsizing is easy in theory, in real life it’s complicated – and emotional. It’s not always easy to say goodbye to the home where you raised your children, or your favourite neighbours, or the familiarity of your community. And you need to make decisions on where you’ll go, how you want to live, and how much equity you can realistically free up. Enough for ‘a nice lifestyle’ About five years ago, John and Carol March came up with a plan to downsize and move out of Auckland. They had a valuable four-bedroom home, but with all three daughters having moved out, the couple started looking for a new place to live. They “motored around” New Zealand and eventually decided on Papamoa Beach, buying a three-bedroom single-level home there in 2020 and moving once the April lockdown was over. “We always said once the girls were off our hands we would start looking, then it just seemed to fall into place,” says John, 67. The move coincided with Carol’s job in the tourism industry being cut, and John’s health deteriorating. “Letting go of our life in Auckland was difficult, but at the end of the day you have to look at the sensible side. SUMMER 2021
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Know where you’d like to live and understand the market value of both your home and the type of house you plan to buy, she says. By doing the sums, you can calculate which compromises you’re willing to make: location, size of house or retirement lifestyle. “Plenty of my clients downsize and move to beachy lifestyle locations, sometimes working part-time or remotely. “It can free up a bunch of cash if you do it right. But other people have been forced into it because they literally cannot afford to retire, and they have all their money tied up in a home. “Ideally, you should use your investments to maintain your standard of living, then use downsizing as a last resort.” Stay put and draw down your equity When downsizing isn’t cost-effective, or you don’t want to move, you can stay in your home and tap into your equity using a reverse mortgage or ‘home equity release’. This allows you to borrow against your equity to fund your lifestyle, with the debt repaid when the house is sold. This can be an excellent way for older New Zealanders to live off their equity, although the higher interest rates can sometimes seem concerning to family members, says Dudson.
When downsizing isn’t cost-effective, or you don’t want to move, you can stay in your home and tap into your equity using a reverse mortgage or ‘home equity release’.
“We freed up enough money to give us a nice lifestyle, that was the whole point of it. But it wasn’t a phenomenal amount of money. We’re mortgagefree, we can have a new car and a nice lifestyle.” Plan ahead Early planning, like Carol and John’s, is a great way to successfully downsize. They spent two years looking at different sized houses in locations across New Zealand, getting a feel for the prices. Their realistic expectations made their downsizing a much smoother process. Without planning, the complexities of downsizing can come as an unpleasant surprise, says Lisa Dudson, director of Acumen. “When you get into the practicalities of downsizing, people often say, ‘It’s not as good as I thought it would be’.
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“The interest rates are higher, but a better lifestyle does have a cost. Do you want to sit in your house feeling miserable because you can’t afford to fix a leak or turn on the heater? “Reverse mortgages are a fantastic tool, although if you’re very healthy you wouldn’t want to start it too early. I have several clients who are single women in their 60s, who have homes but only a small amount of savings. “I recommend they use their savings and then use a home equity release when they’re around 75.” Think about a downsized life What does downsizing mean to you? Is it a smaller house in the same area, moving to a new location, or something else altogether? How much money will it realistically free up – and how many years of retirement will that money fund?
“If you’re going from Auckland to Bluff, that’s an awesome strategy. But downsizing in Auckland is a challenge; the cost of a smaller, nicer house is often the same or higher compared to your family home.
The questions that come with downsizing should be part of your larger financial planning, alongside other big questions about how you live now, how much you need to invest for the future, and your larger life goals.
“Other places are expensive too now – the theory is easier than the reality.”
The better your planning and execution, the fewer compromises you’ll need to make later in life.
Dudson says her clients who have a clear plan for moving into a retirement or pre-retirement phase find the transition the easiest.
“Paying off your own home by retirement a nobrainer, you must do it,” says Dudson, “but your home should not be your only retirement strategy.”
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The Informed Investor Property Report 2021 Powered by REINZ
Your City Up and Up
An imbalance between supply and demand continues to boost property prices in New Zealand, says Jen Baird, CEO of REINZ.
All New Zealand Median house price
$895,000 23.4% Year on year change
New Zealand’s property market shows continued growth year-on-year. As New Zealand emerges from its most recent lockdowns, the property market is bouncing back, with many regions across New Zealand experiencing median price records in October 2021. There remains an imbalance between demand and supply. Despite recent restrictions, this continues to drive strong levels of activity and the resulting price growth, so the percentage growth year-on-year is no surprise. 68
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Measures introduced this year to temper investor demand and recent moves by the Reserve Bank to increase the official cash rate are creating headwinds for house prices. However, while we initially saw the lockdown impact the market in August and September with market activity slowing, October data announces the arrival of the usual spring uplift. The longer-term impacts of new legislation and OCR are yet to be seen fully.
PROPERTY
The Informed Investor Property Report 2021 Powered by REINZ
Auckland Median house price
$1,393,000 Year on year change
14.2% While far from ideal circumstances for real-estate activity, the prolonged Alert Level 3 lockdown in Auckland City hasn’t dampened demand for real estate. After a dip in sales activity in September, we’ve seen a sharp increase in October – though down from October 2020. Median house prices in Auckland City continue to be the highest in the country, with the median house price in October $1,393,000, a
14.2 per cent increase on the same time last year. Of course, this raises the question of affordability. The Auckland region’s weighting on the performance of the national property market was clearly shown during the recent lockdown. In September 2021, we saw lower rates of activity across the region – due to more severe Covid-19 restrictions – suppress New Zealand-wide numbers.
Hamilton Median house price
$829,000 Year on year change
23.55% While more affordable than many other parts of New Zealand, the median house price in October 2021 increased 23.55 per cent on the same time last year to $829,000.
that increase the ability to freely build median density residential dwellings were part of the government’s plan to increase housing supply in New Zealand’s five largest urban areas.
Planned transport improvements, such as the Waikato Expressway and the Te Huia commuter train and more people able to work remotely and flexibly, see Hamilton primed as an attractive option for those priced out or looking to avoid the bustle of Auckland.
These changes will take some time to deliver housing stock, but it’s likely they will have an impact on cities like Hamilton, creating more choices for buyers at different price points. The government’s stated goal is to enable the building of more affordable homes and time will tell if and when developers are able to deliver.
Changes to urban development rules
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The Informed Investor Property Report 2021 Powered by REINZ
Tauranga Median house price
$1,050,000 Year on year change
29.63% Tauranga has been tipped as one of the tighter housing markets in New Zealand. The median house price is one of the highest in the country (October 2021: $1,050,000), and properties are selling fast. Supply and demand are again a factor. While the local Tauranga market is active, the Bay of Plenty has been attractive to those moving out of the bigger cities – particularly Auckland and Hamilton. We expect to see that trend continue and when restrictions to movement are eased later this
year it’s likely those out-of-town buyers will be back. As one of New Zealand’s fastest growing cities, Tauranga is included in the new medium-density residential rule changes which may create more options for Tauranga buyers over time. Tauranga’s growth pressures and land availability challenges are well known, with significant investment in infrastructure needed to deliver the services needed for this increased density.
Wellington Median house price
$1,157,000 Year on year change
32.08% The Capital’s property market remains strong, with the median house price in October 2021 reaching $1,157,000, an increase of just over 32 per cent on the previous October. Wellington is a city where construction is limited by the availability of land. The housing intensification edict may increase the overall housing stock level, but with demand already outstripping supply, this may serve to stabilise prices rather than increase affordability.
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The Informed Investor Property Report 2021 Powered by REINZ
Christchurch Median house price
$685,000 Year on year change
29.86% House prices in Christchurch are increasing steadily. The median house price in Christchurch increased 29.86 per cent year on year to $685,000 in October 2021. Despite an increase in prices, the city remains attractive due to its affordability, for home buyers and for investors – who benefit from comparatively low prices and thus better rental yields.
Dunedin Median house price
$675,000 Year on year change
20.54% The median house price increased 20.54 per cent year-on-year to $675,000 in October 2021 – an increase of 7.14 per cent, month-on-month (September: $630,000). Dunedin sees very similar market conditions to much of New Zealand, with demand outstripping supply of property for sale and while new build activity is strong, many of those properties are yet to come to the market.
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‘I did two jobs so I could afford to buy a house’ Cole Saunders owns four properties – and he’s only 21.
When you want something so much that no level of discomfort will stop you from getting it, your success is already halfway guaranteed. For Cole Saunders, his dream of owning property and creating financial freedom has been driving all his decision-making since he was a teenager. Having cut his teeth on a paper run at 11, at 16 Saunders got his first job at Burger King and began saving. At 18, he moved to Wellington and worked fulltime at Burger King, where he was promoted and managed to save even more. He lived in a shared room with two other people but says the lack of privacy didn’t bother him because he was hardly ever home. He dedicated all his spare time to financial education, drawing inspiration from books, local experts and the Property Academy podcast. With plenty of savings under his belt and a decent chunk of money invested in shares, he went looking for his first property, but Wellington homes were just too far out of his price range. So, he moved to Christchurch. “I moved specifically to buy property, but I was single and I didn’t have any kids so I could easily move down here,” Saunders says. “I worked a full shift at KFC and then did the graveyard shift at Macca’s. I got free food at work, which meant big savings.” Eventually, after trying to secure a loan for many months, Saunders found “a really nice lady” at ANZ who helped him get approved for a mortgage. “I told her the whole situation and I think she felt sorry for me and pushed me over the line.” In 2019, he was able to buy his first property: a two-storey, three-bedroom, one-bathroom 72
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unit in Riccarton for NZ$350,000. “I added on an extra bedroom, lived in one and rented out the other rooms,” he says. That income covered all his costs, and it felt good to be living in his own place. “I was still working most of the time. But after a couple months I went looking around for the next one. I had about $70,000 in shares, so I sold those at a very slight loss and bought my second house in late 2019. “That was a three-bed, one-bath in Shirley for $299,000. I moved into that and rented out all the rooms in the Riccarton house.” Using Resimac for his subsequent borrowing (and paying principal and interest on all his properties), in 2020 Saunders was able to secure lending for a third property – a unit in Papanui.
Now 21, Saunders is no longer living in the house in Shirley. While working at KFC he met his partner, Chloe Smythe, and after dating for a year they decided to buy their first house together in late 2020. It’s in Sockburn, and it’s already had an extra bedroom added. “We’re always doing more renovations, it never stops,” he says with a laugh. Saunders’ dedication to building his income has already helped him improve his lifestyle. He’s shifted from working two fast food jobs into a sales role at Vodafone, which he’s really enjoying. It allows him far more free time and he’s earning more money – and Smythe is now working there too.
Once again, he used his strategy of adding a bedroom to boost the value.
Together they plan to build a portfolio of 10 properties with passive income of around NZ$100,000 a year.
If this level of drive to buy a house seems surprising in a teenager, that’s because it wasn’t just about owning a home.
“I don’t like having to work, but I do like working – I’m a bit addicted to it, but I want the freedom not to have to,” he says.
Saunders is driven by a desire for future financial freedom through investment. He plans to grow his passive income from property and shares until he can choose whether he wants to work or not.
“Property is a good reliable way to achieve that, partly because of the leverage. I regularly thank god for the sacrifices made so I think, if I do the shit now, I can relax later on.”
‘I used a reverse mortgage to get my knee fixed’ This lively 82-year-old is back travelling, biking, and dancing after using equity from his home to pay for a knee op.
Brian Mosen was blindsided when his carefully saved NZ$50,000 nest-egg went “out the window” with the South Canterbury Finance crash in 2010. Luckily, the former Wellington City Council worker and his late wife had paid off their mortgage. Losing his savings only really became a problem when he stepped out of his car awkwardly one day, twisting his knee. “I went to the doctor thinking it was an ACC job, but he took an x-ray and he said, ‘That’s no ACC job; you need a new knee!’ “There was a waiting period of 12 to 18 months for the operation. The pain was so bad. The only thing left was a private operation costing $28,000.” Looking for a loan He says in the old days you could get a Flexifund account from the Southland Building Society. “If you mortgaged your house with them, you just rang up and you could get $1000 any time you liked. You just paid interest. “When I saw an advertisement for Heartland Bank’s reverse mortgages, I was used to using a property as security to get funds, so I was quite open to the idea.” He says there were hoops to jump through. “I had to get a valuation report and the original fees were a bit steep because you had to get a lawyer to look over the deal, and talk to a financial adviser.” He also had to talk to his next of kin. “But I don’t really have any dependents.” He had bought his house for NZ$380,000 and he was approved to withdraw up to NZ$120,000 of the equity in it. He withdrew just NZ$15,000 and paid the surgeon’s receptionist the NZ$28,000. A hitch The patient was gowned up, shaved, and waiting for his op when suddenly the surgeon
rushed in and shouted: “Stop, stop, stop!” “He had my files in his hand and he said: ‘There’d be blood everywhere!’ The nursing staff had forgotten to tell me to stop taking my blood thinner.”
“It needed a new roof, new kitchen, bathroom, carpets, curtains and interior painting.” He decided to go through the process again and used a reverse mortgage of NZ$15,000 to pay for the renovations.
Within 15 minutes, he was back out on the street. “I suddenly realised I’d given him $28,000, so I rushed inside and said, ‘I want my bloody money back!’.”
He and his partner went on a couple of cruises before lockdown and drew down another NZ$15,000 in July 2021 as a backstop in case of emergencies.
They apologised because they could only give him back NZ$5000 at a time, but then the surgeon reappeared.
“The total is now $31,600 and I don’t think there is now a need for any more. But you never say never.”
“He said, ‘I’ll do your operation first thing on Monday morning’.”
He says he believes Heartland’s reverse mortgages only worked for him because of his age and because he didn’t have dependents who expected a legacy. However, there will be equity in the house to leave for an adopted son.
He recovered so well that he was soon back biking and ballroom dancing and was able to travel again. Over three years he took out NZ$20,000 more to buy an e-bike and pay for holidays to Australia and Norfolk Island, where he met his new partner. When he sold his flat in 2018 to move to Wanganui, he was delighted to find that inflation had increased his home’s value, so he was able to pay Heartland back the NZ$53,000 he owed with “a lot” left over. “I could buy a 1972 house in Wanganui, but it wasn’t enough to pay for the renovations.
“The main thing was the rapid rise in house prices.” He doesn’t know why people fear reverse mortgages. “People still can’t get it out of their minds that they have to pay it back. Because I’d had Flexifund, I’d got used to just paying interest. In fact, I enjoy the fact that I don’t have to pay it back.” Heartland Bank will be repaid when he and his partner die or move out of the house. SUMMER 2021
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‘I was inspired to invest in property’ David Whitburn gave up a career as a lawyer after seeing his grandmother prosper in property.
While he was a student, David Whitburn used to help his grandmother by stripping wallpaper in the rental properties built by his grandfather in the 1950s. “Later, as her eyesight and her body started to fail, I droved her round as a property manager and she would explain to me the benefits of positive cashflow.” He says that early inspiration was what led him to a path as a property investor and, later, a developer. “One of the good things about property investing is that your money can work harder than you can. Your money can work 24 hours, 7 days a week, for 365 days a year.” Whitburn bought a couple of properties while he was starting out as a lawyer. “It was fun doing property investing,” he says. “I used to leave work at 6pm and then work till midnight on renovations. “To slash labour costs, I’d give pizza and drinks to friends and family who wanted to help me.” Despite having a good salary in his 20s, it soon became clear that he was making more money from his rentals. “That’s when I realised that I enjoyed it more, so I so I left to become a property consultant.” He would advise people on the benefits of property investments, if property was the right vehicle, and how to build a portfolio. “I helped property investors with tax structures, trusts, partnerships, and security agreements for funding.” Soon he moved on to property developing, infill housing, small-scale subdivisions, and minor dwellings. 74
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The business became a family team when his wife Bridget left her job as an auditor at KPMG to join him in the world of property investing.
“I like that, as opposed to just doing the one thing.”
“She was able to manage renovations and our portfolio – and, of course, our accounts are fantastic!”
She said: “You’ve got to have a bit more money in your back pocket at the end of every month than you had at the start of the month.”
Whitburn has completed well over 500 dwellings and everything he’s started has been finished.
You’d be planting seeds that will grow into amazing trees.
“I’m now working on 74 terraced houses in West Auckland as a joint venture with a friend. All of them sold off the plans. And I’m doing eight terraced houses near the Mangere town centre for long-term rental.” Over the years, he’s seen resource consents go from a concise 12 pages to close to 400 pages. “They’ve made it a lot harder, and it’s more time-consuming. You need a big team behind you to make it work well.” Whitburn says he considers himself a property investor more than a property developer. “I’m both, but I’d say property investing gets you a really good return on your time and it’s the lifestyle it creates. You can get out of your office and deal with lots of different people.
He says his grandmother taught him to “invest and prosper”.
“She’s able to give examples of properties done decades before. At the time they were worth hundreds of thousands of dollars, and now they’re worth millions. “Nurture them, they grow, and then the cash flow that comes from them is the apples. Basically, you can have a tree, have a few trees, or have an orchard!” He says it does take some sacrifices and discipline, and you do have to know the rules of the game. That’s why he’s a big supporter of property investor groups. He was the youngest president of the Auckland Property Investors’ Association when he was elected in 2010, serving until 2014 and becoming a life member. “It’s great be part of a network of likeminded people who are passionate about what they do.”
‘I changed careers and became an award-winning salesperson’ Linda Harley became the first woman business broker to win REINZ’s Sales Person of the Year.
Linda Harley never thought she’d find success as a business broker, until an early mid-life crisis pushed her into the arena. Shestarted as a horticulturist, working with kiwifruit. But, after too many years in the industry, she realised she didn’t want to stay in the same industry for the second half of her working career. Then, when her own business was sold by an “appalling” salesman, she thought: “I can do better”. So, she did. “Until you’re really pushed, you don’t know what you’re capable of,” Harley explains. Now, she’s been in the business of business broking for 15 years, specialising in the sale of childcare businesses for ABC Business Brokers. She’s also the Business Partner in the Tauranga branch of the business. As one of the very few women in the industry, being recognised as the first to win this top award means a great deal to her. Women bring special skills “Women have so much to bring to this maledominated industry,” she says. “Women build relationships differently and have a more intuitive selling style.” Before Harley was appointed Business Partner with ABC Business Sales in 2016, all her colleagues were males. Now, there are two other women on board in her Tauranga office alone – it’s been a big shift. She says she hopes her recent success will encourage more women to take up the role, particularly because there have been a lot more women buying businesses. Harley specialised in childcare mainly because they’re solid investments and require an analytical approach. They’re also highly sought-after.
She acknowledges the sector has had its challenges, particularly recently with the Covid-19 pandemic. On top of issues like pay parity and teacher shortages, now businesses have to grapple with compulsory vaccinations and other healthcare considerations.
great pathway.” Along the way, Harley found an affinity for both the owners and the buyers which suits her business style. In any transaction, it’s important to match them.
But regardless, it remains a “good solid investment”, she says.
“Create that relationship with the buyer and match that to the need you have in the business.
Belief in the product This steadfast belief in the product is important in a broker’s world, because they have to believe in what they’re selling.
“The right buyer has to buy that business or property, so the important thing I focus on is being a needs-based seller.”
“I just couldn’t sell a hospitality business, because I don’t believe in it them the same way,” she says. “There will always be a need for good highquality centres. The government needs more women in the workforce, and for that, they need affordable childcare.” Harley says another reason for her choice was because she needed to find something she was passionate about. She says the best way to become an expert on a topic is to specialise in what you want to do, and go for it. Don’t try to be a jack-of-all trades. Pick one thing and do it astoundingly well, she says. “Trying to be good at everything is not a
Tell them straight If it’s not the right fit for that buyer, you’ve got to tell them that straight, she says. This isn’t just a “transaction”. Harley herself has a well-diversified portfolio, with investment fingers in business, residential and industrial areas. She owns her own home and says the rest is invested in the share market. In her spare time, Harley enjoys the time she spends on her motorbike, or e-bike, depending on the season. She’s passionate about what she does, and that’s part of her success. “In anything in life – even bikes,” she says with a laugh. SUMMER 2021
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PROPERTY
The Solo Sacrifice All parenting is expensive, but single parents are more inclined to put their kids first, leaving retirement savings until later, or never. Ben Tutty looks at the one-parent dilemma, and how to get ahead.
Raising a child by yourself can be incredibly challenging. Parents talk of high aspirations for their kids, being locked out the housing market, and getting little support from their exes. With solo parents there’s often a drive to give their children the same life they would have had if there had been two parents and two incomes. That makes parenting expensive on one salary or a benefit. We spend an average of NZ$265,680 per child from birth to age 18, according to Informed Investor research. One income often isn’t enough to cover those costs in an expensive country like New Zealand. Here, single-parent households, of which there were 131,787 in 2018, are generally financially worse off than most other households. In fact, 18 per cent of single parent households surveyed by Statistics NZ in 2020 said they didn’t have enough money to meet every day needs and a further 43 per cent said they had “just enough”. When single parent households are struggling just to make ends meet, it’s also harder for them to buy a home and retire comfortably. It’s especially hard in cities like Auckland,
where the cost of living is through the roof and the average house price is now well over NZ$1 million. Housing built for dual incomes Housing in most major centres is unaffordable for single income households – especially single parents. Tom Hartmann, Personal Finance Lead at the Retirement Commission, says a change in demographics is partly to blame. “House prices were able to keep extending, partly because of the increasing prevalence of dual-income households.
in the 70s and 80s, and saw this first-hand, even before prices skyrocketed. “I was told by a real-estate agent that even back then I didn’t have enough money for a deposit for a house in Auckland, so I decided this money would have to go toward my kids’ education.” Retirement postponed Most single parents have made sacrifices like Susan’s.
“That means those households getting by on a single income are getting left behind.”
And not only are they struggling to get onto the property ladder, due to having only a single income to support a household, many have to sacrifice a comfortable retirement as well.
In Auckland, where the average house price is over NZ$1.2 million and most buyers need at least a 20 per cent deposit, it’s easy to see why. Assuming they bought at the average price they’d need NZ$240,000 just to get a look-in.
Says Tom: “The amount of funds we can accumulate for retirement is predicated on the rate at which we save. Anything that negatively affects this is going to mean that we may have to sacrifice some of the things we want in retirement.”
The median income for a single parent with one child is NZ$43,000 – just under half the median of a couple with two kids, according to Stuff.co.nz’s number crunching.
Susan made one such sacrifice for her son’s education when he decided he wanted to study communications and marketing at AIT (now AUT).
Even if they could save half of their salary, single parents on the median income would need almost a decade to save that deposit.
“The upfront fees were $2,500. The only way I could get that sort of money was to resign from my job of six years so that I could get my pension pay-out, so he could pursue his dream.”
Susan*, a single mother from the age of 19, raised two boys in Auckland and Hastings
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Susan’s now happily retired but had to move from Auckland to Hastings due to the high cost of rent in the City of Sails and lives off her fortnightly pension payment. Rachael* is a single mum in Auckland whose nine-year-old son is an aspiring All Black playing above his age grade (and still dominating).
‘Support from his dad fizzled out pretty quickly. Work and Income were also asking me how many jobs I’d applied for 12 weeks after my son was born.’ – Susan*
She says finding support was extremely difficult when her relationship broke down, and she started raising her son alone.
“Realistically I’m never going to be able to buy a house or achieve many of those goals my partnered friends are.”
“Support from his dad fizzled out pretty quickly. Work and Income were also asking me how many jobs I’d applied for 12 weeks after my son was born.
How to get ahead It’s undoubtedly more challenging for single parents to make ends meet and save for the future, but there are small steps that can help, even when there isn’t much left of the pay cheque once all the bills have been paid.
“I ended up going back to fulltime work 11 months after he was born.” Rachael now earns a good salary that puts her just outside of the range for assistance from Work and Income. Despite that, she says raising a son by herself in Auckland makes saving for the future nearimpossible. “We don’t live pay cheque to pay cheque, but I can’t afford to save because I need to give my son what he needs now. 78
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This is where planning and prioritising come into play, says Hartmann. Even without a high salary or much savings left after payday, consistency and staying focused can go a long way, he says. With less income to work with, he says it’s essential for single income households to prioritise their goals and decide what’s important.
“It becomes about funnelling as much income as possible towards goals in the most efficient and effective ways. “In terms of savings, it’s important to save a little, for a long time, consistently – and to match your investments to your goals.” For instance, shares may be a better investment for financial goals that are more than a decade in the future, such as retirement. More conservative investments may suit those with more urgent financial goals, such as buying a house. “It’s also important to be resilient to unexpected costs. That means saving an emergency fund should always be the first step to protect your savings.” There are more financial hurdles ahead of single parents than those in joint households, but how you manage your finances can help alleviate some of the stress. And by managing your own money well, you can pass on the lessons of goal-setting and prioritising to your children, knowing that the next generation will be prepared to weather any financial storms. * Names withheld for privacy
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M A R K E T A N A LY S I S | M I L F O R D A S S E T M A N A G E M E N T
What Does 2022 Hold for Investors? In 2021, many of us piled into a buoyant share market using our pent-up savings. But investors might see lower returns in 2022, suggests Mark Riggall of Milford Asset Management. Many have called the Covid-19 pandemic a once-in-a-generation event. For investors, the once-in-a-generation event was not the pandemic itself. It was the massive policy response from governments and central banks that followed it. This medicine, administered to a pandemic-stricken global economy, was so strong that it jolted the economy back to life and gave us a ‘V’ shaped economic recovery. Asset markets, including property, shares and even cryptocurrency, enjoyed stunning rallies as cash injected in financial markets and delivered to households found its way into investments. Investors were emboldened by a profit boom from companies enjoying the economic recovery. Two big questions As we look ahead into 2022, investors must consider two factors.
These two variables will be key to what we see in the financial markets next year.
versus historical profit multiples.
It’s worth noting that there were variations in different countries’ approaches, but by and large the template was the same around the world and so was the outcome – globally high asset prices and globally surging inflation.
US government bonds offer around 1.2 per cent interest for the next five years. With markets expecting inflation to average over 3 per cent in that timeframe, the returns from bonds leave investors going backwards compared to the cost of living.
Around the world, governments’ responses to the pandemic were bigger than anything seen since the Second World War. Cheques were handed out to businesses and households, so that incomes could weather the pandemic storm. These payments are now largely complete, but it’s likely that any further social restrictions will be met with further income support. Even if the pandemic goes away faster than expected, there seems to be little appetite to raise taxes on anyone. Last year’s government spending will not be repeated, but there’s unlikely to be a drag on economies from governments looking to balance budgets. So, households who’ve built a large store of savings needn’t be too concerned about governments asking for it back in taxes. Shock and awe The monetary response from central banks was an exercise in shock and awe. Interest rates were slashed to zero (or lower) globally, and bond market purchases dwarfed anything seen in the global financial crisis (GFC). This benefited economies because we saw a lower cost of borrowing. For investors, low interest rates justified higher valuations on many assets, including property (through lower mortgage costs) and shares (with lower discount rates). In a world where bonds offer paltry yields, investors have increasingly been drawn to shares to get superior returns. Looking ahead, central banks have seen the surge in inflation and are slowly questioning the need for policies to stimulate their economies. This means fewer bond purchases, as well as interest rate hikes over the course of 2022.
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Firstly, how quickly will policymakers withdraw their medicine by raising interest rates or taxes?
It’s unlikely that monetary policy will be restrictive at that point, but it will be a fading tailwind for some time to come.
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Secondly, how quickly will the sideeffects of the medicine, namely a massive inflationary shock, take to wear off?
For any investor, the starting point – current valuations – matter. On that front, share markets look broadly expensive
Bonds are significantly overvalued.
Household spending squeezed The path of inflation is important for two other reasons. Firstly, higher prices will have an impact on our spending because our household budgets are squeezed. Secondly, some companies won’t be able to pass on rising input costs, which will reduce their profit margins. But with bonds unable to offer positive returns after inflation, investors will be forced to buy more shares because at least they give them the opportunity to deliver inflation-beating returns. Not a good combination So where does this all leave us? High valuations and fading tailwinds from policy are not a good combination for future returns. What’s more, the past two years have seen households investing significantly more into share markets as they’ve been adding their savings to funds and direct investments. All these factors lead me to the conclusion that investor returns next year are very likely to be lower than those enjoyed in 2021. However, the range of potential outcomes is particularly wide. We could see inflation subside quickly and policymakers keep interest rates low for longer. A reopening global economy could see economic growth remain well above trend as consumers feel more confident and spend their excess savings. One thing is for certain, there will be surprises along the way. I’d suggest investors focus on building longterm portfolios that can weather whatever storms come along. Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Before making any financial decisions, you may wish to seek financial advice. Please note past performance is not a reliable indicator of future performance. Please read the relevant Milford Product Disclosure Statement as issued by Milford Funds Limited at milfordasset.com before investing.
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EXPERT OPINION | FOREST ENTERPRISES
“Water, which is moisture in the atmosphere, gets exhaled by the tree,” says Hughes.
Let’s Plant a Greener World Investing in forestry is a great way to plan for your financial future while helping the planet, says Brenda Ward. The world is fast realising we need to take drastic action to protect the environment. Power stations, factories, vehicles, and planes are pumping out fossil fuel emissions and upsetting the delicate balance of carbon in the atmosphere. No one knows that better than Forest Enterprises chief executive Bert Hughes. He says the company’s forests have never grown faster or better, feeding on the excess of carbon in the air. It’s an unintended consequence – but it’s not really a good thing, he says. “The more that you look at the science around climate change, the more concerned we ought to be about what we’re emitting,” he says. Trees are a stop-gap strategy until there’s widespread change, he says. Planting trees reduces the amount of carbon in the atmosphere. “Trees take in the carbon dioxide and, using photosynthesis, transform it into the building blocks of the trees. “Growth is driven by the temperature, sunlight – and carbon dioxide.” Forests help in weather events Even while they’re recycling carbon dioxide, forests are also protecting us from the damaging effects of climate change, says Hughes. “The technical term for it is the hydrological cycle. The hydrological cycle in its simplest sense is rain, evaporation, and more rain,” he says. “A tree is really just a pumping mechanism, taking moisture from soil level to the leaves, where trees use it for photosynthesis, then they expire it, in a process called transpiration.
“If there’s a major weather event with heavy rain falls, a significant proportion of it sits on the tree and evaporates off the surface area. “Trees catch way more rainfall and evaporate more rain than pasture or the hard surfaces in urban areas.” At ground level there are benefits, too. Less rainfall in forests reaches ground level and when it does, the soil is more porous than grass, because it’s less compacted, says Hughes. “When water does reach the forest floor, it has to flow through a lot more biological material before it reaches streams, so it mitigates these peak-intensity rainfall events.
Even the waste from forests is a sustainable product. In Scandinavia, a lot of energy comes from forest waste, including home heating logs, says Hughes. Now the crown research institute Scion is working on biorefineries which could make energy directly from plant-based products. As younger people seek investments that are sustainable and socially responsible, forestry is trying to be more accessible to those locked out of the property market, says Hughes. “We’re trying to offer an affordable investment. Forestry syndication allows people to invest in land. “With any investment, there has to be a return. But as well as that, with forestry you’re doing good,” Hughes says.
“You see much less erosion from forest country than you do from pasture,” he says. Bird and insect habitats Hughes says since he started in the industry in the 80s, he’s seen an increasing number of birds in forests. “And pine forests have heavy bark, so you find a lot of insects living in the bark for shelter from foraging animals. “Unlike pastural land, where you have tillage restricting the amount of biodiversity, we tend to plant our crop and then leave it alone.” Part of the forest’s appeal is the ‘understorey’ of generally native trees, where birds spread the seeds. “Now we plant forests with larger native bush margins beside rivers, which gives better filtering for rainfall events and gives us biodiversity. “The New Zealand falcon particularly likes a gap between a forest which has been harvested, and a remaining crop of forestry. It hunts in the gap and nests in the trees.” The forestry industry creates what he calls a ‘mosaic’ of land use, some trees freshly planted, some harvesting and some growing, leading to a ‘richness’ of species. At the end of the forest’s life cycle, you find other benefits for sustainability, says Hughes. “With laminated timber construction, you can now build mid-level high-rises up to 10 or more storeys that are lighter and more earthquake resilient than steel or concrete buildings. “The problem with steel and concrete is the amount of energy it takes to create the product, whereas wood is created under its own energy, so it’s carbon-neutral.”
How to invest in forests You can invest in sustainable forestry from $8,472 and earn projected gross 7.68% IRR.* Now open for applications is Forest Enterprises’ latest investment opportunity, the Pukekōwhai Forest Investment, an 800+ hectare second-rotation forest in the Wairarapa. This is existing forestry with proven productivity. For more info or the Product Disclosure Statement, visit forestenterprises.co.nz or call 0800 746 346. * Minimum initial investment is $8,472 for 200 shares, plus affordable annual instalments; projected gross IRR 7.68% at harvest. The issuer of shares in Pukekōwhai Forest Investment is the manager Forest Enterprises Limited, and the offeror is Forest Enterprises Growth Limited (a related party). Forest Enterprises Limited is licensed under the Financial Markets Conduct Act 2013 to manage Managed Investment Schemes (excluding managed funds) which are primarily invested in forestry assets.
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C E O P R O F I L E | PA R T N E R S L I F E
The Insurance Disruptor Partners Life CEO Naomi Ballantyne’s beliefs about culture and innovation have helped shape the New Zealand insurance industry. She talks to Brenda Ward.
How did you get into the insurance business? I was doing a marine biology degree at university, but I also wanted to get married and I couldn’t afford to do both, so I thought, ‘Oh, I’d better go and get a job.’ I saw one advertised for a management trainee in insurance. ‘Management trainee’ sounded good, so it’s the job I took and that was the start of it. I didn’t even know what insurance was, but I very quickly realised that we paid out money to people when bad things happened to them. Did you climb the ladder? No, I bounced. I’d stay a couple of years and learn what I could learn, then I’d go to another company. It was the only way I could get promoted faster because, in those days, it was very much like the public service. You went up a grade each year on your anniversary and the guy at the top had been there for 50 years. Was it a hard time to be female? Yes, it was really old-school and there was no encouragement for girls in their careers. You had to wait for the guy above you to die before you could get his job. Then, I landed at Sovereign when they were starting it. I was their first employee at 24 and they needed someone to build everything practically from the ground up, other than product and pricing. I’d done enough different kinds of work at different companies that I had the confidence that I could work it out. No one else applied, so they didn’t have a choice! 84
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That was a tremendous opportunity. I didn’t own the company, but I built it, so that experience gave me confidence. You try things and if they don’t work, you change them, or you luck on something and you become the person who invented that for the industry. When I left Sovereign, I didn’t leave knowing that I was going to start another company; I left because a bank had bought it and I could see that they were going to fundamentally change the culture. I’d built that culture, and my people believed that I would protect them, but I couldn’t – I had no influence over the decisions that the bank was making. Then, one of their team sat me down and said, ‘the cost of your units is more expensive than the cost of our units, so you need to change that.’ Cost? Units? She was talking about salaries and people. No. I couldn’t live with that, so I just left with no job to go to and no idea what I was going to do. I just knew that I couldn’t do that. So, what happened next? I looked for a job, but no one would hire me because I was that annoying woman from Sovereign. I figured that since I practically built Sovereign, I knew how to build an insurance company – I just didn’t know where to get the money from. I thought if I could figure that out, I could start my own company and that’s exactly what I did. Which was the first company you founded? It was called Club Life, and I started it in 2001. It became ING Life and then Onepath Life, and then Cigna bought it in the last couple of years and, hot off the press, it has now been bought by Chubb. And then you started Partners Life? Yes, I started Partners Life in 2011. I took it from zero to the second-largest life and health insurance company in New Zealand. You took all those learnings with you? Yes, 100 per cent, plus a whole lot more understanding of the industry. We had a new regulator. So, we had whole lot of stuff we knew how to do, a whole lot of stuff we would have changed if we could’ve done it differently, and then new stuff that no one in the industry knew how to do.
But I also had more confidence that when you had a hurdle, you knew you could get past it if you had smart people around you. The company’s now 10 years old. And growing… We recently acquired the business of BNZ Life Insurance. Once we’ve completed the process, that will add an additional third to our book and make us substantially bigger. Would you call yourself a disruptor? Yes, since Club Life days. The way I’d describe it is we’ve dragged the industry kicking and screaming into the twentyfirst century. We’ve dragged them into consistently doing the right thing by their customer, which is through having good products and competitive pricing, and making sure your philosophies are right. It’s become a very different industry. How would you describe your leadership style? I think you have to do the right thing by people. People are individuals so there’s not one size fits all. And you’ve got to lead by example, from the front. If you want a certain type of culture, you’ve got to behave it, you’ve got to drive it in your executive team and then you’ve got to make sure that it passes down through the organisation. I think I’m demanding in the sense that I’ve got this urgency, that I need to get everything out of my head and all my experience into the hearts and minds of the people who work for me, so, they don’t have to learn it the way I learned it. We’ve got to keep doing and moving, and then we’ve got to keep learning and growing. Why do you think insurance is important for Kiwis? Because you need insurance most when you can’t afford to not have an income. That’s what it is. Life insurance is, basically, protecting your income, replacing what’s lost. You need it most when you’d suffer the most. What we’ve found out from Covid is the minute we went into lockdown, we started to get some customers ringing, asking ‘How are you going to help us?’ We hadn’t even had a month in lockdown, but they literally had nothing to fall back on. Well, if that’s you, then the only answer is insurance. We’re trying to change attitudes.
YO U R I N V E S T I N G
Seven Steps to Wealth Turbocharge your money with these guidelines for investing from financial adviser Andrew Armstrong of Lighthouse Financial.
1.
Take that first step Try getting a ‘gift’ from mum and dad, going in with family or friends, and foregoing KiwiSaver as a deposit to purchase an investment property instead of a home. All these are strategies you can use to speed up the process of getting your first step on the property ladder – and if you’re just starting out, working with a professional can help. That way, you can get the right structuring advice early, to protect your wealth for the future.
2.
Adding value for capital growth Renovating houses is a tried-and-true way of adding value that can then be used as equity for your next purchase. You can reduce the cost of renovations by doing some of the work yourself, or pay the professionals to do it. But whatever your strategy, it is important to consider what you are doing, how much you are spending and the value that it will add.
3.
Find lenders that work for you Taking the leap towards your first investment property can be a straightforward process if you have the equity. But what if you don’t quite have enough equity, or, what if this is your second or third investment property? Working with a mortgage broker to split your lending across more than one bank can mean the difference between an investment property and multiple investment properties.
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www.lighthousefinancial.co.nz
W E A LT H B U I L D E R | L I G H T H O U S E
4.
Go second tier Second-tier lenders can unlock equity in your portfolio that isn’t usable at main banks. Knowing which lenders have the credit policy that suits you best and what properties to shift will unlock equity to allow significant growth across your portfolio.
5.
Climb the complexity ladder Moving a step up from purchasing rental properties, you could try new-build townhouses to subdividing or even to developing a site. It’s important that you have an experienced team who can provide you with advice on the specialist lenders, the type of finance and the specific requirements that the lenders will have for the development.
6.
Go commercial Diversification into commercial property comes with a unique set of challenges but get it right and the cashflow from these investments can outperform residential investment. Using equity in residential property to reduce the reliance on commercial lending can dramatically increase your return on investment (ROI) from commercial investments.
7.
Time in the market Often, we see people who hold off entering the market hoping to time a drop in house prices so they can purchase a ‘better’ property. Our advice is that investment is about time in the market versus timing the market. Most of the time buyers waiting to time the market end up missing out on houses and paying more for a house that they could have bought more cheaply six months ago.
To get help on your journey up the steps to wealth, contact the team at Lighthouse, info@lighthousefinancial.co.nz
YO U R I N V E S T I N G
The Long Game Investing isn’t about instant rewards. You should have a long-term horizon, says Mike Taylor of Pie Funds. He explains why.
So, you want to be a successful share market investor? There are a few key things you should do. The most obvious ones are diversifying your portfolio and doing some research. But I believe taking a long-term approach to your investing is one of the most important. When people invest, they often want instant results. Why? With property, many of us are happy to buy and hold properties for years, even decades, and ride out market highs and lows. Investing in other asset classes should be no different. But taking a long-term approach to your investing can be easier said than done. So, how do you do it? Choose your strategy An ‘investment strategy’ is a plan to help you reach your goals. Everyone’s strategy will be different and based on how long you have before you’ll need the money, your risk tolerance, goals, and financial situation. For most people, investing is for the long term. Sure, there are some people who are traders, which means they buy and sell assets like shares or properties often. But most people will be investing for at least a few years. A financial adviser can help you work out the right investment strategy for you. Once you’ve got a strategy, stick to it. Review it from time to time or when your circumstances change.
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Diversification and risk Investing for the long term helps reduce your risk. That’s because over short periods, markets can go up and down. But over the long term, your investment returns are likely to be positive. After all, that’s why people invest – to make returns. Investing for the long term allows your investments time to recover if the market falls in the short term. Diversifying your portfolio for long-term investment can also help reduce your risk. Setting up your portfolio to cover a range of asset classes, regions and sectors might form part of your strategy. The hope is that, by diversifying, if the market dips, not every investment will fall in value. Some will perform better at different times, and over the long term these returns should average out. ‘Dollar-cost averaging’, which is effectively drip-feeding money regularly into an investment over a long period, also can help reduce your risk. Manage your emotions When you can manage your emotions, longterm investing becomes much easier and much more effective.
investing. We saw this during the large market dip in early 2020 due to Covid-19. Many KiwiSaver investors saw their balances drop significantly, and panicked and changed to more conservative funds, with some locking in large losses. Markets usually recover over the long term, so try to stick to your strategy, and avoid checking your investments too regularly.
It’s not healthy to panic or worry about your investments, and it can make investing stressful.
Do your research How a fund has performed in the past doesn’t guarantee its future performance. But long-term performance can give you some helpful insights when you’re selecting where to invest your money.
For many people, managing their emotions can be one of the hardest things about
There are two ways to research and assess an investment fund before investing:
EXPERT OPINION | PIE FUNDS
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First, look at the investment strategy. You’ll find this in the fund manager’s disclosure documents. The second way is to look at the fund’s long-term track record to check that the person who achieved that track record is still around. If you’re unsure, ask the fund manager.
It’s really no different to sport. Dan Carter had a great track record of kicking goals, but that didn’t mean that he would achieve 100 per cent in every game. A track record is a good guide, especially if it’s consistent over a long period of time. More importantly, a track record can highlight funds or providers that consistently underperform and rank poorly over a long period.
Independent investment research company Morningstar has credible comparison tools that help you compare funds. Other useful comparison tools are Sorted’s Smart Investor tool and the Financial Markets Authority’s KiwiSaver Fund Finder. Investments shouldn’t be something you lose sleep over. Investing for the long-term can help ease the short-term stress, reduce your risk, and help you reach your goals. Tips to stay focused on the long-term Don’t check your investments too regularly.
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Avoid getting caught up in any panic on social media or on news sites.
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Have long-term goals associated with your long-term investment horizon.
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Find ways that work for you to help you stay rational about market dips.
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Reach out to a financial adviser for help and support if you need it.
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Keep reminding yourself of your strategy.
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Life isn’t all about investments and money. Find other things that you can put your energy into as well.
Mike Taylor is the CEO and Founder of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.
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Environment Under Siege Victoria Harris of Devon Funds explains the issues we should be thinking about to make sure our investments are protected against climate change.
ESG INVESTOR | DEVON FUNDS
Climate change is a term that’s sometimes wilfully bashed around – and it’s widely misunderstood. In simple terms, it’s a long-term change to the temperature of the atmosphere which has been accelerated by human activity. Since the start of the 19th century, we’ve released ever-increasing amounts of greenhouse gases into the earth’s atmosphere by burning petrochemicals and by large-scale agriculture, among other things. These emissions mean more heat is being trapped within the atmosphere, and the rising temperature is affecting the world we live in. A warming atmosphere has us worried for two reasons. Firstly, it leads to more extreme and unpredictable weather events. Secondly, it accelerates the melting of glaciers and ice. This leads to rising sea levels, which in turn worsens flooding and erosion during extreme weather events. We can see climate change-driven events becoming more frequent and having a bigger impact on our lives. Think the Australian bushfires in 2020, Hurricane Katrina in 2005, and the Amazon wildfires in 2019, which are just a few examples. These environmental disasters and others like them are a very real risk to many of the local companies within our investment universe and they’ve become a very real concern within our investment process. For this reason, over the past few years, environmental, social and governance – commonly termed ESG – factors have become important within the local and global investing landscape. Given climate change and how conscious investing principles are rapidly being adopted, many companies have seen the light and adopted voluntary ESG reporting, but this varies in its depth, quality, and usefulness. NZ leads the world So, in April this year, New Zealand became the first country in the world to legislate mandatory climate-related disclosures, a step which will come into effect in 2023. These climate disclosures will be in line with the global best practice set out within the Task Force on Climate-Related Financial Disclosures (TCFD) guidelines. Within the NZX50, an index of New
Zealand’s 50 largest share market-listed companies, over half are still non-TCFD compliant, which shows that we still have a long way to go.
the shore, build a new shed, or construct a flood wall or embankment to protect it against king tide floods and rising sea levels.
But some are leading by example. Take Air New Zealand, Fisher & Paykel Healthcare, Spark, and A2 Milk.
Company B: Carbon emissions Take Company B, which has a factory releasing greenhouse gas emissions. We can look at its emissions data to work out how much this business will be hit by changes in the price of carbon credits.
TCFD disclosures will help New Zealand towards our 2050 net-zero emissions target, but they’ve also become an important resource within the investment process. Risk and returns When portfolio managers like me are considering an investment, we have a research process that consists of two core objectives to set a valuation for the company. •
First, we must forecast the cash flows that the business is likely to generate. Will it grow and be profitable?
For those of us in the investment business, taking environmental risks into account in our research process will ultimately lead to better shareholder returns. •
Secondly, we have to understand the risks surrounding those cash flows. What could go wrong that might derail it?
Weighing up these factors gives us an estimate of the intrinsic value of the business. We can then compare this value to the current share price to work out when the investment becomes an attractive opportunity. TCFD disclosures are particularly valuable when we’re evaluating the risks facing future cash flows. However, they’re also very useful when we’re making forecasts about cash flow. Let’s take a couple of examples. Company A: Rising sea levels Let’s take, for example, Company A, which has a building right next to the ocean, only a few metres above sea level. We can estimate how much money will be needed to move the structure away from
Emissions data is categorised into scopes. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain. Management teams that spot these environmental risks and pivot or adapt early will be rewarded because they’re more sustainable companies, so they’ll get a greater share of the investor’s wallet. So, for those of us in the investment business, taking environmental risks into account in our research process will ultimately lead to better shareholder returns. This new law requiring public companies to make TCFD-compliant disclosures is a huge step for New Zealand and it sets an amazing precedent for many other countries. Set some incentives The next step would be for companies to introduce compensation and key performance indicators (KPIs) tied not only to financial targets, but to environmental targets, too. Climate change will continue to be a big factor affecting a company’s operations. Intuitively, we should be measuring their management’s performance on how they deal with this issue. In life, incentives are the ultimate driver of human behaviour. They will naturally lead to management decisions which consider more than merely their bottom line. Not all organisations have the same capacity to move New Zealand towards a greener future as low-emitting tech companies have, but all of us can do a little bit better. Collectively, that makes a large difference. All these steps will help accelerate New Zealand and the world towards a greener future. SUMMER 2021
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C O M PA N Y P R O F I L E | A LT C O I N I G N I T I O N
The Secrets of Crypto When Mark Wong first bought Bitcoin, he made all the classic newbie mistakes. Now he’s a coach and educator helping others avoid the traps, with his business Altcoin Ignition. Mark Wong lost a small fortune in his first foray into Bitcoin. It was devastating, but he says it was an important journey to have travelled.
because you think that’s the way to win back your money.
“Now it gives me an insight into what people need help with, and it was the catalyst that prompted me to learn more.”
Still, Wong realised there was a lot of potential in cryptocurrency. “I decided that, instead of buying more cryptocurrency, I’d buy some education.”
Wong first heard of Bitcoin when it was valued at US$1, but thought it was a geek thing, ‘magic internet money’. In 2017 he heard it had hit US$10,000, researched it, and bought some from a friend. He was also talked into buying some Altcoins (alternative cryptocurrencies).
“Of course, that’s an even bigger trap, because it’s so dangerous.”
He found real experts online and, starting in 2018, he did some online courses on how to trade. “It blew away all the stuff I had previously learned, so I added that to my arsenal.”
He’s created his own course and continues to coach on his platforms on Facebook and in a Discord community. “The community is close to having its first Bitcoin millionaire,” he says. The course takes somebody who already knows how to buy Bitcoin through the basic skills of charting, risk management, and correct position sizing, so you’re not exposing yourself to too much risk. And then he moves on to a set of basic strategies he’s used to become profitable. Not everyone will be as profitable as he has been, he warns. “Half of it is having control over your emotions, which is the most difficult part.”
His investment multiplied by about 40x almost overnight.
Unable to work after injuring himself in his trade as a builder, he spend hours learning and practising.
When the market crashed, he took bad advice from friends and the crypto community.
He shared his trades and soon had a sizeable investment again, and a big online following on Facebook.
“At the time I didn’t know it was bad advice; I thought it was great advice. When it goes low, just buy more – buy the dip.
“People were following my trades and making a lot of money.”
Wong’s happy to give free advice through the Discord community and on his Facebook page.
Last year, he started Altcoin Ignition as an educational platform to help others avoid the mistakes he made, and he’s now is working fulltime on the business.
His course is US$300, but half-price for community members. There’s also a sevenday free trial, through his website, www.altcoinignition.io.
“I’m still invested, and the returns are definitely life changing but, of course, we’re actually recovering from a decent dip and it’s all starting to come back up again. It’s not about becoming an overnight millionaire; although that does happen.”
Readers of Informed Investor can get Wong’s free beginner course, the Crypto Crasher, by going onto his website, www.altcoinignition.io, or by signing up to his newsletters.
“Of course, once you know what you’re doing, you know if it’s a dip or if it’s a crash, but I was an amateur and an amateur doesn’t really know the difference.” He says he fell into every trap waiting for the beginner in currency trading. “It starts with overinvesting, then buying what you think is a dip on bad advice. When you start crashing, you discover leverage trading [borrowing to invest] 92
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One of the first things he teaches newbies is when the market’s choppy, don’t trade it. He knows that from bitter experience.
PROPERTY
If Your House Is Destroyed Is your house insurance enough to rebuild if the worst happens? Vero insurance has a way to make sure you don’t end up with half a house, says Laine Moger. The cost to rebuild your house might be a lot higher today than it was a year ago – and Kiwis’ insurance policies might not be keeping up with the rising costs of construction. When we insure houses, many of us underestimate – or don’t consider – how much money it might take to rebuild our homes, says Sacha Cowlrick, Executive Manager Consumer Insurance for Vero. “Everyone knows how much they can sell their house for, but how many people know how much they can rebuild it for? It should be common knowledge, but it isn’t for a lot of people,” Cowlrick says. This is particularly true of late, with Covid-19 creating supply chain issues and labour shortages that are putting pressure on the building industry. Now more than ever, people should be checking their sum insured. Use a calculator Following the Canterbury earthquakes, most of the insurance industry moved to ‘sum insured’ house insurance policies. Homeowners are now responsible for setting the sum insured – essentially the total amount the insurer will pay if the house is destroyed – on their insurance policies.
customers might not have enough cover. It is contacting customers it finds who may be underinsured to encourage them to check their sum insured.
cover for any other accidental damage, if they have set their sum insured based on an accepted rebuild estimate within the last three years.
“Homeowners are responsible for getting an estimate of how much it would cost to rebuild their house, and using that estimate to set their sum insured,” she says.
It might pay to double-check at least annually, even if you think you’re correctly insured, says Cowlrick.
“It’s relatively easy using a registered valuer or an approved online calculator, and it makes it more likely you’ll have the right cover if the worst should happen.” Kiwis aren’t taking advantage of extra cover Vero’s latest ad campaign is reminding its customers that they could have extra cover available to them, including full replacement cover for damage from a fire – if they are meeting certain conditions, says Cowlrick. To qualify, you need to work out the estimated cost of rebuilding your home using approved calculation methods, like the Cordell Calculator on vero.co.nz, or by using a registered valuer. “If Kiwis are using those tools to set their sum insured, they’re more likely to have the right amount of cover,” she says.
But, says Cowlrick, many people are treating their house insurance as ‘set and forget’.
“And offering the peace of mind of a little bit of extra cover is one way for us to encourage people to take the time and make sure they have the right sum insured.”
Vero has been progressively analysing its portfolio against CoreLogic data and found that at least a quarter of its
Under its policies, qualifying Vero customers are eligible* for 10% extra cover in a natural disaster, or full replacement
Investors, take care Cowlrick says with travel restricted by Covid-19, it seems that New Zealanders have taken to home improvement in a big way. Property investors or DIYers should be especially careful to make sure they have the right amount of insurance cover if they’re improving, upgrading, or adding to a house. “Insurers can access only limited data on the homes we insure, but the people who know those houses the best are the people that own them,” she says. “If you’re making improvements to your house, it’s likely to change how much it would cost to rebuild it so it’s important that you re-check your sum insured at that time, ideally using a registered builder or quantity surveyor,” she says. You can contact your insurer, broker, or adviser to update your sum insured amount at any time. And Cowlrick says if you’re a Vero customer and have a record of a rebuild estimate that is less than three years old, you’ll be eligible for the SumExtra benefit if you need it – just like that. *Terms apply SUMMER 2021
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K I W I S AV E R G U I D E | B O O S T E R
PART ONE: Hello, Investor!
Your Guide to KiwiSaver KiwiSaver is a great way to help you save for your first home or retirement. Here’s a guide to help you use it. WHAT HAPPENS TO MY MONEY?
It’s important to set up your KiwiSaver account so your money is working hard for you. If you’re a KiwiSaver member, you’re already an investor, and it’s a great way to learn about money. In coming issues, we’ll take you through everything you need to know about KiwiSaver and how it works, so you can make the most of your money. Let’s go!
Your KiwiSaver account is an investment account, which is like a basket containing lots of investments. Your money might be invested in tiny parts of buildings, companies, services, councils, governments or utilities, like power companies. Some of it might be in a bank. You and your employer put money into your KiwiSaver account each pay day and your scheme provider invests it into the fund you’ve chosen. Because your money’s invested in things that move up and down in price every day, the value of your KiwiSaver account will also rise and fall, more or less depending on your fund choice. But investing this way should gradually grow your wealth over time.
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WHAT IS KIWISAVER? In New Zealand, once you turn 65 you're entitled to NZ Super. But it usually isn’t quite enough. So the government set up KiwiSaver in 2007 to help us save for our retirement. Even though the government set it up, it doesn’t manage KiwiSaver and it never has your money. Instead, your KiwiSaver account is managed by a KiwiSaver scheme provider, sometimes a bank, and sometimes a licensed fund manager. 94
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A KiwiSaver account isn’t like a bank account. Your money is pooled with lots of other people’s money in a ‘fund’ and your provider invests it across a wide range of ‘assets’ such as shares, bonds and property, here and overseas. Your money is held in trust and overseen by an independent, licensed supervisor, so if anything happens to a provider, your money is not affected.
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WHICH KIWISAVER PROVIDER? When you first join KiwiSaver, if you don’t choose a provider or if your company does not have a relationship with one, you’ll be given one. There are six of these ‘default’ providers chosen by the government. The Inland Revenue Department randomly puts you with a default provider. A default fund is meant to be a short-term holding fund to help you get started with KiwiSaver. This might not be the best fund for you to stay in long term.
Booster is Kiwi-owned and operated. We’ve been looking after New Zealandersʼ money for over 20 years.
DOLLAR-COST AVERAGING The money that goes into your KiwiSaver account every pay day is invested whether it’s a good day for investments or not such a good day. This is a good thing and it’s called dollarcost averaging. Sometimes your fund’s units will be worth more and sometimes less. It’s like buying them cheaply on sale one time and then having them cost you a bit more the next. The same dollar amount automatically buys you more units when their prices are lower (and fewer when prices are higher). Lots of little purchases also means you’re less likely to accidentally buy a whole lot at a high price or sell a whole lot at the bottom of the investment cycle. If you contribute regularly, this means you’re not buying all of your units at the highest price. Get your money moving It’s easier than you think. There are four ways to grow your KiwiSaver account.
1. Your own money: Once you’ve joined KiwiSaver, choose a fund or funds to invest your money in and your employer will start paying it in for you from your wages or salary. You can contribute 3% 4%, 6%, 8% or 10% of your pay. Or put in lump sums if you’re self-employed or just keen. 2. Your employer: If you’re in paid work and between 18 and 65, your employer will usually put in at least 3%. 3. The government: Contribute enough each year and the government chips in too! The government contribution is $521.43 a year. To get it all, you must put at least $1042.86 into your KiwiSaver account each year. If you put in less, you’ll only get part of it. 4. Returns: Your investments make money for you too. Your KiwiSaver provider calculates your balance and you can watch it grow.
Booster KiwiSaver Scheme members can get personalised advice for their KiwiSaver and retirement goals and may be eligible for free accidental death cover. That means that should the worst happen, your estate can get up to $50,000 (Tʼs & Cʼs apply). We offer free online budgeting and planning tools, an extensive network of financial advisers and a real-time, Wellington based customer services team to help you make sense of your money.
Join the Booster KiwiSaver Scheme now. www.booster.co.nz
Booster Investment Management Limited is the manager and issuer of the Booster KiwiSaver Scheme (Scheme). The Scheme’s are at SUMM E R 2 0 2Product 1 | I NDisclosure F O R M E DStatements INVESTO R available 95 www.booster.co.nz
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WHICH FUND? This is one of the most important decisions you’ll make for your KiwiSaver account. If you get it wrong, it could cost you hundreds of thousands of dollars by retirement. The usual fund profiles are Conservative, Balanced and Growth. All three balances should grow but Growth funds generally increase the most over longer time periods. Any or all of these factors might apply to you. Conservative You are a really nervous investor.
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You’ll need your money really soon to buy a house and can’t afford a big drop.
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You’re more interested in conserving your current balance.
Balanced • You’re prepared to see your balance go down a little and not panic. •
You have 3 to 5 years before you need your money.
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You want steady growth, and you’re aware it won’t be spectacular.
Growth • You’re confident or understand the risks of investing.
Conservative
Growth WHEN CAN I GET MY MONEY? KiwiSaver is a long term investment that gets bigger the longer you have it. Normally you can’t touch it until you retire at 65. You may withdraw some of it earlier to buy your first house, because retirement is likely to be cheaper if you own your home. You can also use it as an investment vehicle during your retirement. If you’re really struggling, you can take out some or all of your money earlier, including if you have a serious illness, or are under significant financial hardship. 96
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Balanced
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You’re young and have many years to recover if your balance drops.
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You won’t need your money until you retire.
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You want to get the most from your investment over the long term and are prepared to see your balance take a hit every now and then.
There are also funds for the risk-averse, like Defensive, and the more adventurous, like Aggressive.
Bad surprise.
INTEREST RATES CONTINUE TO RISE. Good Surprise.
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REGULARS
Book Reviews Reviewed by Sarah Ell
Get Started Investing Alec Renehan and Bryce Leske Allen & Unwin, $36.99
Many Kiwis over the age of 50 have a deep-seated fear of investing in the stock market. Memories of the crash of 1987, though now more than 30 years ago, terrified a generation. But there are plenty of younger potential investors who are looking for a way in to what can seem like a daunting field. Australians Alec Renehan and Bryce Leske produce Equity Mates, a popular finance podcast aimed at millennials. They’ve applied the podcast’s friendly, accessible approach to investing and other money matters to this book, subtitled simply ‘It’s easier than you think to invest in shares’. It’s a comprehensive guide to starting your investment journey, with the first few parts being dedicated to sorting out your financial life and adopting an investor mindset. It then goes into more detail about how the stock market works, buying and selling shares, brokerage, and expanding your portfolio. You’ll find breakouts to explain any jargon – though the authors try to keep the language as simple as possible – listener questions and comments from the Equity Mates community, and advice from experts. Some of the information is Australia-specific, but the authors take a global approach. There’s an interesting discussion on avoiding home-country bias and looking further afield for investment opportunities. This book will appeal to younger investors starting out, and has plenty of good information for anyone considering taking the plunge into the market.
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Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life William Green Profile Books, $32.99
They say money can’t buy happiness, but it can certainly make life more comfortable. In this interesting and insightful book, financial journalist William Green draws together valuable lessons gleaned from his hundreds of interviews with investors and businesspeople around the world. We can learn the money-making secrets of these giants of investing – but also how their philosophies on decisionmaking, change, risk and resilience can be applied more broadly to our everyday lives. This book analyses how world-famous investors such as Warren Buffett and Charlie Munger, and less-familiar names such as Nick Sleep and Qais Zakaria, have built their fortunes. But, as well as the practical strategies, Green also looks at the psychology of these superinvestors, and shares how their approach to life as well as money has helped their success. Green frequently quotes from interviews and encounters he’s had with investment leaders, shedding light on their private as well as public lives. The final chapter, in particular, addresses the question of money versus happiness. Green looks at how many of these investors are rich not just in a material sense, but how they have striven to live an abundant and meaningful life, often through ‘giving back’ or helping others. This is not just a book about money and you’ll find yourself definitely wiser as well as, hopefully, along the way to becoming richer.
How’s your Money Mojo? Making good financial decisions as a teenager is the first step towards owning a home as an adult. Do our quiz and see if you know how to make your money work for you. 1.
2. Your friends all have the latest phone and you want one too. What’s the best way to get it? A.) Buy it with Afterpay B.) Put it on your Mum’s credit card C.) Save up and buy it
What type of loan charges the most interest? A.) Credit card B.) Store credit card C.) Debit card D.) Bank loan E.) Slow payment schemes like hire purchase
3. You just got a part-time job at a bakery and your employer is suggesting you start a KiwiSaver account. Why should you? A.) Each pay day your employer will put money in to your KiwiSaver account B.) Once you turn 18, the government may also put money into your KiwiSaver C.) You earn compound interest, that over a long time really grows your savings – turbocharged savings! D.) After three years, you can withdraw from the account toward buying your first home E.) The earlier you start, the more money you’ll have saved
Answers: 1. Answer: C.) Deferred payment schemes such as Afterpay might allow you to get what you want quicker, but if you miss a payment you’ll end up paying more. The interest payments on a credit card are even higher, so if you can’t afford to pay the full amount, it’s better to wait and save up. 2. Answer: A.) and B.) Credit card interest is usually around 20%, but can be as high as 26%. Store cards vary so it’s worth checking before you sign up. 3. Answer: All of these are correct! It’s a really effective way of getting into the habit of saving.
Life Education provide the SMART$ programme in secondary schools. SMART$ is a theatre-in-education programme designed to provoke thinking and conversation about the everyday financial decisions impacting young people. Thanks to support from the Reserve Bank of New Zealand, Booster and PMG Charitable Trust, the programme is free of charge to schools and students.
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Visit your local Resene ColorShop for more colour ideas and inspiration.
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YO U R I N V E S T I N G
Nailing a great first impression from the kerb means dressing your property to impress.
Get That Magic Street Appeal Boost your house’s value and enhance its rental appeal by giving it an exterior facelift. Ilse Wolfe Director of Opes Accelerate, has tips for every budget.
1. On a shoestring Give the façade a house wash First things first. The façade is the ‘face’ of a property. So, a wellmaintained appearance works in the same way as your face does at a job interview. A house wash has an immediate impact. Once scrubbed, the paint appears fresh and the spouting brand-new white, primed for photography. A professional house wash for a 100-square-metre house will cost NZ$500 to NZ$800. But if you’re tight for cash, pull out the hose and brush yourself. It’s a good idea to repaint the front door, too. If you have spare paint on hand, great, if not, buy a small pail for NZ$50. Fence and letterbox Take the house wash one step further by water blasting other surfaces, like concrete footpaths, trims, fences, and the letterbox. Scrub up all hard surfaces, especially on the southern boundary. This side tends to get less sun and is more likely to get green or slippery. This step uses your own elbow grease for zero cost, but makes a big impression when people arrive. Garden and lawns Having a tidy garden goes without saying. A freshly cut lawn and a weeded, pruned garden give a property a fresh, clean appearance, at no cost if you do it yourself. To get full points for the overall impression, include the street berm! A great tip for small gardens is to turn over a few bags of mulch, which gives the illusion of it being freshly worked on. Cut back any shrubs limiting light into the house. This will instantly brighten the interior. Plant a pair of feature trees (called a ‘standard’) to create symmetry and a premium touch when people enter to the front yard. This will cost about NZ$200 per standard tree. 102
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Most investors will spend renovation dollars on the inside of a property, but first you’ve got to entice in tenants or buyers. We call this street appeal. If you’re looking to sell, or you’re sprucing up a rental using the BRRRR strategy (Buy, Renovate, Rent, Refinance, Repeat), here’s how to give your property the ultimate competitive edge in an already hot market.
PROPERTY
2. Mid-range budget House façade and exterior paint Fresh paint in keeping with your existing colour palette gives you an instant value boost but without the full price tag. One topcoat, along with a tidy-up of any obvious wear, will reduce the perceived cost of maintenance. This is something a potential buyer will factor into their offer. A professional touch-up costs around NZ$4000 or, if you do it yourself, NZ$500 for paint and brushes. Don’t forget to replace the dented or rusty letterbox and take note of the garage door’s condition. If it’s scratched or mouldy, consider a topcoat of paint, oil, or stain to make it look brand-new again. Garden and lawns Find a gardener via Builder’s Crack or on a student job search website. Usually, NZ$300 to NZ$400 a day is the going rate for weeding, pruning and a general tidy, plus disposal of any waste. Install or update outdoor light fittings Install appropriate feature lighting for entertainment areas or put LED downlights into the soffits to light a side path. Accent lighting creates an impressive ambience and will turn a nondescript back deck into a destination when you host guests. You’ll be looking at anywhere from N$50 to NZ$200 per fixture, plus an electrician’s labour at NZ$80 plus GST an hour. Complete the look with outdoor furniture. Create a seating area If you’re selling, enlist the help of a home stager to rent you outdoor furniture at a fraction of the cost of buying it. This will evoke emotion, where a potential buyer or tenant begins visually fitting their own furniture into the spaces. Staging costs NZ$1000-NZ$4000 for up to four-week rental.
3. Extravagant Full house repaint A professional repaint has two benefits. •
A fresh seal of paint will protect the house from the seasonal elements.
It adds substantial perceived value because a new paint job will last for up to 10 years. Choose a colour palette in keeping with neighbourhood taste. You don’t want to risk alienating some potential buyers or tenants with an outrageous colour. •
Allow for NZ$7000 to NZ$15,000 for a professional paint job, including scaffolding, which is a legal health and safety requirement. However, after the house is freshly painted, prepare to start noticing lesser maintained features which suddenly appear more jaded. This is called the ‘Diderot Effect’. So, set aside NZ$5000 to NZ$10,000 in the budget for supporting maintenance, depending on what may stand out. Replace or re-oil cladding If your house has timber cladding, over the years it will have faded and weathered. Consider a reclad of the worn materials. Or a more cost-effective option would be to re-oil or re-stain the timber. Landscape architect A professional will deliver the maximum manicured effect and give balance to the overall streetscape. If you want to make a splash, employ a landscape architect to plan a flowering rotation through the seasons. If you’re building, keep aside a NZ$50,000 to NZ$100,000 budget for landscaping, including plants. This will pay itself back on valuation day. Water feature or a centrepiece If there’s no constraint to your budget, a floating overbridge or a centrepiece water feature adds allure to an entrance. A bespoke outdoor lighting plan by a qualified electrician will transform the house after dark, too. SUMMER 2021
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AMA ZING PLACES
New Year, New You Desperate to escape and recharge? Want to lose weight and live a healthy life? Stressed and heading for burnout? It could be time to change your life, says Brenda Ward.
When people arrive at Resolution Retreats, they’re there to make changes, says founder Joelene Ranby. And she loves their commitment and courage. “It’s an incredible mindset to have when you arrive, and we’re really able to help people fill their cup, because they genuinely want help and are ready to receive it.” Near the shores of Lake Karapiro in the Waikato you’ll find Resolution Retreats’ multimillion-dollar facility offering accommodation, workshops, exercise facilities, personal trainers – and even a spa offering massages and beauty treatments. A corporate accountant by trade, Ranby says she started with her own health and weightloss journey. That inspired her to help others, so she started Resolution Retreats as a passion project on the side. After starting with a couple of retreats a year at a lodge in Tauranga, she says she found a huge untapped market of Kiwis who needed support on their own health and wellness journeys. “The original concept was around a women’s health retreat, a health and wellness retreat specialising in weight loss, because that’s where my biggest health journey had been.” She took on fulltime staff and then moved the operation to the Karapiro site with its chaletlike villas and minimal exercise and yoga zones. Retreats last from three days to three weeks and start at NZ$330 a day. About half of the guests still list weight loss as one of their goals, says Ranby.
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LIFESTYLE
and rest,” says Ranby. “Rest, rejuvenation and de-stressing are certainly some of the key reasons that people come.” In late 2020, the team realised they were seeing many guests coming to Resolution Retreats who were at, or close to, burnout. “We wanted to help people at the top of the cliff rather than at the bottom. And so, we came up with a new concept called Resilience Retreats.” It’s focused on personal and professional self-care, reducing stress, and improving productivity, communication, and sleep. It’s popular with companies for team building, and individuals. “What we’ve found is that Kiwis tend to wait until they’re on their knees before they ask for help, which is sad,” says Ranby.
‘We’ve been seeing people now at the retreat that we probably should have been seeing six or eight months ago. They’re just really worn out.’ – Joelene Ranby
“But many more come for many reasons – to learn about health and nutrition, to be fitter, needing healthy inspiration in the kitchen, needing to sleep better, cope with stress, or just wanting to take time out from punishing schedules, kids, and the pressures of everyday life.” At the retreat, they can press the re-set button on their lives, going home with more energy and healthy habits to help them cope better. A typical day on a Resolution Retreat would be: Wake • Movement in the morning with a group fitness trainer • Breakfast • Health workshops: Topics such as nutrition, hormones, gut health, or mental health. • Lunch • Bliss time: Time out, a trip to the spa, or a yoga class. • Cooking demonstration • Dinner • DVD or free time. • Bedtime at 9pm It’s a really good balance between activity •
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“We’ve found that if people felt like they were doing something for themselves and it would benefit their work, they were much more likely to invest in themselves.” She says sometimes people find solutions to problems they didn’t realise they had. Someone might come for a weight-loss goal and leave realising they hadn’t been getting enough sleep or enough time for themselves. The Covid lockdowns will drive many Kiwis to seek help, says Ranby. The retreat saw a surge in 2020. “We saw a lot of people at the end of January suddenly realising that this year was probably going to be another repeat of 2020 and saying: ‘I really think I need some help’. “We’ve been seeing people now at the retreat that we probably should have been seeing six or eight months ago. They’re just really worn out.” Ranby’s final thoughts can be found on her website. “It’s time to put some effort into you … not just the kids, the partner, the housework or the job. “It’s time to love you. You’ve only got one life, one chance to look and feel the way you’ve always wanted to. Do it now!”
ABC spells success for your team… and ours. ABC Business Sales broker Linda Harley has just become the first woman business broker to win the coveted REINZ Sales Person of the Year award. We couldn’t be prouder of Linda’s achievements as an ABC Business broker for 15 years, specialising in the sale of childcare businesses.
Linda Harley ABC Business Partner - Tauranga
From beginning her working life as a horticulturist, she’s now really enjoying the fruits of her chosen career, and helping more people into a rewarding business lifestyle along the way.
We’ve been connecting people to business opportunities for 35 years. ABC Business Sales brokers have unparalleled knowledge across a wide range of business categories and understand the dynamics that make a business successful. This enables us to uncover potential, recognise true value and give you the best advice possible. What inspires you? Turn it into your new career.
If you’re thinking of buying or selling a business, call one of our business brokers for a chat in confidence now on 0800 180 122.
LIC REAA 2008
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Drive goes to all four wheels, when needed, via VW’s 4MOTION system.
Get Away From It All Volkswagen’s new Grand California camper will take you in comfort to out-of-the-way places where other campers fear to tread, says Alastair Sloane. If ever there was a perfect time to launch a new range of campervans – this is it, says Kevin Richards, the manager of the commercial arm of Volkswagen New Zealand. Why? Because New Zealanders are being encouraged to shake off the cobwebs of Covid-19 confinement and hit the road to help the economy get going again. And, says Richards, what better way to do so than in another spiritual successor to the most famous freewheelin’ camper of all, the original VW Kombi. This new one is the Grand California, bigger everywhere and with more of everything than the California camper, which has been available in New Zealand for some time. There are two Grand California variants, the 600 and 680. The 600 is 6 metres long; the 680 is 6.8m. Both are based on the Crafter platform and imported fully built up from the Volkswagen commercial plant in Wrzesnia, Poland. Richards and his team have landed 15 of each in the first shipment. “We are aiming them almost exclusively at the private market,” he says. “But we will talk to commercial tour operators if they are interested.” Both models are powered by a 2.0-litre fourcylinder turbo-diesel generating 130kW/410Nm and mated to an eight-speed automatic transmission.
“We hit the nail on the head with 4MOTION,” says Richards. “It will enable Kiwis to get to those outof-the-way places that might be inaccessible in twowheel-drive campers.” The length isn’t the only difference. The 600 might be shorter but it is slightly taller, allowing for a touch more interior headroom. It also sleeps four – mum and dad in a (195cm x 140cm) double bed and two (children) in an over-cab pull-out bed. The 680 (above) is an adults-only model, with a 200cm x 170cm double bed. Elsewhere, the layout is pretty much identical. Driver and passenger seats up front swivel to face a two-seat dinette with table. The kitchenette offers a two-burner cooktop, sink, worktop, fridge with freezer. There’s storage everywhere. Amidships is the ‘wet room’ – an all-in-one shower and toilet with basin, vanity mirror, and overhead ventilation. Fresh water is drawn from a 110-litre (24gal) tank that drains into a 90-litre (19.7gal) waste tank. There’s a second battery, 12-volt outlets, gas heating, hot water cylinder, solar panels on the roof, table and chairs for outside under the awning … pretty much Uncle Tom Cobbley and all for life on the road. Safety equipment includes cross wind assist, an electronic aid that serves to stabilise the vehicle on the move when it is being buffeted by gusts. The Grand California comes with a five-year, 150,000km warranty. The 600 is priced at $159,000, the 680 at $163,000. Alastair Sloane is the managing editor of Automotive News and a former editor of the NZ Herald’s motoring section. www.motoringnews.co.nz SUMMER 2021
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Summer Style
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1. Philippe Model sneakers - www.thisisfabric.com, 2. White cotton pique polo shirt - Crane-brothers.com, 3. Slate blue summer chino - Crane-brothers.com, 4. Nicolson shorts - www.rmwilliams.com.au/nz, 5. Sneakers - www.allbirds.co.nz, 6. Mykita Santiago sunglasses - www.mykita.com/en, 7. Bennett Winch black weekender - www.crane-brothers.com, 8. White broken twill five-pocket pants - www.crane-brothers.com. 110
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1. Camilla and Marc Pryma maxi-dress in Rust - www.nz.camillaandmarc.com, 2. Greta cardigan in Cyan - www.nz.kowtowclothing.com, 3. Alpes sunglasses - www.moscot.com, 4. Rush tote mini natural - deadlyponies.com/nz, 5. Moochi Divisional skirt - www.moochi.co.nz, 6. Parasol hat in greige denim - www.nz.kowtowclothing.com, 7. Camilla and Marc Twister Sandal - www.nz.camillaandmarc.com, 8. Ahlem Arcadie sunglasses in gold - www.ahlemeyewear.com, 9. Explorer shorts in Dune - www.nz.kowtowclothing.com. SUMMER 2021
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Going Down
Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we’re going as a nation.
The economy remains vibrant. The unemployment rate has fallen back to pre-Covid levels and is at 4 per cent, a level I consider below maximum sustainable employment.
Oh, the OCR! The Reserve Bank has lifted the Official Cash Rate (OCR) and has warned there’s more to come in 2022. The good times were simply too good, and demand across the country exceeds supply, putting pressure on inflation. The first port of call is returning the OCR to neutral, which is where the Reserve Bank neither has the foot on the accelerator nor the brake. That would be around 2 per cent. That’s 175 basis points above the OCR trough of 0.25 per cent. What does this mean for you? That will likely take a one-year fixed mortgage rate well above 4 per cent. They have already moved in that direction.
Going Up Inflationary pressures are on the up. Inflation undershot expectations for a long time, staying below 2 per cent, but it’s now risen to 4.9 per cent, driven by factors like petrol prices, but also by an underlying persistent element, which is what you get with a hot economy. The Reserve Bank’s mandate is to see the highest sustainable employment, and 2 per cent inflation in the medium term. It’s overachieved (a good thing) but now it risks missing its targets if it doesn’t cool the economy down. It’s moving down from partypopper to party-pooper.
Alphabet soup What will be the shape of the recovery when we eventually emerge from lockdown? In 2020, that pent-up demand and policy stimulus drove a sharp uplift and a V-shaped bounce. That was then, this is now. Eliminating Covid was never going to work. Now the hard yakka starts, working out how to deal with it. Higher vaccine rates are critical, but people will behave differently in an environment where Covid is endemic. The bounce this time around is likely to be far more muted and look like a U. The Reserve Bank says: “There will be longer term implications for economic activity both domestically and internationally from the pandemic…. with pressure on demand and supply.” 112
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MARKET INSIGHTS
\ 6.4 %
Bumpy road ahead The International Monetary Fund (IMF) says the global economy is entering a phase of inflationary risk and has called on central banks to be “very, very vigilant”. We could see many other central banks increasing interest rates soon, too. There are some warning signs within China’s property sector – and energy prices are climbing.
The Reserve Bank has called house prices “unsustainable”. Crazy prices are testing both the limits of economic valuation and society’s patience. Economic circumstances have changed. Interest rates are moving up. Housing supply is rising rapidly, with a record number of
building consents issued in the past year. Tax settings have shifted, and there are tighter bank lending rules. But the housing market is yet to get the memo, with Real Estate Institute of New Zealand figures for September reporting a 2 per cent monthly rise in house prices and 6.4 per cent in the past quarter.
Stags, slugs and grumps
Home loans will cost you more
The International Monetary Fund recently trimmed its global growth forecasts and raised its inflation projections.
Households have benefited from lower interest rates, which has put them in a strong position with a low debt-servicing burden overall.
Some people are using the phrase ‘stagflation’, or economic stagnation because supply issues hold back the global economy with rising costs. That looks a step to far. I prefer the phrase ‘slugflation’.
But interest rates are going up. A modest rise in interest rates – a return to neutral levels – is likely to see household’s overall debt payments as a share of your income rise from 5.9 per cent to more than 8 per cent of income.
Slugflation is my word for firms being slugged with economic challenges, including supply-chain issues, Covid, government policy, rising costs and inflation.
A 300-percentage point rise in interest rates suggests a debt servicing ratio of more than 10 per cent.
It will be followed by ‘grumpflation’ as the inflationary thief dilutes your buying power, if wages struggle to keep pace with living costs – including rents, which are rising sharply.
The average since 1999 has been 9.4 per cent. A lot of households have no debt, though, so these figures mask the hit on households with debt. With mortgage rates possibly doubling, some highly mortgaged households are likely to be vulnerable.
While Bagrie Economics uses all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Bagrie Economics shall not be liable for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage. Data and information have been gathered from sources Bagrie Economics believes to be reliable. The content does not constitute advice. SUMMER 2021
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Correct as at 20 October 2021.
Didn’t you get the memo?
Snapshot We take a look at some of the events around the world affecting the global economy. From the Americas, through Europe, and then Asia, find out the latest from around the globe this quarter.
United States The US is short of 80,000 truck drivers, which has made it hard to get products from ports to shop shelves and is driving up prices for a wide variety of products.
Sudan The World Bank has suspended its aid to Sudan and the US has frozen US$700 million in aid, after the military there staged a coup against the civilian government.
Ecuador President Guillermo Lasso has declared a state of emergency to combat a crime wave driven by drug-trafficking gangs and is pushing a bill allowing the air force to shoot down unauthorised aircraft.
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Brazil Brazilian senators have voted to recommend charging President Jair Bolsonaro over his handling of the Covid-19 pandemic. The president has maintained he is “guilty of absolutely nothing”.
MARKET INSIGHTS
Lebanon A political dispute over a probe into Beirut’s August 2020 port blast saw protests turn into street battles, killing several people. At least six people have been killed and 30 injured.
Japan The Japanese government plans a 30 trillion yen stimulus package to ease the fallout on the economy from Covid-19. It will include 100,000 yen in cash for children aged 18 or under, and a travel subsidy.
China The Australian federal government is spending A$1.5 million to study the potential of a hydrogen hub at the port of Newcastle as part of a transition into cleaner energy and to cut emissions.
China has been hit by the worst energy crisis in decades, due to coal shortages. The arrival of winter is expected to add to the pressure on supplies, says the State Grid Corporation.
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Correct at 9 November 2021.
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The What, the How, and the Why After watching shares slide sideways, are a Santa rally and a sugar rush around the corner for Kiwis? Greg Smith analyses the quarter in the markets and finds reasons to be cheerful.
Kiwi investors can look back on the September quarter with some fondness, after the NZX50 index rose 4.9 per cent. This compares favourably with many global indices which gained less than 0.5 per cent, including the S&P500 in the US, and the ASX200 across the Tasman. We saw this outperformance despite the arrival of the Delta variant in mid-August. Investors took the renewed ‘stay-at-home’ orders in their stride, thinking “we’ve been here before”, and expecting the economy to be resilient and bounce back strongly on the other side of the lockdowns. We’re more positive Positive economic data supported this feeling.
This positivity about the economy was seen across the corporate sector as companies started to report their annual earnings during August. Earnings growth was generally robust. Strong pent-up demand and digitally driven growth were among the main themes, along with supply chain challenges and price inflation. Even companies affected by border closures were optimistic about the light at the end of the tunnel, as vaccination rates started to climb. The winners One of the big winners from the pandemic, transport and logistics company Mainfreight, was the top performer, surging around 27 per cent for the quarter.
The Chinese economy was in the spotlight as property developer Evergrande teetered on the brink of failing. At the other end of the scale, there were rising inflationary pressures as the global economy rebounded. This thrust the spotlight on when the US Federal Reserve, and other central banks, would start to remove stimulus. After a Delta-induced delay, in October our own Reserve Bank of New Zealand raised the official cash rate (OCR) for the first time in seven years. It decided it was time to deliver its own ‘vaccine’ against inflationary pressures, which have been mounting.
Fuel supplier Z Energy wasn’t far behind, rising 25 per cent, following a takeover bid by Aussie fuel company Ampol.
This rise was confirmed by a ‘hot’ read on annual price inflation. The cost of goods and services went up 4.9 per cent in the September quarter, the biggest jump since 2011.
Ultra-low interest rates helped propel house prices further, making homeowners and many consumers feel wealthier.
Globally, mergers and acquisitions activity (M&A) was up through the quarter, continuing a trend we’ve been seeing in 2021.
Our central bank was one of the first in the world (beaten only by Norway) to raise rates and this, along with the prospect of ongoing rate hikes, lifted the Kiwi dollar.
Closed borders (including the trans-Tasman bubble) meant Kiwis boosted their savings through the quarter – and spending generally.
The local market did well, despite a number of potential offshore headwinds that could have upset the applecart.
But this also arguably contributed to our stock market trading in a ‘sideways’ fashion through the start of the final quarter.
The June quarter gross domestic product (GDP) showed the economy growing at a better than expected 2.8 per cent, while the unemployment rate dropped to 4 per cent.
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Meanwhile the US indices were hitting regular record highs, driven by strong US corporate earnings reports.
Sugar rush? We could well see a consumer ‘sugar rush’ again as the country emerges from lockdown.
What about this quarter? The NZX50 has, in fact, struggled to get back to the pre-pandemic highs of January last year. But could it finish 2021 with a spring in its step?
This will be important for retailers as we enter the critical Christmas trading period. Any trading updates in the weeks ahead will be closely scrutinised.
There are reasonable foundations to believe it will, and not just because historically the later part of December is usually strong. The concept of a ‘Santa rally’ in the markets is based on the view that investors are typically in a cheerful mood this time of year. The extended lockdown in Auckland and periodic restrictions in other regions have come at a time when much of the rest of the world has been pressing ahead over reopening plans. But a rising vaccination rate and a pivot away from elimination has New Zealand on the same path. This, along with financial support for those affected, has helped make sure that levels of business activity and investment have stayed robust, even when confidence has waned slightly.
The third quarter GDP numbers will show us the toll the lockdowns have taken on the economy, and it will not be pretty – a contraction of around 5 per cent is forecast. Being forward-looking, the stock market will however be more focused ahead, on ‘sighters’ (such as confidence indicators) around the potential rebound, and as largescale lockdowns become a thing of the past. News around the wider reopening of our borders will be important, because it will finally give some respite to the beleaguered travel and tourism sector. This will be welcome, giving a further boost to economic sentiment following the landmark trade deal with the UK. Watch those interest rates It’s worth keeping an eye on interest rates, and not just if you have a mortgage.
other central banks bring forward their tightening plans. A lift in global long-term bond rates can often cause the market to wobble, but equally see a tilt away from high-priced growth names to companies with strong value propositions. This could be good for many of the companies within the NZX50. Greg Smith is the Head of Retail at Devon Funds Management www.devonfunds.co.nz
Definitions: Gross domestic product (GDP): GDP is a measure of a country’s market value. It covers all goods and services produced within a timeframe and can be used to compare nations. Official Cash Rate (OCR): The OCR is a tool used to influence the price of borrowing money in New Zealand. It gives the Reserve Bank a way of shaping New Zealand’s level of economic activity and inflation.
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The Double Whammy The UK is struggling to recover from two huge shocks – the pandemic and Brexit. Europe correspondent Andrew Kenningham reports on the economic outlook.
There’s been mixed news on the UK economy recently. On the plus side, the pandemic has receded. The number of new coronavirus cases has been running at quite high levels but most of them are among schoolchildren, who have few symptoms. Both the intensive care admissions and fatality rates are low. Most adults are now vaccinated, and a booster programme is being rolled out so, for now at least, it looks as if the worst is behind us. A vaccine-driven rebound As public health measures have been lifted, the economy has bounced back. Restaurants and nightclubs are full and the number of people going to cinemas finally reached its pre-pandemic level in October – although largely because of the fantastic new Bond movie. The strength of the recovery has given the finance minister, Rishi Sunak, more money to play with in the latest annual budget. However, there’s also been some bad news. The growth rate inevitably slowed as activity got closer to normal, but the slowdown has been more abrupt than many expected. Businesses have been hit by three distinct problems.
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A trio of problems The first is a shortage of components, notably of electronic goods, which has made life difficult for manufacturing companies. In particular, the semiconductor chip shortage has forced some auto firms to temporarily close their production lines. Second, the price of gas has shot up because of unusual weather patterns, surging demand and the reluctance of Russia to increase the supply of gas to Europe. This has forced electricity companies to jack up their prices and led to a wave of bankruptcies among small energy companies and in sectors such as fertiliser production. And third, some companies are struggling to find staff. The most high-profile cases are the shortages of truck drivers, agricultural workers, meatpackers, and care workers. Many countries are experiencing labour shortages as they come out of the pandemic because some people have reconsidered their priorities during lockdowns and decided not to return to work or are still anxious about doing so. In the UK, these problems have been exacerbated by Brexit. Brexit, schmexit European Union citizens are permitted 120
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to cross national borders without any paperwork so, until recently, people could be attracted to work in the UK from all over the continent. But when Brexit was finalised at the beginning of 2021, things became harder. Workers who had returned to their home countries during the pandemic found it harder to return, and some were just reluctant to do so. This is having all sorts of knock-on effects. For example, a shortfall in the number of truck drivers led to temporary petrol shortages which caused long queues (and some fights) at garages. The exodus of abattoir workers has raised concerns that families will not get their traditional British turkeys for Christmas. And many restaurants are struggling to find chefs and waiting staff. The combination of these three supply problems and strong demand has contributed to a big increase in inflation. In fact, the Bank of England’s chief economist recently said inflation would reach 5 per cent next year, which would be its highest rate for a decade. Back to the 1970s? There is much talk of “stagflation” – the cocktail of inflation and stagnation that is associated with the 1970s – and this has
spawned many amusing articles about flared trousers, big collars, and disco music. For now, it looks unlikely that inflation will get as high as it was in the 1970s – when it peaked at well over 20 per cent, but the UK is heading for a period of “stagflation-lite” where inflation is uncomfortably high and economic growth uncomfortably low. This combination puts central banks in a dilemma. On one hand, they’d like to raise interest rates to bring inflation down, but on the other hand, they should cut interest rates to boost economic growth. Getting this judgement right will be difficult. In the UK’s case, I think the Bank of England will raise its policy rate soon – perhaps before the end of the year – and increase it further next year. But I doubt that it will rise it very far because the increase in inflation is likely to prove temporary. That, in turn, means that I’m optimistic that the UK will avoid a major new downturn or a slump in property prices. Life will be difficult after the pandemic, but it will not be bad as many feared a year or two ago. And the economy should avoid the worst excesses of inflation and unemployment that we saw in the 1970s and 1980s.
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