JUNO Spring 2020 – Property

THE GOOD NEWS

Kiwi house prices double every 10 years

SPACE SOLUTIONS What to do when the kids donʼt leave

BEST SELLERS

Why the number of bedrooms matters

THE

PROPERTY ISSUE

STOCK MARKETS

BAG A BARGAIN

Why shares are going crazy

When’s the right time to move?

FIRST HOMES

INVESTMENT

The complete buyer’s guide

Buy to flip vs buy and hold?

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NZ$9.95 INC. GST

A Houseboat in Paris • Dress for Success • Coastal Style • Buying in Oz

Navigating the winds of growth

Make hay while the sun doesn't shine.

Much like you, we have something tucked away for a rainy day.

We hold cash in our funds and a seasoned approach to increasing it – as far as 100% - when markets dip or collapse, to preserve investor capital. We’re also well-versed in deploying cash quickly into well-tracked opportunities once markets begin to recover from shocks or recessions. That discipline was the making of our company.

In 2008 our first fund, the Growth Fund, dropped about half as far as its market index because of a high cash buffer. Then it rebounded 105% the following year as we spent our cash resource on good, mispriced companies. We’re ready to act when we see threat or opportunity. We believe long-term wealth comes from long-term thinking.

To download the Product Disclosure Statement and Statement of Investment Policy and Objectives, visit piefunds.co.nz, companiesoffice.govt.nz/disclose. Past performance is not a guarantee of future returns.

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Learn how to become a successful property investor every day by subscribing to the Property Academy Podcast.

Every single day, a new 10-minute episode is released by your hosts, economist Ed McKnight and property investor Andrew Nicol.

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Contents IN THIS ISSUE

REGULARS

12. A Big Step for JUNO Magazine The JUNO team gathered with Pie Funds’ Mike Taylor to officially hand over the magazine reins.

14. Subscribe to JUNO magazine Subscribe for a year (four issues) for just $20.

16. What We Like A selection of the hottest products from around the country.

94. Book Reviews JUNO reviews two latest hot reads.

95. JUNO Junior Get your kids learning about money with our fun, interactive page to help improve financial literacy.

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YOUR INVESTING Property

20. Is Now the Right Time to Buy?

38. How Many Bedrooms Is Better?

Is this the time for investors to jump into the market?

Ed McKnight analyses market conditions.

Is there an optimal number of bedrooms for your rental property to get the best growth? Ed McKnight says yes.

24. Will Your Property Double in Price?

46. How to Invest in Property

Every 10-12 years, house prices in New Zealand double, says Ashley Church. It’s all about the property cycle.

There are two tried and true property strategies that investors tend to use. Andrew Nicol explains them.

28. Borrowing to Buy

50. When the Kids Don’t Leave Home

Martin Hawes explains how mortgages work for investors, and how to get a home loan.

More parents have adult kids staying at home, but there are ways to solve space issues, says Brenda Ward.

32. Saving to Buy a First Home

56. Do apartments stack up?

Most New Zealanders want to own their own home. Mary Holm helps you find ways to get on the property ladder.

Could an apartment be a cheap way to get started? Amy Hamilton Chadwick checks out the risks and rewards.

34. CoreLogic: Your City – Up or Down?

64. KiwiSaver First Home Buyer’s Guide

We’ve seen a boom, then a lockdown, followed by a pickup. Kelvin Davidson looks at New Zealand, city by city.

A step-by-step guide to getting onto the property ladder, from the JUNO KiwiSaver Scheme.

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YOUR INVESTING Personal Finance

68. Spend Like Goldilocks Brenda Ward talks to the experts about some easy ways to figure out just how much to spend each year.

72. Emergency Funds Make You Happy Worried about money lately? An emergency fund can stop you hitting the wall in a crisis, says Brenda Ward.

75. Why is the Share Market So Crazy?

People are losing jobs and the world’s in chaos – but share markets have been going up. Mike Taylor explains why.

80. Jake Millar’s Unfiltered Property developer Peter Cooper talks about Britomart, and how Kiwis can get started in property.

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82. A Place in the Sun – Not Always Fun Thinking about buying an apartment in Australia?

Mark Russell of PwC says hold that thought.

84. Business Vision Innovative Kiwi companies making their mark on the world.

LIFESTYLE

The Good Life

86. Coastal Chic Pale floors and painted wicker bring the colours of the coast into this interior by Lynette Lochhead.

88. A Houseboat on the Seine From an elegant secret hideaway, Brenda Ward becomes a resident of the wealthiest part of Paris.

92. Dress for Success 86

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Invest in colours, softer lines, and more casual touches for work.

YOUR INVESTING Market Reviews

97. Covid Confidence Bounces Back We watched our KiwiSaver balances plummet, but not our confidence, says Amy Hamilton-Chadwick.

98. Going Up, Going Down Cameron Bagrie looks at the economy.

100. Get Ahead of the Game Chris Smith of CMC Markets says gaming is booming, and investors can buy a piece of the action.

106. Bulls in China China was the first country hit by Covid-19, but it’s bounced back, says Victoria Harris of Pie Funds.

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110. Europe After Covid Andrew Kenningham of Capital Markets in London looks at the aftermath of the virus on Europe.

Published by: Brenda Ward JUNO investing magazine, The Generator, 28 Customs Street, Auckland Central, Auckland. junoinvesting.co.nz

Property Can Make You Rich Billionaire Andrew Carnegie once said that 90 per cent of millionaires became wealthy by investing in real estate.

But for the average Kiwi, is property really the pathway to wealth? And is that still true?

In this issue of JUNO, we say ‘yes’ to both those questions. Our experts talk about how to buy, the strategies you could use, and how your property’s performing in this market.

This annual Property Issue is timely. It’s the first for JUNO magazine’s new owners, Opes Partners. They’re a real estate advisory company committed to continuing JUNO magazine as an independent voice in the investment world.

There are three people that deserve special mention.

One is our inspirational co-founder and former publisher Jacqueline Taylor, who with her husband Mike started JUNO magazine six years ago, with a mission and a goal to demystify investing.

Her passion and integrity still shines from every page, as JUNO continues to give Kiwis the confidence to invest for better financial futures.

The second is Opes Partners managing partner Andrew Nicol, who is a case study in this

issue. An investor from age 18, he started the company to help Kiwis get into property investing.

And the third is Peter Cooper, the Kiwi behind the billion-dollar Britomart project, and the soon-to-be-opened Britomart Hotel.

At JUNO magazine, ironically, we’re working in one of those renovated warehouses, refurbished into a charming character co-working location.

I like this quote from Cooper’s Unfiltered interview in this issue: “The starting point is really your house, isn’t it,” he says.

“You buy an old house, you do it up, you borrow money, you put yourself at risk, and then you sell it, and suddenly you’ve got some money in your pocket and you do it again.

“I think it’s always a matter of starting small, and then you learn how you do it from there.”

He’s right.

Start small, but if you want to grow wealth through property, just make a start.

Brenda Ward JUNO Editor

Publisher and Editor Brenda Ward – brenda@junoinvesting.co.nz

Resident economist Ed McKnight

Art Director Mark Glover

Printer Crucial Colour

Advertising Manager Anita Hayhoe

Distribution Crucial Colour and Marketing Impact

JUNO is an investment magazine published quarterly by Brenda Ward.

You need JUNO magazine’s written permission to reproduce any part of JUNO. Advertising statements and editorial opinions in JUNO reflect the views of the advertisers and editorial contributors, not JUNO magazine and its staff.

JUNO’s content comes from sources that JUNO magazine considers accurate, but we do not guarantee its accuracy.

Charts in JUNO are visually indicative, not exact. The content of JUNO is intended as general information only, and you use it at your own risk: JUNO magazine is not liable to anybody in any way at all.

JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.

JUNO 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.

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Meet some of our

Contributors

CAMERON BAGRIE

NAOMI BALLANTYNE

KIRI BARFOOT

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.

Naomi has 38 years’ experience in the New Zealand life insurance industry. Naomi founded and is now the managing director of Partners Life.

Kiri Barfoot is a director of Barfoot & Thompson. She has a degree in commerce and worked overseas before returning to the family firm.

She’s also a property investor.

MARY HOLM

ANDREW KENNINGHAM

ED MCKNIGHT

Mary writes in the Weekend Herald, presents a financial segment on Radio New Zealand, and is a bestselling author. She’s a director of the Financial Markets Authority.

Andrew is the chief Europe economist for Capital Economics.

He was previously an economic adviser for the United Kingdom Foreign Exchange.

Ed McKnight is JUNO’s economist.

Ed’s worked for the Auckland Philharmonia Orchestra and Hatch.

Now he crunches data for JUNO magazine and Opes Partners.

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AMY HAMILTON CHADWICK

MARTIN HAWES

Ashley is the former chief executive of the Property Institute. A media commentator on property for over 20 years, he now writes on behalf of OneRoof.

Amy specialises in property and finance journalism. She has been a writer and editor for almost 20 years. Amy is a registered financial adviser.

Martin is the chairman of the Summer KiwiSaver Investment Committee. He’s an authorised financial adviser and offers his services throughout New Zealand.

ANDREW NICOL

MARK RUSSELL

CHRIS SMITH

Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has over 15 years’ experience in banking, finance, and property.

Mark is a partner in the Financial Advisory Services team at PwC. He specialises in the tax treatment of investments and managed funds such as KiwiSaver.

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.

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Ashley Church Headshot photo: Ted Baghurst/NZME

ASHLEY CHURCH

REGULARS

A Big Step for JUNO Magazine When JUNO magazine was acquired by Opes Partners, the team gathered with Pie Funds’ Mike Taylor to officially hand over the reins.

It was a momentous day for JUNO magazine when the publication was bought by one of the magazine’s key clients, property investment advisory firm, Opes Partners.

“I know that JUNO can be a part of solving that financial literacy problem, which is why I want to make that dream of having JUNO on the coffee table of every New Zealand household a reality.

JUNO editor Brenda Ward said: “I’m just so excited about the future for JUNO magazine. I can see that in the future, with Opes, you have a magazine in growth mode and a company in growth mode. Together, we can work in partnership to fulfil our goals for the publication.”

“We’re proud to say that all staff working for the magazine at the date of acquisition are still employed.”

JUNO magazine was previously owned and published

by Pie Funds. The magazine was launched six years ago by fund manager Mike Taylor and his wife Jacqueline Taylor, a teacher.

The pair felt Kiwis were discouraged from investing by the jargon in the industry and a lack of confidence.

They wanted to change that and set out with a goal and a vision to help Kiwis understand investing.

During that period, circulation snowballed to the point where, now, JUNO magazine prints 10,000 copies per quarterly issue.

Based on those figures, JUNO has a wider circulation than the likes of M2 Magazine and Metro.

As the magazine was handed over, Opes Partners managing director, Andrew Nicol, said: “I got excited when I met with [JUNO magazine editor] Brenda six months ago, and she shared her vision of having a copy of JUNO on every coffee table in New Zealand.”

Nicol identified that New Zealand has a lack of financial literacy, citing a Commission for Financial Capability survey showing that 42 per cent of adults found personal money problems to be a distraction at work.

Another study showed that New Zealand adults would rather talk to their children about drugs and alcohol than talk about money, he said.

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Nicol says he became aware that Pie Funds was open to offers during the Covid-19 shutdown, which he acknowledges had been tough on magazine publishers.

“We approached Pie Funds and are delighted that JUNO is now part of the Opes family.”

Pie Funds managing director Mike Taylor said: “Our job was to set up JUNO in terms of getting New Zealanders reading about investing.

“I feel like we’ve done that job. Publishing isn’t our core business, so I’m excited that we’ve found someone else who is passionate about taking that vision over.

“We’re very keen to have an on-going relationship with Opes, simply because we like the publication and want to see our clients continue to receive it.”

Opes Partners is also the publisher of the daily Property Academy Podcast, New Zealand’s No.1 business podcast, according to Apple’s rankings.

Ward said she’s grateful to Jacqueline Taylor for her vision and passion as publisher, and to Mike Taylor and Pie Funds for supporting JUNO and covering administration costs for the team.

“JUNO will remain a quality magazine and an independent voice in the investment world, with irresistible stories about how to grow your wealth using the share market, property, and other investments.”

To subscribe to the JUNO newsletter and find out about upcoming JUNO events, go to www.junoinvesting.co.nz.

PERSONAL FINANCE

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JUNO 13

For a limited time

Subscribe for just $20 For 4 issues of JUNO (one year)

Never miss an issue!

JUNO investing 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.

Subscribe now and get a year (4 issues) of this premium magazine for you or a friend for just $20, a saving of $19.80.

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Terms & Conditions All prices for magazine subscriptions include free New Zealand delivery. Please allow up to 10-13 weeks for your first delivery. Your subscription will begin with the next available issue in early November, and in most cases your magazine will be in your hands before it goes on sale in the shops. JUNO Magazine is published by Opes Media Limited, which handles delivery and stipulates the lead time shown above. Offer expires on 24 November 2020. Offer available to New Zealand postal addresses only.

REGULARS

What We Like A showcase of the hottest products that are the talk of the town.

Patterns of Light Designer and digital artist Rachel Lochhead has combined her love of photography with her interest in interiors to create a new form of artwork.

Lochhead’s Luminova Lightworks create pools of light and pattern on walls of homes and offices.

“I like to look at life through a different lens, photograph it, and then deconstruct it to form something new,” she says.

“I’m drawn to this creative process, constantly reimagining and transcending reality in some way.”

Luminova Lightwork’s pieces are illuminated with safe, energy-efficient LED lighting, within a lightweight low-profile aluminium frame.

Lochhead says she was inspired as a child by her creative parents who loved design and landscaping.

She went on to become an art director and magazine graphic designer before turning her art hobby into a business.

“I aspire to create pieces that echo a sense of wonder.” www.luminovalightworks.co.nz

Fresh Take on Dried Flowers Amanda Wooding started making dried flower arrangements as a hobby during lockdown.

Inspired by an empty shop front, she moved into a pop-up store in Mairangi Bay for a month.

“It was perfect timing because everyone came out of lockdown wanting something to brighten their day... and their homes,” she says.

“We opened on Saturday mornings for people to collect their orders – hence the name The Saturday Room.”

Now she’s looking forward to the wedding season: “The beauty of dried flowers for an event is that they can be created weeks or months in advance, so you know exactly what they will look like. That’s a relief for any event planner.”

She says her goal is to promote a more sustainable alternative to fresh flowers. You’ll find Amanda on Instagram @ The_Saturday_Room.

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W H AT W E L I K E

Wharenui by the Water New waterfront hotel, the Park Hyatt Auckland, will liven up the Viaduct Harbour with bars, restaurants, premium rooms, and event spaces, all with Māori accents.

Kiwis travelling locally can enjoy top international standards, says general manager Brett Sweetman.

But they’ll know they’re home, because the seven-storey hotel is inspired by New Zealand culture, with carvings, tukutuku panels, and rugs made from New Zealand wool.

Bossley Architects has designed the hotel

as a Māori wharenui (house), a place of gathering that brings families and communities together.

For a catch up with friends, the Captain’s Bar adds a local twist to classic cocktails, and a menu of snacks and sharing platters.

Its architects describe the cladding of the hotel as “a Māori cloak around the building, creating a double skin offering warmth, privacy and beauty”.

There are 23 suites offering commanding views, with the standout the Presidential Suite on the rooftop, which has its own internal garden and a terrace for entertaining.

Guests can choose between four places to eat, led by signature restaurant Onemata, serving seasonal local produce.

For quick bites, The Pantry offers a quick grab and go, The Living Room offers allday dining, an a-la-carte breakfast and an afternoon tea overlooking the water.

After a day of sightseeing or meetings, unwind in The Spa at Park Hyatt Auckland’s hydrotherapy pools, or take a dip in the 25-metre infinity swimming pool.

Accommodation opens on 15 September. www.parkhyattauckland.com SPRING 2020

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ISSUE

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Property (noun) a building or area of land, or both together – Cambridge Dictionary

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Although investment property values are never stable, as a general proposition they move upwards over the years, in line with increasing population and prosperity. – Sir Bob Jones

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YO U R I N V E S T I N G

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PROPERTY

Is Now the Right Time to Buy? With the first signs of a decline in house prices, is this the time for investors to jump into the market? JUNO economist Ed McKnight analyses market conditions.

Kiwi property investors are showing more interest in the market. Some have saved deposits by not spending over lockdown.

Others were essential workers whose earnings weren’t affected.

Still others are waiting for prices to drop, so they’ll bag a bargain.

Whatever their reasons, many people want to know if now’s the right time to invest.

If you’re a long-term buy and hold investor seeking capital gains, you’ll likely want to answer three key questions: 1. Am I still going to get long-term capital gain? In other words, what’s likely to happen to house prices over the medium-to-long term (five to 20 years)?

2. Am I going to be able to pick up property cheaper in the future? Are prices likely to drop in the short term, so I can pick up a bargain?

3. And, if prices do drop, is the bank still going to give me a mortgage?

Answering the first is easier than the latter two questions.

1. Will I still get long-term capital gain?

On the balance of probabilities, some house-price inflation will likely continue in New Zealand.

Our population is projected to increase.

Incomes are continuing to rise faster than inflation.

Construction costs continue to grow, and our two main cities – Auckland and Wellington – are geographically constrained by sea, mountain, and legislation.

This bodes well for long-term buy and hold investors who want to get in and stay in the market for 10 or more years.

Said another way, long-term property investment is no better or worse than it was 12 months ago.

The other two questions are tougher.

2. Can you pick up a bargain?

Investors will be hoping for widespread house price drops, in the hope of snaffling a bargain.

The CoreLogic JUNO Property Report later in this issue shows small house price declines over the last three months, but it’s essential to realise that these are muted.

The 0.4% decline in Christchurch property prices in the last three months, for instance, is tiny. It represents just over $2,000.

Reports from buyers and sellers on the ground suggest that the market is heating up rather than cooling, and many real-

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YO U R I N V E S T I N G

“Returning Kiwis cannot bunk in with family forever and will need housing, bolstering both the rental and property markets.”

estate agents are calling it a seller’s market.

That’s because first homebuyers looking to get their foothold on the property ladder are increasingly out looking.

Investors are encouraged by low interest rates and the hope of a bargain, so they’re also pouring into the market.

But those on the hunt looking for a cheap deal are not finding them.

roughly 14,000 a month, based on a 14-day quarantine period.

investors get the finance they need to act in the short term?

These returning Kiwis cannot bunk in with family forever and will need housing, bolstering both the rental and property markets.

The real headwind faced by the market in the short term is the ability to get a mortgage. See more on this in Martin Hawes’ story in this magazine.

Demand runs high, but listings are few and far between. People who don’t need to sell aren’t selling.

Banks are changing policies week to week, and some mortgage brokers are only finding out about new policies when applications are declined.

Agents are having to reset the price expectations of overzealous investors making unrealistically low offers, according to a REINZ/Tony Alexander Real Estate Agents survey.

Instead, they’re using savings accumulated through lockdown to renovate their homes.

More people are coming into the country than leaving, which boosts demand.

To answer the second question, if you’re planning to invest in property based on long-term price expectations, I don’t see significant value in holding off in the hope that prices will fall, and you’ll snag a bargain.

For the investor who already has lending approved, it’s probably better to do the deal knowing you can get finance now.

3. Can you get a mortgage?

That takes us to the third question – will

Said simply, I’d say a bird in the hand is worth two in the bush.

In the six months to May 2020, 12,812 more people came to live in New Zealand than left to go overseas.

This is unlikely to slow down. The capacity to quarantine returning New Zealanders has increased to 7,000 people at a time –

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This healthy demand, combined with a lack of listings, is helping to stabilise property prices.

The more significant risk for investors is losing the ability to get lending, rather than the risk of missing out on slightly lower prices.

Holding out for an insignificant price drop risks your mortgage not being approved next time you apply.

YO U R I N V E S T I N G

Will Your Property Double in Price?

Every 10 to 12 years, house prices in New Zealand double, says Ashley Church. It’s all about the property cycle.

I read a great article about the international housing market called ‘Housing Bubble about to Burst, Market About to Crash’.

It went into detail about how unaffordable housing is in Australia, Canada, the United Kingdom, and New Zealand.

It said the ‘median multiple’, which is the median cost of a home, divided by average household income, had doubled over the previous decade.

The conclusion of the report – that the housing market was about to crash – would have been frightening for us here in New Zealand, were it not for one small detail.

The article was written in 2010.

Hey, the market didn’t crash We know now that the New Zealand housing market didn’t crash in 2010 – nor at the tail-end of each of the previous property booms, going back to 1980.

That was despite repeated predictions that it would.

But, surely things have changed since that article was written?

Right now, we’re in the middle of one of the most significant global events in modern history. People are understandably worried that, despite the history of the market, Covid-19 has changed the landscape and there are scary times ahead for property.

Perhaps. But then, people said the same thing about

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the Global Financial Crisis (GFC). That was an event that wiped hundreds of billions of dollars off share values around the world and caused property markets to collapse in many other nations.

But how did it affect us here in New Zealand?

During the GFC, median house prices bottomed out at 8.6 per cent below the market peak, stayed there for about a year, then quickly recovered.

Inconvenient – but hardly a crisis.

It’s too early to tell if the same thing will happen in the wake of the Covid-19 crisis – but the early indicators are encouraging.

Figures from property data company Valocity tell us that most regions experienced a small loss in property values during lockdown but that predictions of price carnage have failed to materialise.

What’s the property cycle?

If you follow my commentary, you’ll know that I’m a strong believer in something called ‘the property cycle’.

There are differing views on what form the cycle takes – but there’s a general consensus that each cycle lasts between 10 and 12 years and, in very broad terms, house prices double over that time.

This is despite the fact that Kiwi economic conditions, since 1980, have fluctuated wildly.

Let’s take a look.

PROPERTY

The 1986 doubling The first doubling of house prices peaked somewhere around 1986. It capped off a decade of volatile change which was mostly dominated by the ‘Muldoon reforms’, but finished with the even more farreaching ‘Rogernomics’ economic reforms of the fourth Labour government.

Inflation was running at around 18 per cent, mortgage interest rates were up over 20 per cent, and around 17,000 people left the country – many of them to Australia.

The 1996 doubling By around 1996, houses prices had broadly doubled again. The National government which had been in power since 1990 had largely continued the previous government’s reforms but had also reformed the state housing market.

These reforms brought in market rentals and sold off a big portion of the state housing portfolio.

Inflation had plummeted to just 4 per cent and floating mortgage interest rates, while high by today’s standards, were down to around 12 per cent.

Migration was still negative, and a net 10,000 people left the country.

The 2006 doubling By 2006 – a year that brought yet another decade of doubling house prices – the Clark Labour government had reversed the housing reforms of the previous government.

It abolished market rents but kept the ‘accommodation supplement’ which was introduced by National to offset the higher cost of renting.

It also presided over inflation of around 4 per cent and floating mortgage interest rates of around 10 per cent.

Net migration for 2006 was now running at a gain. Over 10,000 additional people came into New Zealand.

The 2016 doubling By 2016, house prices had broadly doubled again.

Under John Key’s National government, floating mortgage interest rates were down to an historical low of around 5 per cent, inflation was down to an historical low of 1.6 per cent, migration was running at a net gain of over 70,000.

The debate had shifted to the cost of housing and a shortage of homes purported to be over 100,000.

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YO U R I N V E S T I N G

“If you’re looking for a common set of factors underlying each boom, you won’t find them.”

There are no common factors My point? If you’re looking for a common set of factors underlying each boom, you won’t find them.

The economic environments during the peak of each of the past four cycles couldn’t be more different.

The only thing that unites them is the cycle itself, and the doubling of house prices roughly every 10 years.

There are lots of theories about why this is the case, and why the New Zealand market acts differently to most other housing markets in the western world – but for me, it’s enough that it does.

Should we ignore the risks?

So, should we simply ignore reports which alert us

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to the risks in the market? Not at all!

These reports are correct in seeing that house prices in New Zealand are getting further and further out of step with household incomes. We should all be concerned about that growing gap.

But it’s just sensationalism to assume these conditions will inevitably lead to a market crash based on a one-size-fits all approach to international house prices. I believe it’s not supported by the evidence, or the history of the Kiwi market.

Meanwhile – for those awaiting the much-touted property market collapse – don’t hold your breath.

Ashley Church has been a regular commentator on property matters for over 20 years and now writes on behalf of OneRoof.

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PROPERTY

Borrowing to Buy Debt can be good – when it helps you buy an investment property. Martin Hawes explains how mortgages work for investors, and how to get one.

Just about everyone borrows to buy rental property.

This is certainly true when you buy, although it’s fair to say that there can be a few people who, over the decades, repay the debt, so that they have a debt-free rental property (or two) to fund their retirement.

Nevertheless, whatever might happen later, when you first buy property, you do it in part with debt.

This is usually because few of us have enough money to buy a property without taking on debt.

What is gearing?

In any event, most people want to ‘gear’ their properties. This gearing simply means borrowing, and, if all goes well, it has a remarkable effect on returns.

Gearing increases your returns hugely if the property rises in value, but it’s a double-edged sword – if the property falls in value, your losses are boosted hugely, in the same way.

Debt you take on to buy a rental property (or indeed any asset intended to produce ‘assessable’ income) will be tax-deductible. This, of course, reduces the cost of your debt.

It doesn’t matter what you use for security to borrow for a rental property: you can borrow on the family home and use the funds to buy a rental property and your interest payments will still be deductible for tax purposes.

In fact, this is something that many property investors have done quite satisfactorily over the years.

Borrowing 100 per cent Many have borrowed 100 per cent of a rental property’s cost by using both the family home and the newly purchased rental property as security.

In doing this, they’ve put no cash into the deal at all.

With 100 per cent of the rental property purchased by debt, their gearing rate is as high as it can be.

Returns will, therefore, be high but, losses, or course, will be similarly high.

These arrangements have been common for years.

They’re very tempting because they require none of your cash.

Your home may be at risk Don’t forget that if anything goes wrong, the family home will be mortgaged and is directly vulnerable.

Any available cash flow should go to repay debt on the family home first. This is not tax-deductible, so it should be paid off as a priority.

Then, when the home mortgage is repaid, you should reduce your rental property debt.

Lending now Over the 40 years that I’ve followed and invested in property, I’ve noticed that the policies of banks and other lenders are always changing.

There are times when banks forked out loans to all sundry, as easy as you’d like. There’ve also been times when they’ve been as tight as a drum, holding onto their money and making few loans.

It would appear that we’re in a ‘tight as a drum’ phase at the moment. Banks aren’t lending easily.

This means thinking about how lenders assess your proposal and decide who they want to lend to.

Knowing this can help you tailor your loan proposal so that the lender wants to lend to you (and not someone else).

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‘Gearing’ increases your returns hugely if the property rises in value, but it’s a double-edged sword – if the property falls in value, your losses are boosted hugely, in the same way.

The three Cs of lending Banks assess loans using the three Cs: Character, Cashflow and Collateral.

•

Character. This is about you, the borrower. The most important of the three Cs, banks assess your character, both objectively and subjectively.

The objective assessment will involve a credit check to make sure there’s nothing bad in your past and you’ve always met your obligations.

The subjective assessment is important when borrowing large amounts (for example, for multiple properties).

The lender is likely to want to meet you and make a subjective assessment of how honest and competent you are.

•

Cashflow. If you get over the first hurdle, the lender will then look at your cash flow and consider if you have enough to meet the repayments.

This isn’t just about quantity of cash flow but also its quality – when the economy’s poor and people are losing their jobs and businesses, lenders like as much certainty as possible about where your income’s coming from.

•

Collateral. This is the security you offer. When it comes to rental property, the important thing is the Loan to Value ratio (LVR).

It’s the least important of the three because from a banking point of view, moving on security and selling up assets is expensive.

In any event, if they do have to take your property and sell it up, it means the lenders were wrong when they judged your character and cashflow.

If you can present yourself well in these three areas, you’re more likely to get a loan offer.

In times like these, when loans are not easy, thinking about these three factors and presenting yourself well will help you get the loan you need.

Martin Hawes is the chair of the Summer Investment Committee.

The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd and a Product Disclosure statement is available on request. Martin is an Authorised Financial Adviser and a Disclosure Statement is available on request and free of charge at www.martinhawes.com. Martin is a director of Lifetime Income, an annuity provider and a board member of the New Zealand Shareholders Association. This article is general in nature and not personalised advice.

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Saving to Buy a First Home Most New Zealanders want to own their own home.

Mary Holm suggests some ways to help you get on the housing ladder.

Everyone with a KiwiSaver account can withdraw their money, except $1,000, to buy a first home. And people on lower incomes may also qualify for extra money from the government.

What’s more, some people with modest assets who previously owned a home, but don’t now, may also be able to get a grant.

Even if you’re not eligible for a grant, you’ll save much more in KiwiSaver than you will elsewhere. Your savings will be boosted by the government contribution and, in many cases, by employer contributions.

The only possible negatives are that you have to be in KiwiSaver for at least three years before you can make the withdrawal, and you have to contribute at a certain level to get the grant.

Will the rules change?

Some people worry that the rules could be changed, leaving them unable to withdraw their KiwiSaver money for a home purchase, but I can’t imagine that happening.

contribution – into a similar non-KiwiSaver fund, perhaps run by the same provider.

That gives you more flexibility. Check, though, that the fees are not much higher there than in KiwiSaver.

What about risk?

If you’re saving for your first home, how risky should your KiwiSaver, or other fund, be?

•

If you plan to buy the house within two or three years, you’re best off in a lowrisk fund.

•

If your home is still three to ten years away, a balanced fund is good.

•

If it’s more than ten years before you expect to buy, and you can tolerate the ups and downs of the share market, choose a growth, or even an aggressive fund.

There’d be such an outcry that I reckon no government would dare to do it.

Don’t get tripped up The rules for withdrawing your KiwiSaver money to buy a first home are fairly straightforward. But still, check with your provider well in advance of buying to make sure you cross all the ‘T’s and dot the ‘I’s.

Having said that, you might want to put your extra savings – over and above 3 per cent of your pay if you’re an employee, or $1,043 a year if you’re not, which is enough to get the maximum government

And if you’re hoping to get a grant, it’s important that you read the rules. Some people have been tripped up if they were, for example, buying land first and planning to build on it later.

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Also, the government has adjusted the income and house price caps several times, and that’s likely to continue. And a few other rules have also been changed. So, keep an eye on this page: www.tinyurl.com/ NZFirstHomeHelp.

Note that you can be pre-approved for a grant before you find a home. The preapproval lasts 180 days. If you haven’t bought within that time, you’ll need to apply again.

Become a renter-landlord If you can’t afford to buy near where you work and want to live, one way to get into the property market is to become a ‘renterlandlord’.

In a 2018 survey, BNZ asked ‘aspiring firsthome buyers’ what they were prepared to do to get on the property ladder.

About 44 per cent – mainly in Auckland or Wellington – said they’d buy a property and rent it out, either in a cheaper part of their city or somewhere else in New Zealand.

The basic idea is, presumably, that you’re ‘in the market’, making it easier to buy your own home later. It’s not a bad idea, but you need to go in with your eyes open.

For one thing, you’ll probably kiss goodbye to KiwiSaver first home help. That’s because you can’t buy a rental property using your KiwiSaver money or a grant.

PROPERTY

Those grants are available only if you live in your house for at least six months after buying it. And if you wanted to buy your own home later, you wouldn’t be eligible for the withdrawal or grant because you already owned a property, says a Housing NZ spokesperson.

There’s one way around this.

If you’re thinking of buying a rental in a cheaper part of town – as opposed to elsewhere in New Zealand – you could buy the property as your own home and live in it for at least six months, and then move elsewhere while keeping it as a rental.

Or, who knows? Maybe you’ll discover you like living there!

•

Sorry to be a wet blanket. The idea might still work well for you.

Other bright ideas Other results of the BNZ survey of aspiring first-home buyers showed that: •

•

These days, in most cases you need a higher deposit – 30 per cent currently – to buy a rental property, compared with 20 per cent for your own home. Still, 30 per cent of $300,000 in a cheaper area is $90,000. That’s way less than 20 per cent of a million dollars ($200,000) in a posher suburb.

If you sell the property within five years, you’ll probably be taxed on your gains under the so-called ‘bright line’ rules introduced in 2018.

30 per cent of the people would buy a shared property with their family.

•

21 per cent would go ‘tiny’ and buy an apartment or unit under 80 square metres to live in. And another 12 per cent would buy a tiny apartment or unit in another town to rent it out.

•

14 per cent would buy a shared property with friends.

•

19 per cent would buy land outside of the city they live in.

What to watch out for There are also other concerns about becoming a renter-landlord: •

Property prices in many parts of the country seem to be slowing or even falling, and I wouldn’t be surprised if there are more widespread falls in the next few years. Also, price rises tend to vary hugely around the country, and even from suburb to suburb. Be prepared to possibly have to sell at a loss.

All these ideas have merit. Tiny properties are a bit of a trend. But you might want to try out the idea first by living in a caravan for more than a few weeks!

Getting help from family members – often parents, or even grandparents – to buy

a first home is becoming increasingly common.

If you’re going to share a purchase with family or friends, I recommend you work out in advance what you will do if someone is unable to make agreed payments for a period, or if a relationship break-up changes how things work, or if somebody becomes disabled or dies.

Be pessimistic. It’s much better to work these things out first, than when the crisis happens.

Then put all the details into a formal agreement drawn up by a lawyer.

That sounds heavy and unnecessary, but I’ve seen families and great friendships break up for the want of such an agreement.

This is an edited extract from Mary Holm’s best-selling book © ‘Rich Enough?

A laid-back guide for every Kiwi’, published by HarperCollins.

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The JUNO Property Report 2020 Powered by CoreLogic

Your City Up or Down

We’ve seen a boom time, then a lockdown, followed by a pick-up. So, how has the property market emerged – and what are the headwinds Kiwi investors face? Kelvin Davidson looks at New Zealand, city by city.

New Zealand Average value

$738,018 -1.5% Three-month change

New Zealand’s property market was in an upswing pre-Covid. Sales volumes have bounced back quite well post-lockdown, so far, but signs are becoming clearer that prices are starting to go into reverse.

September remains a crunch time, with wage subsidies confirmed to end on September 1, mortgage payment deferrals winding down, listings likely to be rising in line with their normal seasonal pattern, and the General Election potentially adding an extra layer of uncertainty.

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* Property values from Q2 Quarterly Index (provisional)

PROPERTY

The JUNO Property Report 2020 Powered by CoreLogic

Auckland Average value

$1,082,541 Three-month change

-2.4% Relatively flat values for the past three years or so have allowed affordability to improve. That can be seen in mortgage payments as a percentage of household income.

However, Auckland’s still less affordable than many other parts of the country. It has quite high exposure to international tourism and manufacturing, which are activities likely to suffer in the recession.

Hamilton Average value

$627,777 Three-month change

-1.1% Hamilton has quite a diverse economic base and more affordable housing than other parts of New Zealand.

However, we’ve seen affordability decline in recent years, as values have risen steadily.

An upswing in construction in recent times may also now be an issue for property prices if demand falters.

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The JUNO Property Report 2020 Powered by CoreLogic

Tauranga Average value

$794,189 Three-month change

1.3% Tauranga is yet to see a drop in property values, but it’s a much less affordable market than the national average, which could make it vulnerable.

Although it has a fairly diverse economic base, a downturn in its relatively large construction sector could be a hindrance.

Any sell-off by smaller investors would be an issue too.

Wellington Average value

$783,655

* Note that this is across Wellington City, Porirua, Upper Hutt, Lower Hutt

Three-month change

-0.4% Wellington has seen housing affordability decline in recent years, but it’s still more favourable than other areas of New Zealand.

The city itself is insulated to a degree by the government sector. However, around the wider area, a building upswing could now be a risk to the property market.

Another risk is its exposure to manufacturing activities, which may suffer in the recession.

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The JUNO Property Report 2020 Powered by CoreLogic

Christchurch Average value

$518,369 Three-month change

-0.4% Christchurch has been a relatively flat market for a number of years now, which has meant affordability has improved a lot.

This gives the market a degree of resilience.

However, Christchurch has a large manufacturing sector, putting it at risk in a recession, and the ongoing construction upswing is also a risk to the economy and to the property market.

Dunedin Average value

$547,531 Three-month change

-2.5% Dunedin has had a large upswing in property values over the past three or four years and affordability has gone down.

The city has a relatively slow population growth rate. This, set alongside a rise in construction activity, could now be a risk to the property market.

Investors have recently been a significant buyer group too, so any subsequent sell-off would be a headwind.

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38 JUNO |

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PROPERTY

How Many Bedrooms Is Better?

Is there an optimal number of bedrooms for your rental property to get the best growth? JUNO economist Ed McKnight says yes.

Property investors often ask: “How does the number of bedrooms affect a property’s capital gain?”

And: “If I buy a three-bedroom property, will it go up in value faster than a two, a one or a four-bedroom property?”

In a collaboration with data provider, CoreLogic, the team at JUNO magazine set out to determine whether there have been patterns of value increases over the past 20 years.

We analysed properties in Auckland, Christchurch, Wellington, and Hamilton, and compared how the value of properties has changed, both based on the number of bedrooms and the type of property.

The properties have then been electronically valued to calculate the median value of properties in January 2000 and then again today.

We’ve excluded any new-builds over the past 20 years to protect against the risk that larger or high-spec homes built recently could skew property values higher.

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Our data shows that in some cases, yes, the number of bedrooms has had a consistent impact on the growth experienced by properties in our four sample cities.

Two is good for apartments In Auckland, Christchurch and Wellington, the median value of two-bedroom apartments increased 30.1 to 37.5 per cent faster than the price of a one-bedroom apartment.

In each of these three cities, two-bedroom apartments had the highest capital growth rates compared to one, three and fourbedroom apartments.

That suggests that, historically, on average two-bedroom apartments have made a better long-term investment than apartments with another number of bedrooms.

But, in other cases, the data is less consistent.

Four-bedroom flats do better in Auckland Four-bedroom flats increased the fastest in Auckland, whereas in Wellington it was one-bedroom flats, three-bedroom flats in Christchurch, and two-bed flats in Hamilton that appreciated most quickly.

Nonetheless, we can still spot trends.

Two-bedroom flats in Auckland and Hamilton appreciated significantly faster than one-bed units in the same cities, 31.3 per cent and 52.8 per cent faster, respectively.

And while one-bedroom flats grew faster in Christchurch and Wellington, they did so at a much slower rate, just 9.2 per cent and 1.5 per cent, respectively.

While this is a weaker trend, if I were considering two properties – the same in all respects, except one has two bedrooms and the other had one – I’d be more comfortable investing in the two-bed property.

There’s a big impact It’s important to note that while small differences in growth rates can seem minute, they can also have a significant impact.

Take a one-bedroom Auckland flat. Since January 2000, one of these properties grew in value on average by 4.85 per cent annually.

But a median-priced two-bed flat grew in value by 6.37 per cent on average each year.

Had the buyer of a one-bed flat invested the same amount of money in the average two-bed unit instead, they’d be richer by $205,000 today.

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PROPERTY

But before you start looking at properties with only a specific number of bedrooms, there are some limitations to note.

Things to consider • We can’t use the number of bedrooms as an indicator for future capital growth in stand-alone houses, because there’s no discernible trend. In these cases, an investor looking for long-term capital gains is better looking for other factors: durability, location, and the property’s relative price.

•

Similarly, we can’t tell from this data whether the increase in value is caused by the additional bedroom alone. For instance, did two-bed apartments increase in value faster than one-bed apartments because of the extra bedroom, or was it because we can assume two-bedroom apartments are larger than one-bedroom apartments?

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Having said that, in the cases of apartments, flats and townhouses, it does appear that two bedrooms are better than one. In other cases, the number of bedrooms doesn’t seem to matter much at all.

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44 JUNO |

SPRING 2020

ADVERTORIAL

Do You Need Landlord Cover?

Everyone’s heard stories of rental properties trashed by tenants, with owners ending up with weeks of lost rent and hefty bills for repairs. How can insurance help? Sacha Cowlrick, Vero’s executive manager, consumer insurance explains.

A rental property can be a valuable investment, but it’s not without its challenges.

As a landlord, you’ll be footing the bill if things go wrong with your tenants or the property, but having the right insurance cover can help.

Insuring a rental property is a little bit different to insuring a house you live in, and it’s important to understand how your cover works and what your options are.

Then you can make decisions about how to protect your investment in a way that will suit you.

1. A house insurance policy may offer you some cover for your rental You may decide that you don’t need any special landlord cover for your rental property and choose to only cover the structure of your property by taking out a standard house insurance policy.

Just be aware that when you take out your policy, you’ll need to tell your insurer that it’s tenanted rather than owneroccupied, and check whether that means there are any special conditions or excesses.

Remember that house insurance won’t usually cover furniture you’ve provided or your tenant’s belongings – as a rule of thumb, it will only cover anything that is permanently fixed to the house such as a fitted kitchen, a bathtub, or the carpet.

2. You can add on specific landlord cover If you want to, you can buy specific landlord cover – which might be an add-on to your general home insurance policy, or a separate landlord insurance policy.

These generally cover damage caused

www.vero.co.nz

by events that are more specific to rental properties, like malicious damage caused by tenants, loss of rental income, and your legal liability as a landlord.

For example, Vero’s house insurance policy has an optional landlord extension which gives cover for eventualities like loss of rent.

3. Most insurance won’t cover deliberate damage Insurance policies are designed to cover accidental damage, which means if a tenant deliberately damages your property, this generally won’t be covered.

But landlord insurance policies may offer some limited cover for deliberate or malicious damage. For example, Vero offers an optional landlord extension which covers malicious damage caused by tenants, up to $30,000.

4. Your policy is really designed for the big stuff, not for small damage or wear and tear It’s important to remember that insurance policies are usually designed and priced to cover the big stuff that you can’t afford to pay for yourself.

Your policy will usually have an excess that means it’s not worthwhile to claim minor damage.

Over time, tenants might cause minor accidental damage – like stains on the floor – that add up to you wanting to replace the carpet.

But the way your policy works is that each ‘event’ of damage has its own excess, so a number of stains gathering over many months would probably mean you’ll have a higher combined excess than the claim’s worth, unless you can

prove the stains were due to a single incident.

This probably happens in your own house too, but where it gets complicated for landlords is that they may not see the damage accumulating over time if they’re only inspecting a property every now and then, so it feels like one event.

It’s important to keep in mind what kind of damage is just wear and tear needing routine maintenance, and what kind of damage you can claim for.

5. You have obligations as a landlord Landlord insurance is designed to protect your investment, but as a landlord you’re also responsible for taking good care of your property.

That’s why many landlord covers will include specific obligations you need to meet to keep your insurance valid.

These include things like selecting your tenants carefully, keeping tabs on rent payments, and making regular checks of the house to help you identify problems as quickly as possible, to stop things getting worse.

If you’re taking out cover for a rental property, make sure you read your policy carefully, so you’re aware of any conditions, or talk to your insurance broker to understand your obligations as a landlord.

If your tenants accidentally damage your property, you may be able to recover your insurance excess from them, but you’ll need to let them know what your excess is, and give them a copy of your insurance policy.

Claiming back any excesses needs to be handled between you and your tenant – your insurer won’t be able to get involved.

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How to Invest in Property There are two tried and true property investment strategies that investors tend to use.

Andrew Nicol of Opes Partners explains what they are.

There are two key strategies property investors use to make money over the long term, ‘Buy and Hold’ or ‘Buy and Flip’.

The actions you’ll take as you set out as a property investor depend on which of these strategies you’ve decided to use.

Here are the differences, and some pros and cons.

•

‘Buy and Hold’ involves investing in a well maintained (‘tidy’) property and holding it for the long term – making money as properties increase in value.

•

‘Buy and Flip’ involves investing in a property that needs some work, doing renovations on the property, and then either selling it straight away, or holding it for the long term.

One strategy is not better than the other. They will both make you money over the long term. The question is: which is the right strategy for you?

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PROPERTY

2. It’s the most accessible ‘Buy and Hold’ investing is the more accessible of the two strategies. This is for two reasons.

This strategy needs the least amount of upfront money (capital) to get started. It also needs the least amount of background knowledge of the property or building sector.

Why? Because when you execute a ‘Buy and Hold’ property investment strategy, you only need the upfront capital to buy the property.

Buy and Hold Investing Pros • It’s the least time-consuming • It’s the most accessible • It’s the least risky Cons • But it takes you longer to build equity

Why investors like ‘Buy and Hold’ There are three key reasons investors tend to like the ‘Buy and Hold’ strategy:

However, when you execute a ‘Buy and Flip’, you not only have to buy the property, you also need money to upgrade and renovate it.

A bank won’t lend you that additional money, so you’ll need to already have that money on hand, as well as your deposit.

This is why ‘Buy and Hold’ is more accessible from a financial perspective.

On the background knowledge front, to execute a ‘Buy and Hold’ strategy, you only need to know how to identify the right type of properties to buy – and where to find them.

However, to execute a ‘Buy and Flip’, you’ll need to know all that and more. For instance, you’d need to know the types of renovations that will add to the value of the property, cost-effectively; how to carry out those renovations; and where to source building materials.

3. It’s the least risky

1. It’s the least time-consuming

‘Buy and Hold’ investing is also considered the least risky. That’s for both the reasons I’ve mentioned.

‘Buy and Hold’ investing is typically a ‘hands-off’ strategy. This is because it doesn’t need you to do maintenance or repairs to the property.

A ‘Buy and Hold’ doesn’t need any extra capital for renovations, so less of your money is at risk when you invest in the property.

Because the property investors who choose the ‘Buy and Hold’ strategy are looking for a hands-off investment, they’ll bring in the professionals to help them manage the investment.

As well, some properties that make great ‘Buy and Hold’ investments (like brandnew properties) need smaller deposits from the bank to purchase. This also limits the amount of capital you have to risk to become a property investor.

At a minimum, this usually includes a property manager, who will look after and tenant the property for the investor.

www.opespartners.co.nz

Because there’s less background knowledge needed to execute a ‘Buy and Hold,’ you’re

less likely to mess it up, or spend money in areas that don’t make the property go up in value.

The drawbacks of ‘Buy and Hold’ The main drawback of a ‘Buy and Hold’ property investment strategy is that it takes time for the property to go up in value.

This is because you are relying on the market to increase the value of the property over time – which is a ‘passive’ strategy.

Passive means you’re investing and waiting.

‘Buy and Flip’ is more active and you have the chance to increase the value of your property more quickly in the short term.

What it takes to be successful as a ‘Buy and Hold’ investor 1. Buy a property that’s going to go up in value over time. Because ‘Buy and Hold’ investors rely on the market to increase the value of the property over time, to run a successful ‘Buy and Hold’ you need to make sure your chosen property’s likely to go up in value over time.

This means investing in the right location and the right type of property, where both have the potential to grow.

2. Make sure you can hold the property over the long term ‘Buy and Hold’ investors rely on the property market to increase the value of their investment, so you need to make sure you can afford to hold onto the property over 10 or more years.

This is because – depending on how your property is structured financially – your investment may need a cash contribution into the property’s bank account each week.

If that’s the case for your investment and you can’t afford to keep the property for 10 or more years, then you may be forced to sell early. This would mean missing out on the gains that you wanted to get in the first place.

Who is the ‘Buy and Hold’ strategy right for?

Most New Zealanders will find that ‘Buy and Hold’ is right for them. This is because it needs no background or specialist knowledge, and requires the least amount of money to get started.

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FOR SALE

2. The type of property you invest in – one that requires work versus one that doesn’t.

easy to mess up building works, repairs, maintenance, landscaping or painting by doing it yourself.

Why investors like ‘Buy and Flip’ 1. Immediate increase in equity Successfully executed, a ‘Buy and Flip’ strategy is the quickest way to get immediate capital gain (equity) within the property. That’s because ‘Buy and Flip’ is an active strategy.

There’s a risk that the work might not be done correctly, but there’s also a risk you might ‘over-capitalise’ on the property.

With this strategy, if you paint the walls on the inside of the property, or change the carpet, you can boost its value quite quickly.

Buy and Flip Investing Pros • Creates equity right away • Greater personal satisfaction Cons • Projects go over budget • Higher risk and easier to mess up • Takes time • Less accessible • Limited location

What ‘Buy and Flip’ investing is When you use a ‘Buy and Flip’ strategy, you’ll invest in a property that could increase in value with some building work, repairs, or cosmetic upgrades.

Investors can then either resell the property immediately after buying it, which is the ‘flip,’ or they can hold on to it and wait for it to increase in value over time like a ‘Buy and Hold’ investor.

The main difference between the two strategies is: 1. How active you are in changing the property – doing work on the property versus not doing work on the property, and therefore:

If you’re looking to rapidly create a portfolio – and want to be an active investor – then this is the fastest way to build the value of your portfolio, without having to save for another deposit.

2. Personal satisfaction: Thinking it looks good The other reason people think about going down the ‘Buy and Flip’ path is emotional.

We all like the idea of painting a room, ending the day tired and covered in paint.

It’s a bit of a Kiwi dream – being hard at work while imagining our future gains.

One prospective investor once said to us: “I’m more excited about transforming a dunger and winning Resene Renovation of the Year, than making money … although money is quite exciting.”

We may not all admit it, but there is an innate romanticism about doing a ‘Buy and Flip’.

The drawbacks of ‘Buy and Flip’ 1. Projects go over budget Sadly, many (or most?) construction projects go over-budget and cost more than investors expected.

That’s when you do work on the property and spend time and money in areas that don’t increase its value.

3. It takes time and can be stressful Most renovation projects need the investor to do many of the changes and improvements themselves. This is because without your own labour, many renovation projects wouldn’t be profitable.

This means that ‘Buy and Flip’ investors need to spend a lot of their own time, outside of work, to make the project happen.

This often leads to a lot of stress and late nights for the investor and their families.

That might seem fun when it’s other people doing it on TV, but it’s a lot harder to do in real life.

4. Less accessible money-wise A bank won’t lend you the money you need to renovate or do up a property. This means you’ll need to have this cash available before you start this strategy. This is capital needed above and beyond your deposit.

This means that a ‘Buy and Flip’ strategy is less financially viable for most Kiwis to start.

5. You’ll usually need to buy a property in your city If investors usually do a lot of the repairs and maintenance themselves, it’s impractical for them to buy outside the city they live in.

This means they may miss out on better opportunities outside their home city.

If you’re doing a ‘Buy and Flip’, overruns have the potential to make the entire investment unprofitable, or not worth the time you’ve put into it.

For instance, investors in remote areas or small towns can always do a ‘Buy and Hold’ strategy, because there’s nothing stopping them buying outside the city.

For instance, if you invest in a property that needs electrical work, it can be hard to know exactly what needs to be done to fix that before you buy.

But if they want to flip a property, they may find it difficult if there isn’t the right stock in their town. As well, it’s likely to be impractical to travel and do a renovation themselves in another city.

Once your tradesman starts work on the property, they might find there other, unexpected issues that need more work, time, and money to fix.

2. It’s easy to mess up, and higher risk If you’re not a professional, it can be

It’s not impossible, but it is less practical.

What it takes to be successful with ‘Buy and Flip’ 1. Find a property that you can add value to with your skills.

Go to www.opespartners.co.nz to book a free session on how to become a property investor.

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The first step in a ‘Buy and Flip’ strategy is finding a property that needs the repairs and maintenance that you have the skills and budget to fix or improve, and that when those changes are made will increase the property’s value.

and a background of doing renovations.

2. Learn about the construction sector You’ll need some understanding of the construction sector, so that you can do the repairs and maintenance the property needs. If you don’t have this knowledge already, you can start learning. A couple of resources we recommend are:

Why investors like ‘Buy and Flip’ investing Ironically, the ‘Buy and Hold’ strategy is the path most Kiwis decide to go down, but the ‘Buy and Flip’ strategy is the path most Kiwis think about going down.

It’s also good for investors who want to be active and hands-on with their investments, and who have the time free to do that.

The Property Investor Chat Group NZ – a Facebook group which has many investors who like to talk about how to improve an investment property’s value.

This is because it’s the most publicised investment strategy. Just think of all the renovation shows we see on TV and enjoy watching – The Block, Grand Designs and Changing Rooms.

Look for a New Zealand property coaching company that educates Kiwis about how to execute ‘Buy and Flip’ strategies themselves.

And, to some degree, we’re probably inspired by other ‘turnaround’ shows, like Gordon Ramsay’s Kitchen Nightmares and The Hotel Inspector.

Who is ‘Buy and Flip’ right for?

The ‘Buy and Flip’ strategy is a good option for people with a background in construction who have the skills, expertise

As good as the ‘Buy and Flip’ strategy looks from the comfort of our couches, you have to respect the strategy and understand what it needs to be successful at it.

•

•

Read this one book, set up your money, and get on with your life!

• Learn how to kill off debt and curb spending • Find your best KiwiSaver fund • Save painlessly • Buy a house or be happy not buying one • Move confidently towards and through retirement

Definitions: Equity: Equity in your home is the difference between the market value of your home, and the amount you owe on your mortgage.

Passive investing: In property, refers to a buy-and-hold strategy for longterm investment, with minimal selling.

Active investing: In property, refers to an investor who takes a hands-on approach and will buy with the intention of renovating and selling at a profit.

How much can you afford?

Go online to the free JUNO/Opes Property Investment Guide, to find out how much you can afford. www.opespartners.co.nz/propertyinvestment

YO U R I N V E S T I N G

When the Kids Don’t Leave Home House prices are moving out of reach for young Kiwis. More parents are facing having their adult kids staying at home, but there are solutions that give everyone their own space, says Brenda Ward.

What do you do when the kids don’t leave home?

This is a growing problem for many Kiwi parents right now. Jobs for young people are getting harder to find and drops in KiwiSaver balances mean many millennials can’t now afford a house deposit.

Hannah Thomson, director of planning consultancy Planning Plus, says she’s increasingly getting calls for help from parents.

“We hear of parents wanting to help their kids out, often by allowing them to move back home to save money, but also by providing some accommodation on their own land for the children,” she says.

Senior Planner Jo Michalakis agrees.

“We often see new builds purpose-built to accommodate multi-generational living, and we’ve recently gained resource consent approval for several tiny houses, which are growing in popularity.”

Families are often looking for information on planning a sleepout, building a minor dwelling, subdividing their section, or providing a self-contained area in the existing house, Thomson says.

Here are some ways to love them but leave them.

Split the house If you own a bigger home, one of the cheapest ways to get separation is to start with your existing house, Thomson says.

“You may be able to split your existing house into two, to create a self-contained 50 JUNO |

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area for your teenagers or young people.

“But you’ll still be living very close to another person or family, so you need to be sure you’re comfortable with that.

“This is different to a minor dwelling, where the other people would often be slightly separated from your living areas and you’d have more privacy.”

Older houses from the 1970s and 1980s are especially useful for splitting, she says.

“They commonly have living and bedroom areas upstairs, and a garage, rumpus room, or hobby room downstairs. This area can lend itself to being self-contained.

“There are various ways you can do this in planning terms.”

If it’s designed well, you may not need a resource consent, says Thomson. “There are planning rules you need to comply with, though, and these vary depending on the zone your site is in.

Rural zones are harder “As a general comment, in rural zones, splitting a dwelling into two is much harder to get resource consent for. I’d suggest you get planning advice before proceeding too far. The risk might be too high to proceed.”

You may need a building consent. She suggests talking to a planner, so you know what resource consents you’ll need, and it’s wise to talk to an architectural designer, so you don’t end up with odd spaces.

“Keep resale value in mind, consider fire rating, parking, services, and if you want a separate unit or to keep both on one title.”

Sleepouts Could a sleepout be an answer to your prayers?

A sleepout is typically a building separate from the main house used as extra accommodation, says Thomson. It has no cooking or kitchen facilities and usually shares facilities with the main dwelling.

It’s used in association with the main house and isn’t a standalone self-contained accommodation option.

It’s often a cost-effective option, says Thomson.

“Depending on the specifics of your site and where you put the sleepout, you often don’t need a resource consent, which can save you time and money,” she says.

“You will, however, usually need to check building consent requirements with your local council. From August 2020, basic sleepouts up to 30 square metres can be constructed without building consent provided you use a Licensed Builder Practitioner or Chartered Professional

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Engineer. We still recommend that you check with your local council though, as things like plumbing would trigger a building consent.”

Sleepouts and minor dwellings can be more complicated than they seem, says Thomson.

In Auckland, minor dwellings can only be built in specific zones. Other councils may have different rules.

There’s often confusion between a sleepout and a ‘minor dwelling’, she says.

“They’re also highly visible, so it’s easy for neighbours to complain to the council about them.

The key difference between the two is installing a kitchen.

“It’s always better to check your facts in advance.”

A sleepout is dependent on the main dwelling and used in association with it – this is the key difference between the two. A minor dwelling has its own kitchen facilities (where food is stored, prepared and cooked).

Minor dwellings Thomson says minor dwellings, also known as granny flats, can be a good solution for young adults, grandparents, or a way to make a bit of extra income.

You’ll need a building consent and will need to pay development contributions on top of any resource consent or building consent fees, because your extra dwelling is increasing demand for council services such as roads, service lines and community facilities.

Removable buildings can be adapted to be a sleepout. But you could still need a resource consent, says Thomson, even if the building is portable.

Thomson says a minor dwelling must be secondary to the main dwelling and have some element of dependence to the main dwelling, like shared access.

Under the Resource Management Act, temporary or removable buildings are often treated in the same way as permanent buildings. You’ll usually need some advice to say if a sleepout can be put on a site, even if it’s temporary.

And generally they can’t be bigger than 65 square metres. Depending on the number of bedrooms, they need between five and eight square metres of private open space with a minimum depth of 1.8 metres, and one car parking space.

Subdivide and build If you have a big site, why not build a new house on your land for the kids?

In some Auckland zones, you may be able to subdivide your section. How many sites you can subdivide off and how many houses you can build all depends on the zoning of your site, its size and other factors, such as flooding.

Building a new house is a big project, she says, but the kids may be able to share in the cost of the development.

For more information, see their website, www.planningplus.co.nz.

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New Build Prices Won’t Hold For Long There’s no cheaper time to build quality than now, says Andy Lawrence of Landmark Homes.

Andy Lawrence, the Central Otago franchisee for Landmark Homes, says investors on the verge of building should act quickly.

“Price hikes are already starting to filter through from materials suppliers,” he says. “New-build prices won’t hold for long.”

He says the economy has just had a huge shock that has got people thinking about how they would like to live now.

“Many families are building houses with supplementary self-contained accommodation for older children living at home, aged parents, or to rent out or Airbnb.”

He says despite a short-term shock, over the long-term, property is likely to pick back up again, as demand for homes continues.

But the types of homes people are looking for could change. So, if you’re planning to build, now’s a good time to think smart about what types of homes and features could appeal to future buyers.

Landmark Homes Central Otago specialises in dream builds, in a dream location.

www.landmarkhomes.co.nz

How to get started 1. I have a dream We all have an idea of how our dream home would look. We can imagine how many bedrooms it would have, the kitchen, and whether we’d have a scullery, an ‘outdoor room’ for entertaining, or a spa pool.

If you’ve reached that stage in life where you can finally make your dream home a reality, congratulations – let’s get down to business. The journey to building your dream home all begins with research.

Resources such as Pinterest and Trends Ideas are great for inspiring ideas on home design, styles and quality.

Next, consider the land you’d like to build on. Do you have a section already, or are you on the lookout for the perfect location? Remember, the land will be a significant factor in your design possibilities.

And then there’s finding the right people to help. Comparing different building companies should be an important part of your research. We’d love to help with this if you’re looking at building in the

lower South Island.

If your dream is to live in natural surrounds, we can make your home fit with the rugged scenery of Queenstown and the wider Central Otago region. The whole region is developing, but there’s still prime real estate available.

2. Let’s have a coffee We’re thrilled that you’ve found Landmark Homes. A lot of our customers start by asking for their own copy of the Landmark book for an in-depth look at homes and inspiration from homes we’ve already built.

Once you have an idea of what you like, then it’s time for coffee and cake, our shout!

Our team will give you all the information you need to decide on the type of build you’re after – from the time frame to your budget, the materials required and everything in between.

If you’ve already have bought land or have a building site in mind, we could even meet you there for a tramp around!

We have experienced teams in Wanaka and Queenstown, and a new team in Cromwell.

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3. Design Brief One of Landmark’s specialties is offering you a range of flexible options for building your home. You can choose between: • a customised Design-and-Build from scratch • a Ready-to-Build home from our popular plans collection • or a buy a House and Land package in your area.

Each approach can be tailored for your needs and has options for aesthetics, space, land usage, the style of the home – and, of course, your budget.

We work with you to turn your hopes and ideas into a clear design brief.

4. Design under way Our expert team of designers then kick off the building journey with the first concept plans. We work closely and collaboratively with you through this process and make any revisions until you’re completely happy.

Once you’ve signed off the concept designs, we create ‘preliminary plans’, made in partnership with a quantity surveyor. Again, we’ll keep revising until you’re happy.

5. Pricing and contract You’ll be kept updated on the costs of your build. However, this point in the process is key as it is the last step before committing to the construction phase.

Your preliminary plans are approved and all revisions are accounted for.

Your new home consultant will finalise all other aspects of working together, including things like pricing, finance expectations and a construction timeline.

From here, they’ll formalise a contract for sign-off.

Once we’ve agreed to the final design and price, our ‘no escalation clause’ means your home will be delivered to budget.

If you do make changes, our experienced team can manage variations with ease and cost them accurately, so there are no surprises at the end.

6. Plans and consents Now we prepare the final building plans ready for consent and construction.

These stages can be a little daunting for new homeowners, but we’ll be right beside you the whole time.

We take care of the red tape and tricky stuff like obtaining council consents, sort the paperwork and the construction tradies. You get to work on fun details like the interior design of your kitchen, wardrobe, lighting, furnishings, landscaping and more.

7. Building under way It’s time to build. We’ll keep you updated every step of the way and we’ll meet you on site regularly throughout the build to watch your dream come to life.

It’s surprisingly exciting to watch walls go up, stairs go in, or windows being installed as your home takes shape.

8. Live the dream It’s the day you’ve been dreaming of and we’ve all been working towards: it’s moving day! There’s a lot of well-earned joy and celebration on this milestone day, particularly because we have likely become good friends in the process of building your home together.

We pop the bubbles, high-five, and stand back together to admire the stunning home that your dreams built.

You get the keys, move in, and get on with living the dream.

Why Landmark?

Landmark Homes has more than 40 years’ experience of building exceptionally designed, fabulously liveable homes throughout New Zealand.

Landmark is 100 per cent locally owned and operated, in 15 regions. Bringing your vision to life is the primary objective.

Landmark Homes is a longstanding member of the Registered Master Builders, so homeowners receive a 10-year Masterbuild Guarantee on every home the company builds.

The first step is always to make contact. Ring us at the Queenstown or Wanaka office for a chat to look at the options for building a Landmark investment home or a residential option. There’s no better time to get the ball rolling. Email Andrew.lawrence@landmark homes.co.nz.

YO U R I N V E S T I N G

Don’t Be the Person Who Can’t Afford a Flat White If you want to afford a comfortable retirement, a rental property can help you get there, says Barfoot & Thompson director Kiri Barfoot.

I’m not that different to most Kiwis – I want to retire well. And I bet you do, too.

When I give up work, I don’t want to be that person who won’t go to a café for a coffee. I don’t want to have stay at home and boil the jug for an instant coffee.

I don’t want to recycle tea bags.

I want to be able to afford to put my heat pump on, and not have to sit in bed all day because it’s too cold in my house.

We forget, you know, those of us who work in an office, that when we come to work, it’s all nice and warm.

But when you’re retired, you’re mainly staying at home and you might have an old, cold house.

go down. I find that property doesn’t tend to go down as dramatically, and it doesn’t matter that it dips, until you sell it.

retire? What if I get made redundant?’

If you’re in a pandemic and you lose your job, at least you have something to sell.

Your power bills are probably going to be higher because you’re home all day, and you might feel you have to economise.

When is right to buy?

I wouldn’t suggest buying an investment if you’re only a couple of years into your first mortgage. I’d wait until you’d knocked off a bit off the mortgage, but not all of it.

I’m fortunate that I was raised in a family of experts in property investment, and I’ve invested in property myself.

If you wait until you’ve paid it off, it will have taken another 10 years, and house prices will have gone up again.

For many Kiwis, property can be a way to create a financial buffer, and we’ve just seen that sometimes you urgently need one.

I think you have to look at your personal circumstances. Ask yourself, ‘If I’m earning a good income, where am I going to put my money?

Owning a rental property as you start to approach retirement gives you options.

‘Yes, I might put it into KiwiSaver, but I can’t get that until I’m 65, and there are some restrictions around that.

You might have to top it up a little bit initially, and spend some money bringing the house up to Healthy Homes standards, but over time the rents will keep going up – and since 2010, interest rates have been going down.

‘What if I get to 55 and think, I want to

And the price of your house is likely to have

The share market does give you a good return, but you could also lose – it could

www.barfoot.co.nz

In a crisis, people who have a rental property don’t have to sell their family home, but they could sell their rental, use the balance to pay off their mortgage and still have some change.

Using leverage The good thing about rental property is that you can use leverage (borrowings) to buy. You don’t even have to have a deposit if you’ve got enough equity and meet the bank’s criteria.

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gone up, so if you bought something 10 years ago for half a million, you’ll likely find it’s now worth a million.

Your mortgage might be $300,000, so if you sell it, you’re going to do okay.

You don’t even have to sell it. You could just earn an income from it. The rent will probably always go up, but the mortgage over the same time will go down.

You could be getting $700 a week in rent and only paying 2.5 per cent in interest, so you’re actually making money from it.

When is too late?

People wonder when it’s too late to buy a property. People now live to 80 or 85.

My generation could live to 100, so in your fifties you’re only halfway through.

I think it’s good for people to have investments in different baskets, but with

property I’d say you only need to own your own and one other house.

I know from the people we work with in property management that you don’t need multiple properties.

Well, that’s unless that’s your goal.

If you can recycle the equity in your current property and borrow some money from the bank, you may not even have to pay a deposit.

And you can always do up properties.

There’s always something you can add value to if you have time, and you’re good with your hands.

If you want to own a rental property in New Zealand, and you already own a house, have a good deposit or a good income (and the bank likes you), I’d say it’s entirely possible to do just that.

What's Stopping You? Finance. The property market is a function of the finance capacity; if people can’t get loans it goes down, if they can get loans, it goes up.

Being risk-averse. If you couldn’t sleep at night with an interest-only loan, rental property is probably not for you.

If you can’t handle the tenants.

Some people worry about the tenants, because they’ve heard only the bad stories and if the tenant didn’t pay rent, they couldn’t confront them. If you’re one of them, that’s the reason lots of people use property managers.

It’s a business. Effectively, owning a property is a business and it’s a risk.

Not everyone has the appetite to do it.

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Do Apartments Stack Up? Despite tough times, many Kiwis still have money to invest in property. Could an apartment be a cheap way to get started?

Amy Hamilton Chadwick checks out the risks and rewards.

Rental properties have long been a favourite investment for New Zealanders – there’s the chance to add value, to be in control of your own investment, to use the bank’s money to get ahead, and to choose your own strategy.

If you’re looking for an investment providing a higher return than the bank offers, an apartment could work, but be ready to spend some time looking into the paperwork.

Leverage, plus returns The two big advantages of apartment investing are compelling.

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First, apartments have a lower entry point when it comes to price.

•

Second, your apartment can earn more money than it costs you to own it.

“Apartments have been pretty stable in terms of yields,” says Bindi Norwell, chief executive of the Real Estate Institute of New Zealand.

Yield is worked out by describing a year’s rental income as a percentage of how much the property cost. It’s different from a return.

“For Auckland apartments, the average yield was 3.8 per cent in June 2020, not much different from last year when they were 4 per cent.

“In Wellington, they’ve gone from 5.3 per cent to 4.6 per cent.”

Pick the best returns Those yields include the full spectrum of apartments, so by cherry-picking the best properties, you can find a much higher return.

“We can get a 6 per cent [net] return for any investor who wants one, absolutely,” says Aaron Tunstall,

general manager of Impression Real Estate, which sells and manages apartments in Auckland.

“You can beat the bank if you get something that gives you a decent return.”

You can achieve a similar return in Wellington, according to apartment specialist sales agent John Kettle of Tommy’s.

“If you’re looking for 6 per cent, we can find something and make it work. I listed one [in July] with a 6 per cent net return and we had huge interest from investors.”

Demand in Wellington If you want a bargain in a post-lockdown price slump, the news from Wellington will be disappointing.

Kettle says interest is strong for both new builds and existing stock.

“Wellington has the advantage of being sheltered from the worst of the downturn because of government employment. Plus, we have a lot of people coming back to New Zealand from parts of the world where apartment living is the norm, so I think the market is benefiting from that.

“I’m really busy – lots of listings and turning them over reasonably quickly. The high-end stuff is moving really well.”

Auckland’s flat The Auckland market has been less buoyant, mainly due to the downturn in international students, who rent many of the smaller CBD apartments investors like to buy.

Tunstall says the vacancy rate shot up, although it’s had a slight recovery, and rents are flat or slightly declining.

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Borrowing to buy Banks like to lend on quality apartments, but they’re more cautious on small apartments of less than 45 square metres (excluding the balcony), student accommodation, or dual-key apartments.

“It’s been a buyer’s market for a few years now,” he says.

“But lack of listings is one of the big problems. It’s a bit difficult to convince owners to sell – what are they going to do with their money?

“They can’t put it in the bank, so they might as well keep the apartment.”

So far in 2020, apartments have continued to fare well in terms of sale price to capital value (CV) ratio – and relative to houses, says Kelvin Davidson, senior property analyst for CoreLogic.

“Unfortunately, though, apartments do tend to suffer more than houses in downturns.

“So, even though they’re performed okay lately, history would suggest that they’ll underperform the wider market in the coming months – especially given the absence of international visitors (for Airbnb), and foreign students.”

Costs and risks If you’re considering dipping your toe into the water with an investment apartment, it pays to understand how the market works.

Apartment buildings operate under the Unit Titles Act. They’re run by a body corporate committee that sets rules, collects fees, and looks after maintenance for the complex.

When you buy an apartment, there are special disclosures the vendor must tell you. This means there’s more due diligence needed when you buy an apartment. Due diligence is looking over important financial records before you buy.

You’ll also need to factor in body corporate fees.

“You’re forward paying for someone to do all that maintenance and putting money aside for future maintenance as well,” says Tunstall.

“People sometimes say, ‘I don’t want to pay body corporate fees.’ I say, ‘I don’t know the last time you painted a house, but how expensive is that?’”

There are also two particularly high-risk categories of apartment: those in leaky buildings and those on leasehold titles.

Leaky buildings: When it comes to weathertightness, the costs for repair can be massive, so buyers have been steering clear. In late July, a 31-square-metre apartment in Auckland’s CBD with 58 JUNO |

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‘remediation issues’ was passed in at auction despite a declared reserve of just one dollar.

But newer apartments tend to be well-constructed and designed with quality of life in mind – they can be a great way to get started in the property market.

Leasehold: Leasehold apartments are an ongoing dilemma. The returns can be outstanding, but you have to pay ground rent every year. The spectre of shocking ground rent rises makes these an investment best left to the brave and well-informed.

What to look for Make sure you’re buying an apartment that will be attractive to tenants, says Norwell – pools, gyms and rooftop gardens are all strong selling points.

She recommends finding one that’s handy to public transport links.

“Think ahead: if there are some infrastructure projects in place, you could probably benefit in terms of price growth.”

It’s often said that apartments don’t go up in value as quickly as houses, but Norwell says it’s a misconception. The whole market tends to move together, including apartments, she says.

The national median price for apartments rose from $580,000 in the second quarter of 2019 to $650,000 for the same period this year – up a hefty 12.1 per cent.

The median for standalone homes went from $595,000 to $645,000 – an 8.4 per cent increase.

To get a quality apartment that’s also an excellent investment, the most important factor is doing your homework.

Check your contracts, factor in your likely costs of ownership (both time and money) and read a few months of body corporate meeting minutes to spot past or future issues.

Apartments have been increasing in popularity, Norwell says.

“It’s possible that Covid may make people think more about whether their ideal home is an apartment or a house; it depends very much on your tenant market.

“Some of the newer apartments are really beautiful and very popular – and apartments can really help you save money and get a foot on the ladder.”

A dual-key apartment is two separate apartment units on one title, making a stand-alone apartment and an adjoining one or twobedroom apartment with separate entries and facilities.

“Banks generally won’t lend more than 50 per cent on any of those – they don’t turn over very well and the values are more volatile,” explains Joel Oliver, managing director of SuperCity Mortgages.

“Banks will usually lend investors up to 80 per cent on the higher-quality apartments, but it can come down to the specific building – they keep lists of buildings with information about each one.”

When you approach a bank for apartment lending, Oliver recommends having all your body corporate minutes, weathertightness reports and fees information with you, because the lender will want to look at them.

“Always refer to the bank before you go to auction or put in an offer – there are lots of trips and traps.”

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‘At 19, I bought my first rental property. Now I help other people buy theirs.’

Expert property investor Andrew Nicol wants a property for every year of his age.

Helping people get mortgages for his job at BNZ, 18-year-old Andrew Nicol developed a passion for property investing.

Now the Christchurch businessman has a big property portfolio and has turned his passion into a thriving business.

“It all started at 18 when a mortgage broker friend asked if I’d bought a house.

“I’d only saved $12,500, but he said, do it now!”

So, Nicol put an offer on a house, but admits he made some rookie mistakes.

“I was so green, I realised halfway through that I was just pushing up my price way too far. I was so desperate to do it that I just kept going.”

He was able to cancel that offer and headed to an auction next.

“It was a really nice old villa on some big land. Again, I was too green, and I didn’t know that the agent was setting my expectations much lower than was realistic, so I got absolutely blitzed by a developer.”

Bruised but undeterred, he kept looking around.

“I ended up buying a five-bedroom character house in a very rough neighbourhood and did some renovations.”

He headed to the house at 7pm each day, sanded and painted till midnight, then headed home. “The next day, I’d do it all again.”

A property manager friend saw what he was doing. “He told me that I should sell it now because it would break my heart. But I just kept going – and he was right. I got some 60 JUNO |

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terrible tenants because of the location.

There were people sleeping in the garage!

“I was managing it myself – I was doing all the things I now tell people not to do.”

When he sold it, he made money and used it to buy better-quality properties in better locations.

“What I learned from that is there is an easy way to invest and there’s a hard way to invest.

“You’re far better off spending a little bit more, if you can, to get a better-quality investment and a better-quality tenant.”

While continuing to work at the bank, he expanded his portfolio.

“I had a personal goal of getting 10 properties, but I set that goal higher when I got to 10. Now I aim to have as many properties as my age.”

He pivoted his strategy several times.

After the Christchurch earthquakes, he bought earthquake-damaged properties.

“We’d go in and find strategies with an engineer to remedy the works that had to be done, strengthen the building again

and do a lot of renovation work.”

By this time, he was paying other people to do the work, which made projects quicker to complete.

When Nicol left the bank, he went on to become a mortgage broker and realised how many people were looking for advice on how to invest.

“I realised there was a real need for people to get advice. With two business partners, I set up Opes Partners to coach people into their first investment, then help them grow a portfolio.”

That was seven years ago.

The company has grown, adding a property management service, a real-estate service, and accounting systems to help clients with tax. This year, it bought JUNO magazine to inform more people about investment.

“Now we pretty much offer an end-to-end solution.”

Nicol says he still invests. “I like to have personal investments and I think it’s really important that people practise what they preach.”

PROPERTY

‘Even in this tough market our rental isn’t costing us money’ Karl and Treice live in their own home in Auckland but bought an investment property in Christchurch.

Just working and earning an hourly rate didn’t feel like enough for Aucklanders Karl and Treice, so they decided to invest for financial freedom.

“Not long after we got married, we bought our family home and moved in,” says Karl, who works in the crane industry. The pair had a child and planned to expand their family.

“So, we’ve had our home since 2013 and it works a bit like an income, I suppose,” he says. Soon, they realised it had grown in value by about 40 per cent since they bought it.

“You’re richer but of course, you can’t just go and spend the money because there is no money; it’s just equity.”

But you can use that equity for an investment, they realised.

“My wife decided that we should look into property investment and how it could help us reduce the time to pay off our mortgage.

We’ve both got good jobs.”

Treice, who used to work for Air New Zealand, found a broker and an investment coach, and soon saw it made sense that they should invest in property, and use the equity to grow more equity.

“It started us looking around the country at properties and developments.”

The pair looked first in Auckland, which was expensive for what you got, found Hamilton rather expensive at the time, and then started looking in Christchurch and Rolleston.

“Christchurch looked pretty good and we ended up looking at a new townhouse in the CBD, near the Avon River.

“We were looking for something that gave us a good return and met our priorities.”

Then Karl came to a JUNO Exchange event in Auckland.

“We had just signed up, but we were still rather nervous about if we had made the right choice.

“Then I came along to the first JUNO Exchange event, and listening to the speakers gave me some assurance and confidence to just get out there and do it, rather than questioning things.

“I really connected with that young guy, Walter Neilands from Dancing with the Stars. It was him, his personality, his gogetter attitude, and his confidence.

“I realised it’s a bit like having a child, you can’t know the costs of it, until you take the risk.”

The plan is not to take income from the property now, says Karl.

“That wasn’t the goal. With two kids, and looking long-term, the goal is to grow our equity and hopefully pay off the family home mortgage as quickly as possible by

transferring equity from our property investment in Christchurch as things grew in value.”

The pair got the keys just the week after lockdown. “We didn’t have a tenant then, so it was a bit scary at first.”

But it turned out that tenants were queuing up for it, and it was tenanted from the first week.

They use a property manager because running a property is tricky long-distance and they’ve never done it before. So far, so good, they say.

On the numbers, it was stacking up to cost them nothing, he says, but low interest rates mean it’s now covering all its costs with a little left over each month.

“We’re very happy we have made that choice, even with the current climate in the world, economics and property, it doesn’t feel like a burden and it’s not costing us money.

“It’s banking money away and paying rates and any bills it has coming in. It’s not hard.”

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‘Reverse mortgage drawdown gave us peace of mind’ John and Margaret were stressed after Covid-19 left them without a job, but they were able to release equity from their home.

In 2019, John, who was 67 at the time, had a medical procedure on his foot which, due to complications, took much longer to heal than first thought.

He couldn’t work and asked his bank for a mortgage ‘holiday’ – deferred interest payments – on a house he bought in the Waikato in 2010.

The bank deferred his payments and six months later, John was back at work as a maintenance engineer at a stainless-steel company which services the food industry.

Things were going well at his job until the Covid-19 pandemic struck in early 2020.

The food industry had to tighten up on allowing external contractors on site, and the company’s business declined.

Made redundant A few days before New Zealand went into lockdown, John was made redundant.

Once again, he had to approach his bank for a mortgage holiday.

The bank explained it could grant the holiday, but that the repayment amounts would go up a lot when the holiday ended.

The bank was also unwilling to extend the term of the mortgage, which could have brought down the cost of the repayments, he says.

“It was an incredibly stressful time,” he says.

“We had some problems in the past, but we were meeting our repayment requirements up until I lost my job.

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Looking for options “I didn’t want to ask my partner to try to find work again at the age of 66, so it was clear we had to consider other options.”

The pair saw a Heartland Bank advert for reverse mortgages in March 2020 and made a virtual appointment with a Heartland reverse mortgage specialist, who explained everything to them.

The couple were concerned that they wouldn’t qualify for a reverse mortgage because they hadn’t paid off their mortgage in full yet.

However, their specialist explained that they had paid off enough of the mortgage to qualify and that the reverse mortgage could be structured to take this into account.

A few days after their online meeting with the specialist, the couple decided to go ahead. The lockdown made it rather difficult, says John, but Heartland had a plan.

“All the documents were scanned and sent to us and we met with our lawyer online to

get independent legal advice.

“It was an easy process and Heartland handled it very well under challenging circumstances.”

A ‘life-changing experience’ Within weeks, John and his partner were able to draw down money from their reverse mortgage. They paid off a small personal loan and can now live quite comfortably on their combined pensions and the money from their reverse mortgage.

“We really are so happy that we decided to go ahead. The fact that Heartland was willing to work with us made all the difference and has given us peace of mind during a difficult time.

“Now, if I do go back to work, it will probably only be on a part-time basis, and we can look at doing other things like going on holiday at some point.

“It’s been a life-changing experience and we intend to make the most of it.”

PROPERTY

‘We helped our son onto the property ladder’ Greg and Delwyn split their house – and went halves in an investment with their son.

Greg and Delwyn’s son had saved some money towards a house deposit, but in the Auckland market, they knew he’d struggle to get a foothold.

Says his dad: “The mortgage that Patrick was able to get hold of wouldn’t be able to buy him a reasonable property – maybe he’d get a one-bedroom flat.

“We thought, if you can’t do it alone, let’s do it in partnership. Then you don’t need the deposit, because we’ve got enough equity in our property to make up that.”

So, they pooled their resources and bought a neighbouring property as a rental investment.

“We split that mortgage half-and-half.

He’s got his own account, the property is registered in all our names, and he’s a halfshare owner.

“That was getting him onto the property chain, as far as I’m concerned,” says Greg.

“The idea is he’ll start buying us out and then he’ll own the whole place.”

But in the interim, why would he go somewhere else to pay rent?

So, Greg designed a self-contained apartment for Patrick at home. He dug out an undeveloped basement to make a twobedroom space with a living room and deck for Patrick and a mate.

Delwyn sees the stylish new apartment as future-proofing the house for the family.

“We’re coming up to retirement age and we will eventually want somewhere smaller to live. In the meantime, our daughter

Shelby’s coming up to 18, so when Patrick’s gone, she’ll move downstairs. Then she’ll move on, and we’ll move in. It’s like a chain reaction.”

Greg says the couple first thought of just putting a rumpus room downstairs. “We looked at all the inexpensive options, but they’re not really inexpensive.

rather than have them go and pay rent somewhere else, the expenses they’re paying towards are contributing to the costs, electricity, water, rates and the mortgage on the building works.”

When the kids leave home, she and Greg plan to either move into the apartment or rent it out.

“You start thinking, well, let’s just do it properly.”

“In the meantime, they’ve got their own space,” she says.

So, the couple converted the house into having split living areas.

“Instead of all of us cooking, we have turns upstairs. It’s so much less stress.”

“Patrick’s got somewhere to stay, and he’s not paying rent to someone else. We still expect him to pay his share of the living costs. That way the money stays in the family,” says Greg.

She says she doesn’t think their set-up would suit everybody: “You do all have to get on… it’s a personality thing.”

“We’ve got to try to share the cost somehow: there’s electricity, bills to pay – and it cost us a lot to build it.”

Delwyn says eventually the children will inherit the house, anyway.

“Financially, they’ll benefit from it, so

Greg says he invests in property because the stock market's an unknown to him. “I don’t follow the markets well enough to see the trends. I’m a bricks-and-mortar guy, so I’m sticking my money here in the houses.

“People have always valued property.

There are more people on the planet, and everybody needs somewhere to live.”

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The First-Home Buyer’s Guide The nuts and bolts of your first home purchase.

Buying your first home is a great step toward a brighter future. You’ll need to work hard and make some sacrifices.

Saving for your first home may seem a long, daunting process. But even just saving a small amount regularly for your deposit can really add up.

Tip: Most lenders need you to have a deposit of at least 20% of a house price. So, if you’re buying a $500,000 house, you’ll need a deposit of at least $100,000.

Part 2: Your First Home and KiwiSaver Your KiwiSaver savings can be used as part, or all, of a first-home deposit. There are a few rules for withdrawing it, so make sure early on that you qualify.

Contribute at least 3% of your pay to qualify for your employer’s contribution. If you contribute at least $1,042.86 annually, you’ll qualify for $521.43 from the government.

Can you contribute more?

Your fund type is important. If buying your first home is a while off, say 10 years or longer, a growth fund might be best for you. But if you need your money sooner, a balanced or conservative fund might suit you better.

First Home Grant

Part 1: Saving for the Deposit

The First Home Grant is money from the government for your first home. You may qualify for up to $5,000 if you’re buying an existing home, or $10,000 if you’re building one.

How can you fast-track it?

To be eligible for a First Home Grant, you must:

•

Tackle high-interest debt: Pay off credit cards, payday loans, and car and personal loans.

•

Consult experts early: Check in with a mortgage broker, budget adviser or financial adviser. They can help you create savings targets based on your goals and time frame. Use online tools and calculators as a guide.

•

•

•

Increase your income: Try negotiating a pay rise, or think about applying for a higher-paying job. Could you start a side business?

Get in the right head space: Live like you’re already paying your mortgage.

This will prove to your lender you can afford the payments.

Look at your spending habits. Cut down on unnecessary day-to-day expenses.

www.junokiwisaver.co.nz

•

Be over 18, and not own any property

•

Be contributing at least 3% to your KiwiSaver account for three years or more

•

In the last 12 months, have earned $85,000 or less before tax if you’re a single buyer, or $130,000 or less before tax for two or more buyers

•

Agree to live in your house for at least six months

•

Buy a house under the region price caps

Housing NZ’s website, www.kaingaora.govt.nz has the full criteria. Apply at least 20 working days before you settle.

PROPERTY

A First Home Loan can help lowincome Kiwis get into their own homes with a smaller deposit.

Most first-home buyers will need a 20% deposit, aside from some exceptions. With a First Home Loan, buyers only need a 5% deposit.

The income and house price caps are the same as the First Home Grant. There are other requirements too, and it’s restricted to certain lenders, or banks. You still need to show the lender you can afford mortgage payments. Read the full criteria on the First Home Loan website.

First Home Grant and First Home Loan House Price Caps

Region

Existing/older properties

New properties

Auckland, Queenstown Lakes District

$600,000

$650,000

Hamilton City, Tauranga City, Western Bay of Plenty District, Kapiti Coast District, Porirua City, Upper Hutt City, Hutt City, Wellington City, Tasman District, Nelson City, Waimakariri District, Christchurch City, Selwyn District

$500,000

$550,000

Rest of New Zealand

$400,000

$500,000

Part 3. Ready to Buy Tip:

You’ve saved the money for your first-home deposit. All your hard saving has paid off! Now you’re onto the part where you find, and buy, a home in the price bracket you can afford.

If you plan to renovate the house, speak to your broker about the best type of loan that will let you access money to pay for upgrades.

Build your team of experts Buying a property is expensive, and it can cost even more if something goes wrong. It’s important to have a team of professionals to support you.** Before you start looking at homes, find a lawyer or conveyancer. Other experts who can help are a building inspector, a mortgage broker or bank, and an insurer. Make sure you get an experienced property lawyer, who knows their stuff. Set aside a few thousand dollars to cover these legal fees.

A mortgage broker can help you find the best type of mortgage for your situation and manage the application for you.

Home loan preapproval Home loan preapproval is not essential, but it can make the process easier and safer. To give you preapproval, your lender will check your finances and work out whether you’ll be able to successfully repay a mortgage. They can preapprove you for up to six months to borrow up to a set amount, so you can start looking for a house within that price range. You’ll still need final approval from the bank before your offer goes unconditional.* Allow plenty of time for preapproval.

What type of mortgage suits you?

Floating The interest rate rises and falls over the life of your mortgage. You can usually pay off more, on top of your minimum repayments. But your minimum repayment amount may go up at any time as interest rates change. If you’re on a tight budget, this could be a real problem.* Fixed A fixed-rate loan simply means the interest rate is fixed for a set time. You’ll keep paying the same rate, even if overall interest rates go up or down. This can give you certainty and help you budget. But it’s inflexible. If you want to change to a loan with a lower rate, you may face a break fee.

You can also do a mix of fixed and floating.*

We’ve produced this guide to help first-home buyers. This information is a general guide, isn’t specific to your personal situation, and doesn’t cover every detail about buying a home. We recommend you see qualified experts who can help you make decisions about your first home, based on your own situation. All content is correct at the time of publishing. Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. To access the product disclosure statement, visit junokiwisaver.co.nz **Sourced from settled.govt.nz *Sourced from canstar.co.nz

Sourced from Housing New Zealand

First Home Loan

YO U R I N V E S T I N G

Part 4: Choosing a Home Remember, your first home is unlikely to be your ‘forever home’.

Create a checklist when you're considering a property. What features are important to you?* What sort of property do you need now? What about in the next five to 10 years?

What are your priorities? What’s non-negotiable?

Are you willing to do work on the property?

Is its location more important than the property itself?

Are you interested in buying off a plan?

Would you consider building, moving a home onto a section, or an apartment?

Tip: Don’t have all your deposit money locked into KiwiSaver. Have money on hand to pay for legal fees, builder’s reports and checks on the house.

Property ownership types* Freehold, also known as fee simple, is the most common ownership type.

Leasehold is when someone else owns the land. You buy an exclusive right to possession of the land and the buildings on it for a specific time. You’ll pay leasehold fees.

Unit title ownership is most common in a building development or on a site where there are multiple owners.

Cross lease means you own a share of the freehold title ‘in common’ with the other cross leaseholders and a leasehold interest in the land and building that you occupy.

Ask your lawyer or conveyancer to review the record of title, the details of its ownership and the rights and restrictions on it.

Before you make an offer, understand all aspects of the property – including any issues. Find out if it’s a leaky home, built of problem building materials, or has natural hazards.

Reports and records to source*

www.junokiwisaver.co.nz

•

A land information memorandum (LIM) is a summary of property information held by the local council. It will show you any consents granted and the rates you’ll pay.

•

The property file at the council may contain a lot of information that isn’t on the LIM, such as a site plan and the original plans of the house.

•

A registered valuer will give you a more accurate view, but websites can give you a rough estimate of a property’s worth.

•

A pre-contract disclosure statement must be provided by the owner if you want to buy a property that’s part of a body corporate. Look at the long-term maintenance plan (LTMP) and get the minutes from the last three to five years of body corporate meetings.

PROPERTY

The home’s property inspection*

Leaky homes*

Hire an accredited building inspector to write you a property inspection report. Check if your lender has a list of accredited building inspectors.

If the home you want to buy was built between the late 1980s and mid-2000s, there’s a risk that it may be a leaky house or apartment. Buildings that have a high risk of leaking were built using plaster-style monolithic cladding systems. If you’re interested in a house or apartment with cladding of this type, get an independent building inspection. Check with your lender before buying a leaky home.

•

Look at what the roof is made of and find out what ongoing maintenance it will need.

•

If the house has piles, check they’re in good condition and properly braced.

•

Retaining walls are costly to repair — take note of large, structurally important walls.

•

Look for signs that the wiring is not up to scratch, for example, flickering lights or dark marks on fittings.

•

Check the water piping. Some types have a limited life span and can fail, leading to leaks and flooding.

•

Boundary fences are generally owned equally between two neighbours. If they’re not in good condition, you need to factor in the cost of replacing them.

•

Check the drainage from the property. If it’s downhill from other properties, find out if they drain onto the property you want to buy.

•

Ask the building inspector to look for signs of water damage, moisture, or potential leaks. Get moisture readings done.

Tip: Allow extra cash for moving-in expenses – new furniture or appliances, power and internet connections, and paying for a moving truck.

Part 5. Sealing the Deal If you’ve arranged a conditional preapproved home loan, you’ll need to confirm the loan before your offer goes unconditional. Write a clause into your contract to allow time.

You’ll need house and contents insurance. Some lenders encourage mortgage protection insurance too.

The sale and purchase agreement: Always check your sale and purchase agreement with a lawyer or conveyancer before signing it. You need to read and understand the agreement before you sign it. You should always get legal advice before, and leading up to, signing the agreement.* Unconditional or ‘finance’ day: This is when you’ve met all the conditions of the agreement. This is the day the deposit changes hands. Your lawyer or conveyancer will handle this transaction.

Settlement day: You should arrange to inspect the property before settlement day. This is known as the ‘presettlement inspection’.

Also, you need to make sure your purchase finance is ready before settlement day, and your property insurance is in place. Property settlement is largely a legal process, managed by your lawyer or conveyancer.*

We’ve produced this guide to help first-home buyers. This information is a general guide, isn’t specific to your personal situation, and doesn’t cover every detail about buying a home. We recommend you see qualified experts who can help you make decisions about your first home, based on your own situation. All content is correct at the time of publishing. Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. To access the product disclosure statement, visit junokiwisaver.co.nz *Sourced from settled.govt.nz

YO U R I N V E S T I N G

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PERSONAL FINANCE

Spend Like Goldilocks When you retire, how do you spend like Goldilocks – not too little, not too much, but just right? Brenda Ward talks to the experts about some easy ways to figure out how much to spend each year.

How can you stop work and know your money will last a lifetime?

All of us hope to have some money in the bank when we give up work. It might be a lump sum in your KiwiSaver account.

Or you might have sold an investment property, or a business.

Saving that money is hard, but strangely, the experts say spending it can be trickier.

Get it wrong and two things could happen: 1. You could die the ‘richest person in the graveyard’, says financial adviser Rob Glasgow. If you’re too cautious, you’ll die without spending it all and your kids will be flying first-class, he says.

2. Or you might run out of cash early and need to reuse tea bags and turn down the heating, says financial adviser Lisa Dudson of Acumen. Your kids could end up supporting you.

So, what’s the answer?

The experts call it ‘decumulation’, and it’s the opposite of accumulating money.

Instead of saving, you’re turning your lump sum into a regular income – and living on it.

Rules of Thumb One of the first systems, which many financial advisers still use, dates back to the 1990s. It’s called the Four Per Cent Rule, says Dr Claire Matthews of Massey

University’s Business School. “That rule of thumb suggests it’s safe to withdraw 4 per cent of your retirement portfolio to live on every year of your retirement. The investment will be growing each year from interest or other returns.”

At that time, your money was shown to last over a 30-year retirement. Start with $100,000 and here’s how it works: Year 1: Withdraw $4,000, leaving $96,000.

Year 2: Withdraw $3,840, which is 4 per cent of $96,000, leaving $91,160. And so on, until you run out of money 30 years later.

However, people realised that this method didn’t always work. It didn’t account for inflation, so new rules were devised.

Last year, the New Zealand Society of Actuaries recommended four rules to the government that worked better than the Four Per Cent Rule.

1. The Six Per Cent Rule Each year take six per cent of the starting value of your retirement savings.

2. The Inflated Four Per Cent Rule Take 4 per cent of the starting value of your retirement savings, then increase that amount each year in line with inflation. Here's how it works: Take a portfolio worth $100,000 and add inflation, currently at 2 per cent.

Year 1: Withdraw $4,000.

Year 2: Withdraw $4,080 ($4,000 plus $80 for inflation).

And so on. Each year adjust your figure according to inflation that year.

3. The Fixed Date Rule Run your retirement savings down over a period to a set fixed date – each year, take out the current value of your retirement savings divided by the number of years left to that date.

4. The Life Expectancy Rule Each year, take out the current value of your retirement savings divided by the average remaining life expectancy at that time.

Annuities You could take a chunk of your lump sum and invest it in an annuity, where it will earn an investment return and pay you out a regular sum, say each fortnight, guaranteed for the rest of your life.

It’s a way to turn your savings into an income in retirement, which could take some of the guesswork out of the decumulation puzzle.

Lifetime Retirement Income is the only provider of annuities currently in the market in New Zealand.

In Australia, there’s an incentive for investing in an annuity. Sixty per cent of a retiree’s funds in a ‘qualifying longevity SPRING 2020

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product’ won’t be counted as part of your assets for the Australian government’s asset test.

In New Zealand, a report prepared for the Commission for Financial Capability has suggested a state-backed annuities scheme as an add-on to KiwiSaver: ‘KiwiSpend’.

Use your home After paying a mortgage most of their life, many people end up with a lot of equity locked in their homes. They’re asset-rich but cash-poor.

You could rent out part of your house on Airbnb or take in a flatmate or a student.

Some people plan to downsize to a cheaper house at retirement to free up some money.

Reverse mortgages Dudson says if you spend your retirement savings too early, a ‘home-equity release’ or reverse mortgage is a great back-up plan.

It’s like redrawing the money invested in your own home and you can live in the house as long as you like.

Heartland Bank’s Andrew Ford says: “A reverse mortgage is just like a regular mortgage, but you have no regular payments, you get greater protection and more flexibility.

“Interest is added monthly and repaid when the property is sold, or the last owner passes away.”

Everyone is different In their paper to the government, the actuaries say that each retiree’s circumstances are different. One person may opt for one of the rules, but someone else might find another better suits their needs.

“For example, some people may not want to risk their savings running out, but others may be happy to spend down their savings by taking a higher income at the start of retirement.

“Some people want a quick and easy rule; others will be happy carrying out some calculations. These four Rules of Thumb cater for these variables.

Daniel Mussett, of the society’s Retirement Income Interest Group, says: “Just thinking through a simple plan for providing for your retirement is better than not planning at all.

“There’s plenty of information on websites

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such as www.sorted.org.nz and books, such as Mary Holm’s.

“We also encourage people to take professional advice for help planning their own financial needs in retirement.

“Whatever your plan, our message is give some thought to the range of possibilities for how long you might live post-retirement – don’t just focus on one number.”

Dr Matthews agrees: “Fundamentally, you’ve got to keep reviewing your spending.

“On an annual basis, you should do some sort of a review – and every five years. Ask: ‘How am I living now? What are my needs?

What do I want to do in the next few years?’

“You can’t just cruise through retirement.

If you want a good retirement and few money worries over retirement, you need to continue to assess your position.”

Both the actuaries society and Dr Matthews recommend getting professional advice as you near retirement, something Kiwis aren’t that good at doing.

Says Dr Matthews: “That’s one of the problems we’ve got across this country – our unwillingness to pay for good financial advice.

“We pay for lots of other things, but I’d even say we don’t value financial advice.

“It’s just something about the way we feel about money, a reluctance to pay someone to help us with our money.”

To find financial advice in your area from a member of the professional body Financial Advice NZ go to https://financialadvice.nz/ find-an-adviser/

Definitions Decumulation: Spending or using money you accumulated earlier.

Actuary: An actuary is a business professional who deals with measuring and managing risk and uncertainty.

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ADVERTORIAL

Emergency Funds Make You Happy Worried about money lately? You’re not alone. New research shows it’s time to set up an emergency fund to stop you hitting the wall in a crisis.

Brenda Ward finds out why.

Financial advisers have always said it’s smart to put aside several months’ worth of earnings into an emergency fund to pay for unexpected disasters, like car repairs, or losing your job.

And new research from the New Zealand Financial Services Council shows that we need emergency funds now more than ever.

How often do you worry about money?

Generation Y

(37 years & below)

30.3%

It says Covid-19 has hit Kiwis’ financial resilience and wellbeing hard, especially those in Generation Y (aged 37 or below).

We’re worried about money Over 40 per cent of us are now worrying about money at least weekly, says Richard Klipin, chief executive of the council.

Covid-19 – and money worries caused by it – are also taking a major toll on our mental health, the FSC’s Financial Resilience Index shows.

“Fifty-one per cent of us have had our mental health affected at least once or twice by money matters, a 6 per cent increase since New Zealand went into lockdown,” he says.

The index showed that Generation X was most worried about job security, with one in four sometimes or always worrying about their job security.

“Our hope is that this first stage of research will help drive a national conversation and build awareness of how we can collectively work to build our financial resilience and wellbeing.”

Generation X

(38 – 52 years old)

Baby Boomers (53 – 72 years old)

26.1%

14.9%

32.3%

(73 years & above)

7.8% 12.7%

20.9% 26.4%

Pre-Boomers

14.2%

11.2% 30.5%

13.8%

Daily Weekly Monthly A few times a year Rarely /Never

28.9%

14.9% 20.6% 15% 7.5%

13.1%

24%

34.8%

One proven way to prepare your finances to weather a storm like a pandemic is to set up an emergency fund of easily accessible cash.

When you see a stash of cash there, you’re reminded of your financial health. It makes you feel good.

A buffer makes you happy In fact, emergency funds can make you happy, one international study shows.

Their conclusion came from a field study run for a large national bank in Britain, which was reported by the American Psychological Association.

Its authors, Peter M. Ruberton and Sonja Lyubomirsky of the University of California, Riverside, and Joe Gladstone of the University of Cambridge, suggest that it’s because you check your savings and current accounts all the time.

The bank asked its customers about their account balances and their levels of life satisfaction.

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“Every time I see that little bit of money sitting there, it’s a sense of relief.” than those without one, regardless of their earnings, or other investments.

When there are bills to pay, it’s tough putting money aside for a rainy day, but the results of the survey show it’s well worth it.

Life satisfaction went up A 10-fold increase in people’s monthly current account balance saw an average boost of 0.69 points in life satisfaction, on the five-item Satisfaction with Life Scale, a widely used measure of global life evaluation.

The secret is cash on hand, says the study’s authors.

“Individuals who have ample cash available to them as a buffer may feel more secure in their financial situation, and thus more satisfied with their lives, than those with less cash ‘on hand’, regardless of how much money they earn, or whether or not they have debt.”

They added: “Having investments and not being in debt are both associated with greater financial wellbeing but having cash ‘on hand’ is meaningful above and beyond those measures of wealth.”

The study’s authors went one step further, suggesting that governments should factor this in when they’re planning their policies.

“To improve the wellbeing of citizens, policymakers should focus not just on boosting incomes, but also on increasing people’s immediate access to money,” they said.

Try to only use it for unexpected bills, such as losing your mobile phone, car repairs or dental emergencies, she says.

How to set up your fund Most financial advisers suggest you put aside money for your emergency account first – before you start saving for other goals.

“Ask yourself if it’s an emergency. Buying a dress for your friend’s wedding? That’s not.”

Lynda Moore, The Money Mentalist, says it helps to call that account a name that resonates for you, perhaps ‘Rainy Day Fund’.

“Every time I see that little bit of money sitting there, it’s a sense of relief.”

“Start with a sum that’s small and manageable, that you can achieve in 90 days.

If you haven’t been able to do any savings at all, just start with trying to save $1000.”

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She has an emergency fund herself, her ‘Stuff Happens’ account.

Challenges ahead The FSC’s Financial Resilience Index paints a challenging picture of our financial resilience as a nation, and one that we know is likely to worsen in coming months, says Klipin.

The council will be doing further research to map how Kiwis are faring.

“There’s no getting away from the scale of this challenge, especially with the worsening economic outlook, but as an industry we are committed to doing what we can to help New Zealanders improve their financial resilience.”

The survey showed that generations were affected differently.

Gen Y, aged 37 and younger, worry about money the most, followed by Gen X (aged 38-52), then Baby Boomers (aged 53-72).

Pre-Boomers (aged 73 and older) worried the least.

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Why is the Share Market So Crazy?

People are losing jobs, nations are in lockdown, and the world’s in chaos – but share markets have been going up. What’s going on?

Mike Taylor explains.

The global financial crisis (GFC) was a failure of the financial system. This is different.

In 2007, the world’s money systems – banks, insurance companies, and stock exchanges – came under huge financial stress, leading to a severe credit crunch and high household debt.

But the Covid-19 recession is more like both a natural disaster and a market disruptor.

It has shocked financial markets, like a natural disaster would, but that impact will be temporary.

We’re seeing the correct response – central banks are cutting rates and governments are helping households and businesses to rebuild.

But it has also been a massive market and political disruptor. There’s been an acceleration of online and digital business, which has come from people being forced to, and then preferring to, work from home.

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‘The market was rallying in May, when people were losing their jobs. That was because the market was not looking at the May economic situation. It was looking ahead.’

This is an ongoing market disruption with massive, ongoing, permanent effects.

It’s similar for governments, because global lockdowns are creating the need to offer financial help and reassurance to entire populations.

Policy response, both fiscal (spending) and monetary (what central banks do) has been never been seen on this scale. It is meaningful, and lasting.

The share market is not the economy Are you wondering why the share market went up when the economy isn’t performing well?

That’s because markets are always forwardlooking. So, what you see in front of you today is not what the market is looking at.

Typically, the market looks anywhere between six and 12 months ahead.

For example, the market was rallying in May, when people were losing their jobs.

That was because the market was not looking at the May economic situation.

It was looking ahead, trying to make an assessment, and saying, ‘What will the economy look like in May 2021?’. The market tries to anticipate what the future is going to be.

Likewise, when it’s going down, the market is trying to anticipate things getting worse.

Central banks’ cash injection The second reason why the share market is not the economy is that, since 2008, we’ve seen extraordinary monetary policy intervention from central banks.

stepped up their existing money-printing programmes, big-time.

Asset prices fell heavily at first, but this intervention inflated them back to where they are now.

Banks are now flush with cash (which is good news, by the way). That means they no longer need to offer attractive rates on term deposits.

This prevented a financial crisis, which was the main purpose of providing so much liquidity and confidence to the market.

Ten years ago, term deposits could earn you 8 per cent. Now that’s down to 1.5 per cent – probably not enough income to live off if you’re retired.

That started with quantitative easing, which effectively is central banks printing money to buy bonds.

Central banks have achieved their goal.

Money has flooded into the system and, of course, it has found its way into shares.

This means Kiwis who have relied on term deposits for income may start looking elsewhere, perhaps towards riskier assets.

Money-printing has now extended for over a decade, since 2008, to the point where Japanese central banks are even buying shares.

Term deposits drop The bad news of all this additional stimulus is that investors’ return on cash is approaching zero, where it has been in Europe for the last decade.

We’ve seen evidence of this, as low-cost investor share platforms are experiencing growth in new clients.

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Conservative managed funds may also be of interest to investors because, while they

PERSONAL FINANCE

can still dip, they are lower-risk and should give better returns over the long term than term deposits.

will be extended further. With elections looming, it would be political suicide to cut people off at this juncture.

Stimulus and second-wave fears Now we now must think about investing in a landscape where stimulus is driving asset prices. The result is a renewed focus on growth assets.

If you’re expecting shares to fall back to March’s lows later this year, I’d say the chances of this happening are reducing.

So, what about fears of a second wave of the virus? Share investors are experiencing vertigo with the highs they’re seeing. What will happen?

Governments have committed to the current course of stimulus and more is likely to be announced globally in the coming months.

I predict wage-support schemes worldwide

We’ll either steadily recover out of Covid-19 and the situation will keep improving (like a rebuild after a natural disaster), or things will get worse (more aftershocks) and more stimulus is applied until we eventually do recover.

Mike Taylor is the founder and chief executive of Pie Funds. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. Before relying on it, we recommend you speak with a financial adviser.

Information correct as of 16 July 2020.

Definitions Quantitative easing: QE is a monetary policy used by central banks and governments to stimulate their economy, often by buying government bonds and increasing the supply of money.

Stimulus: Economic stimulus is steps by governments or central banks to kickstart growth during tough times.

Liquidity: Liquidity means how quickly you can get your hands on your cash or convert an asset to cash.

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$ ‘Oh, No! I Can’t Pay My Home Loan.’

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Taking out a mortgage is a whole lot of debt to take on. And things can go wrong. Insurance pioneer Naomi Ballantyne says not to panic. You can protect yourself and some policies adapt as your needs change.

The first time most Kiwis ever really think about their financial position, future, and risks as a whole is probably when they take out their first mortgage.

For most of us, the penny drops when we’re about to sign on the dotted line for our first house, and the mortgage broker or bank manager suggests we should take out life insurance to protect our shiny new debt.

For the first time, the things that could go wrong pop into our minds, and the concept of financial risk, and the idea of protecting ourselves against that risk, starts to make sense.

If you’re an investor, the idea of protecting your debt isn’t likely to be a new idea.

For more details, see my column in JUNO Spring 2019.

The other thing to remember is that while many New Zealanders buy insurance when they first take out a mortgage, they don’t check it regularly to make sure the cover they put in place still gives them the right protection as their needs grow and change.

What kind of cover?

So, what type of cover should you choose?

Realistically, your property holdings and debt structures are likely to evolve over the years, so you need cover that

www.partnerslife.co.nz

$

can flex with changes in your debt and with how many properties you own.

You might start with a first home, then sell to upgrade to a more expensive property, and then add into the mix a rental property – or even a bach.

There are two personal insurance products commonly used to protect mortgage debts, life cover and mortgage repayment cover.

$

Bear in mind that not every product or policy is created equal.

What I write here will be true of the products offered by many providers, but it’s always important to check the exact policy wordings of any products you hold.

If you aren’t sure, seek expert advice.

Life cover Let’s look first at life cover. Life cover is often used to cover outstanding principal debt, and particularly for property investors, the sums involved can be fairly hefty.

If your principal debt increases, applying for an increase in cover can become more difficult (if not impossible) if your health has changed for the worse.

You’ll need to be reassessed – what we in the business call ‘medical underwriting’ – on the increase. And you might get turned down.

You are, of course, already covered for health changes under your existing covers.

However, most life cover contracts in New Zealand have a clause for ‘special events’ increases.

Some specified life events trigger the need for, and the chance to increase your cover without any extra ‘underwriting’.

This means changes in health are automatically covered under the increase.

Here are some of the events that will often qualify as ‘special events’: • Taking out or increasing a residential mortgage.

• Buying a new home.

• Purchasing a new residential investment property.

ADVERTORIAL

$

$ $ • Buying a vacation home.

• Buying a bare block of residentialzoned land.

With these ‘special events’, this clause allows you to increase your cover to adapt to your changing debt situation, effectively and efficiently.

Mortgage repayment cover Mortgage repayment cover products, as their name suggests, are designed to protect your repayment obligations in case you can’t work.

These products are often used in combination with broader ‘income protection’ products.

There are often several specific advantages to both homeowners and property investors with these policies.

$

One is how they interact with any accident compensation (ACC) payments you might be eligible for.

Similar to the ‘special events’ triggers, mortgage repayment cover products frequently allow you to adapt your cover as your debt situation changes.

Nearly every contract of this type will allow you to increase the amount you are covered for without any further medical assessment when an increase in your mortgage debt leads to an increase in your repayments.

As well, if you restructure your mortgage debts and this leads to an increase in repayments (like changing your mortgage term), they’ll also allow you the same chance to increase cover.

Some products will even give you a

$ similar option to increase your coverage where a specified increase in interest rates leads to an increase in your repayments.

Take the first step If you already have insurance in place to protect your mortgage debt, congratulations, you’ve taken the first step.

The next step is to make sure your protection flexes with your evolving debt situation and to ensure you take advantage of those non-underwritten increase opportunities.

I strongly believe the best way for you to check this is to seek expert advice from an independent insurance adviser.

They’ll understand your specific situation and can guide you through the process.

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Property developer Peter Cooper is the Kiwi mastermind behind Auckland’s Britomart restoration project.

His business, Cooper & Company, refurbished 18 historic buildings in Auckland’s downtown waterfront as part of the largest single conservation and restoration project in New Zealand today, with an estimated cost north of NZ$350 million.

UNFILTERED Game-changer series with Jake Millar Five Minutes with Peter Cooper Property Developer

Cooper’s one of New Zealand’s leading developers, with a net worth estimated to be more than NZ$780 million.

He was also behind The Landing in the Bay of Islands, and the huge Southlake Town Square shopping district in Texas.

He grew up in Kaitaia, where he was head boy of Kaitaia College. At 17, he won an American Field Scholarship to the US. After starting his career in commercial and property law, he became a partner at Auckland law firm Russell McVeagh.

He was also executive director of listed Australasian company Lion Nathan and joint managing director of Mace Development Corporation.

In 2013, he was made a Companion of the NZ Order of Merit.

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“You have to act on your passion, and you have to have patience.”

Britomart’s a pretty amazing place.

What would you say is one of the most transformative business experiences that you’ve ever been through?

There hasn’t been a singular occasion. It’s really been a process, and it’s like a journey, and each path you take leads to the next path. It’s very much a progressive situation.

When you were growing up at Kaitaia College, did you ever see yourself getting into investing in property one day?

I started my degree in psychology, and then I saw all these important guys that used to rush to the university at five at night. They wore ties and they were lawyers; I became one of them.

And you enjoyed that time?

Yes. My time at Russell McVeagh was when they were very small. This was in the mid’70s, and for that next 11 years, going into mid-’80s, was a frenetic time in business.

I think Russell McVeagh was probably my university of business life.

What were the few biggest lessons you learned from your career in law?

It was a boom and bust time in the mid’80s, and public companies as such came into vogue. Everyone around the world was investing in public stocks, New Zealand was no exception, and there were a lot of those public companies, particularly in real estate, that didn’t make it and were over-leveraged. And it’s a cycle that’s repeated itself since then, as well. Working as a lawyer and getting the insight into the boom and bust phenomenon was very productive.

After seven years, you decided to leave in 1985 and go out on your own with Mace development Corporation with Chris Mason.

Chris was a client, we became very good friends, and we started to do some very small private industrial investments together. Chris and I created our company, and then did a reverse merger, so to speak, and acquired a public company shell and backed ourselves into it. That process of going public in a somewhat crazy, frenetic marketplace that New Zealand was in the mid 1980’s was full-on and very exciting.

What sparked the move to the US a few years later in ’89?

We started out as Mace, and L. D. Nathan and Co. owned 20 per cent of us. We ended up merging with L. D. Nathan and Co. We acquired ownership of the Coca-Cola franchise for New Zealand, we acquired James Smith in Wellington. We then merged with Lion Breweries and created Lion Nathan. There was a series of rapidfire merger and acquisition plays that resulted in us, along with Douglas Myers, running a very, very, very big conglomerate.

I’d already been planning for some time that I wanted to go and spend some time in America with my family.

Your main three projects are extraordinary: Britomart, in Texas in the US, and then The Landing in the Bay of Islands. For people who are wanting to start in the property game, what’s a good starting place?

Those projects you just mentioned are really where you get to at the end of the journey and not the beginning. And in all three cases they’re very much driven by passion. Things that we want to do, we felt excited about doing, I should say.

The starting point is really your house, isn’t it? You buy an old house, you do it up, you borrow money, you put yourself at risk, and then you sell it and suddenly you’ve got some money in your pocket and you do it again. I think it’s always a matter of starting small, and then you learn how you do it from there.

Britomart became New Zealand’s largest ever heritage restoration project. What were the key lessons you learned from it?

The biggest thing is to try to build in a way that people aren’t isolated. You have to look at blocks, you have to look at corners, you have to look at relationships between businesses. And we started out with food and beverage, and then we moved into fashion over time, but there has to be a thoughtfulness.

Why the long-term approach, as opposed to the build and sell lots of people are fixated with?

I think it’s a matter of understanding compounding as a philosophy. You can

talk about passion and a whole lot of other qualitative drivers, but if you understand compounding in terms of how value creates itself over time, that’s really the theme of everything I do.

Where is the best place to start looking for things and best first steps?

When I look back, it was really a lot of it was curiosity and I really wanted to learn things, I really learned by engaging. You’ve got to have that sense of personal interest.

“Passion” is an extreme word in terms of that, but you have to have some level of passion about what you’re trying to do. And then you learn more about it and you grow yourself from there.

What’s the best book on investing that you recommend people read?

When I went to America in 1989, the very first thing I did was go along to Warren Buffett’s annual general meeting. And I’ve learned more from reading every skerrick of written information I can on Buffett than any other single thing. He’s the man.

Do you see big opportunity in developing precincts like this in other parts of the world?

“No” is the answer. No. These things are very, very hard to do. The Texas project, we’re halfway through 20 years later. They all take a lot of time. No, I’m not going to do another one.

What quality or state of mind do you think has been pivotal in getting you to where you are?

I think it’s the ability to think independently and have this desire to learn. And learning isn’t just reading books, it’s actually learning by doing and growing yourself by virtue of connecting with people, learning from them, and putting yourself into play.

And if there’s one thing, I’d say it’s probably my ability to pull the trigger.

What is your million-dollar advice for the world of business, entrepreneurship, and making things happen?

You have to act on your passion, and you have to have patience. *To see the full interview, go to unfiltered.tv SPRING 2020

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A Place in the Sun – Not Always Fun Thinking about buying an apartment in the Gold Coast as an investment? Mark Russell of PwC says hold that thought.

There are some tax fishhooks that might take some of the pleasure out of it.

Buying residential rental properties is an increasingly popular investment option for Kiwis, and this isn’t limited to property in New Zealand.

taxable income using the applicable rules.

More and more Kiwis are buying apartments on Australia’s east coast.

For example, it may be possible to claim tax depreciation deductions in Australia, but in New Zealand you can’t claim depreciation on residential rental properties, other than for chattels.

But not everyone is aware that owning an Australian rental property brings some additional tax rules you should consider.

New Zealand uses a 31 March tax yearend, while Australia has a 30 June tax year-end.

Taxed in both countries As a New Zealand tax resident, the rental income you earn in Australia is taxable in both Australia and New Zealand.

If your foreign income is less than $100,000, you can choose to include the income for the Australian tax year to 30 June in the New Zealand tax year in which that June falls.

This means you’ll need to file tax returns in both countries.

Generally, you should be able to claim a credit against your New Zealand tax payable on the rental income for any tax paid in Australia.

Different tax systems Australia and New Zealand have different rules for calculating income and expenditure for tax purposes.

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Above this limit, you’ll need to separately calculate the income for each country based on the actual tax year-end dates.

Borrowing costs A unique aspect of owning a foreign rental property is that if you borrow from a foreign bank to fund the purchase, you may have to account for tax on the interest.

There’s an obligation to withhold and pay to Inland Revenue an amount of NonResident Withholding Tax (NRWT).

The standard rate of NRWT is 15 per cent, however in some cases like Australia, the tax treaty with New Zealand reduces this to 10 per cent.

The obligation to deduct NRWT may not apply if the bank you borrow the money from has a branch in New Zealand, and many of the Australian banks do.

If you do need to deduct NRWT, the bank will usually require you to meet this cost, rather than reducing the payments to the bank.

For most borrowers, it may be preferable

MARKET INSIGHTS

to register for Approved Issuer Levy, which results in the tax payable on the interest reducing to 2 per cent.

Foreign exchange When you’re calculating your New Zealand taxable income, you’ll need to convert your Australian dollar income and expenses into New Zealand dollars.

the principal of the loan that are realised each time you make a payment.

the property could be liable for tax in Australia.

Any gains in New Zealand dollar terms are ultimately taxable and losses are deductible.

You should also be aware that the ‘bright-line test’ (which triggers a form of capital gains tax) applies to properties outside New Zealand.

There are options to do this on an actual transaction date, monthly, or annually, using rates approved by Inland Revenue.

Where you fall under certain thresholds, you can recognise gains and losses only as they are realised. Over those thresholds, it may be necessary to recognise some gains and losses on an unrealised basis each year.

If you borrow in Australian dollars, you’ll have foreign exchange gains and losses on

When you sell Remember, any gains you make on selling

Under this rule, you generally have to pay tax on any gains on a rental property sold within five years of when you bought it.

But, if you’re liable to pay tax under this rule, it should be possible to offset any Australian tax paid on the gain.

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Vitamins just for you

Business Vision Kiwi companies are coming up with some innovative solutions.

Brenda Ward showcases some that are working smarter to bring you business that inspires.

Vitally Vitamins sends out a personal prescription sachet of supplements for every day of the week to keep you at peak energy and feeling great.

Just do a quiz, and the results tell you what could help change your life.

Founder Matt Hitchman says he came up with the idea after being “sick and tired of being sick and tired”. He saw a big change when he added supplements to his diet.

“I had a Monday to Sunday pill box, but I’m quite forgetful and I wasn’t doing too well at taking them.”

The Kiwi was doing a post-grad business degree when he heard that personalisation was a growing trend. He put together the two ideas and Vitally Vitamins was born.

Behind the nutrition information is Gavin Clearkin, an International Olympic Committee sports dietitian and nutritionist.

Take a quiz to work out your own daily wellness plan, or you can build your own pack using Vitally’s range of vitamins, minerals, herbs, probiotics, and nutrients, says Hitchman.

Are you who you say you are?

Scammers won’t stand a chance against Kiwi company RealAML’s new facial recognition software.

The clever new platform biometrically matches your face to your claimed identity beyond a doubt, says chief executive Jordan McCown.

Banks, real-estate agents, KiwiSaver funds, lawyers and accountants all use the platform to meet anti-money laundering rules – and stop scammers.

But how do they know it’s really you?

“We use ‘liveness detection’ technology to recognise when a customer is really present behind the device. This eliminates the risk of identity fraud,” says McCown.

The platform works by using fast and accurate facial recognition between your identity documents and a series of pictures taken in real-time.

“The entire facial recognition process takes less than 60 seconds and can be completed in 14 countries,” says McCown. “We use artificial intelligence and machine learning to keep improving the process.”

The software was created here in New Zealand by RealAML’s developer team.

“We launched in Auckland in 2019, after we’d spent several years building software 84 JUNO |

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so real-estate agents and consumers could buy and sell property without touching a single pen or piece of paper.”

He says the co-founders saw a lack of transparency in the market. Solutions weren’t seamless and were expensive.

“We knew what the market needed.

“RealAML was the first and is still is the only AML platform in New Zealand that gives companies access to both global realtime identity checks and fully outsourced AML checks.”

RealAML is the first certified New Zealand Made identity platform and a 2020 Innovation Gold finalist for the Wellington Gold Awards.

McCown started out owning a thriving stockbroking firm. But when he looked for software to convert PDFs into responsive web forms, he couldn’t find one.

So, he switched from finance to tech and built the solution himself.

Now he leads a team of developers focusing on growing RealAML to be New Zealand’s No.1 anti-money laundering platform.

“I’m truly passionate about building new solutions for unsolved problems,” he says. www.realaml.com

There are no unnecessary artificial chemical binders, fillers, and extraction processes.

“If you’re putting stuff into your body, you want it to be good stuff.”

He says most people do the quiz and tweak the prescription as their needs – and the seasons – change. Some customers return to re-take the quiz.

He says immunity is a key concern for Kiwis right now, as being fit to fight Covid-19 is on people’s minds. www.vitally.com

Property Accounting as Smart as it Comes.

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Coastal Chic Pale timber floors and classic painted wicker bring the soft colours of the coast into this interior by Lynette Lochhead of Design on James.

Lochhead says the owners wanted a natural feel for their new, architecturally designed home on the beach on Auckland’s North Shore.

“They were looking for casual sophistication, comfort, and ambience,” she says.

They asked Lochhead to refurbish loved older pieces and add bespoke furniture.

“Their brief covered the entire spectrum of interiors, from design, colours, fabrics,

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soft furnishings, and material selection, to design and manufacture.”

She used natural materials like linen, wool, velvet, and cane to complement the harder architectural features – concrete, timber, copper, shutters, and tongue-and-groove wall panelling.

Tauranga-based Lochhead says trends that are hot right now in coastal interiors include sustainability, natural fibres, craftsman furniture, shutters, generous indoor and outdoor couches, and a light and bright feel. www.designonjames.co.nz

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A Houseboat on the Seine From an elegant secret hideaway, Brenda Ward becomes a resident of the wealthiest part of Paris.

A uniquely Parisian golden light filters through the autumn treescape and turns the Seine into a sparkling ribbon.

Our taxi screeches to a halt on the busy highway above the ancient Port des Champs-Elysees, near the Pont de la Concorde.

The driver is puzzled. “Ici?” There are no hotels here, no apartments, no Airbnbs.

Just the National Assembly across the river.

He shrugs and drives off.

We lug our suitcases along the pavement, down a ramp to the riverbank, several metres below the road, looking for a boat we’ve only seen in pictures.

This is our new neighbourhood for 10 days, aboard a rented houseboat on the banks of the Seine.

We find our secret waterfront apartment moored with others just below the level of the city’s busy streets, and step inside.

It’s a former Dutch barge restored with quality boatbuilder’s details, decorated in impeccable style with trellis timber panels, paintings, sculptures, and cosy fabrics.

It has a full kitchen, bathroom, and laundry, a semicircular table that seats up to 10, two bedrooms and a charming living space, all centrally heated.

We set out to explore. Here, in the chill of our first November morning, we’re struck speechless.

Along the river, we see the Eiffel Tower jutting into the skyline. In the other direction, Notre Dame is a dark shape hunkering down just three bridges along.

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We cross the Tuileries gardens to discover the most exquisite hot chocolate at historic coffee house Angelina, where the walls are covered with murals of French country life.

We pop into the Petit Palais, a block away, where for free we get a taste of Paris’s art and culture.

At the Carrefours mini supermarket, we buy salads and tagines that could be from the city’s top restaurants. We find the bakery on the ChampsElysees with the best strawberry tarts, and dine at the Café des Beaux Arts, where the duck confit is part-crunch, part-tender pink.

We ride up the lift at the Eiffel Tower for a family celebration at Café 58, the restaurant 58 metres up the tower. As we dine, we trace the roads we’ve walked below.

“Everyone in Paris seems to be drawn to the river. Lovers stroll by, joggers race past, workers escape for a riverbank baguette.”

Here, in the elegant centre of Paris where eyewateringly expensive apartments line the river, just a stone’s throw from where Diana spent her last night in the Ritz, this houseboat makes us Parisians.

We fall asleep lapped by the gentle waves, then wake to brilliant sunrises. I jog along the river to 1930s cafes, where I become a regular, standing at the marble bar like the local workers do, their briefcases propped up beside them.

“Un express et un croissant?” asks a dapper waiter.

Our adult son and his girlfriend become young Parisian lovers, hand-in-hand, heading to museums and climbing the Eiffel Tower for a romantic evening tryst.

Each day, we head out to explore this city, monuments perfectly preserved and pavements washed each morning before the tourists rise.

We wonder who lives in those Haussmann apartments, who walks in this walled garden, who will buy the medieval relics in this antiques store.

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But the best view in the city is back at our place, on the roof of the houseboat, where we sit at a simple wooden table with folding chairs, savouring goblets of red wine, crusty bread, olives, cheese and ham.

We watch the river traffic pass by, tourists waving from candle-lit cruises, barges transporting building goods to distant cities, and the police at work in their aluminium patrol boats.

Everyone in Paris seems to be drawn to the river.

Lovers stroll by, joggers race past, workers escape for a riverbank baguette.

After the magic of the city, we retreat to roast joints of freshest lamb in the kitchen, bathe under powerful shower jets, do our laundry. We live like locals.

Finally, the owners are due to return from their country house.

We wrestle to close our bags bulging with the new clothes we’ve bought, a decorative diary, books, and shoes and boots I’ve carried from Montmartre.

As the sun rises, we lug our suitcases over the gangplank to the port and walk away to the taxi.

We head to the airport, but a little piece of Parisian magic lingers on in our hearts.

Are your KiwiSaver fees hiding from you?

At JUNO, we take less money out of your KiwiSaver account in fees, which means there’s more left to benefit from returns.

Our low fees help keep more money in your pocket.

Management fee

JUNO’s low, fixed monthly fee*

Membership fee Administration fee Trustee fee Expense fee Performance fee Transfer fee Exit fee Withdrawal fee This fee That fee Another fee

*Comparing JUNO’s fixed monthly fee of $5.00, versus the industry average of $21.72 per month for a KiwiSaver balance of $20,000 in a Growth fund, as set out on Sorted’s Fund Finder - last reviewed 29 July 2020.

Pie Funds is the issuer. The Product Disclosure Statement is available at www.junokiwisaver.co.nz.

YO U R I N V E S T I N G

1.

2.

Dress for Success Invest in colours, softer lines, and more casual touches for work, as fashion evolves post-lockdown.

Working from home has left its mark on workwear for the office, say Kiwi fashion brands.

Karl Clausen, creative director of men’s brand Working Style, says its new collection has an emphasis on garments that transition from work to play.

“Fewer people are buying complete suits,” he says. “It’s important to have the ability to buy a suit as separates, and it gives you the opportunity to get creative.

3.

“Strike a balance between formal and casual pieces. It’s about how you pair the two.”

At taylor for women, owner and designer Vicki Taylor says her range explores both assembled structure and gentle fluidity wrapping around the form.

“Tailored jackets are composed into outfits with soft silk tops, draping and floated beyond the borders of the jackets.”

They’re seeing new hues, too, with both brick tones and cool crystalline hues.

“The trend of pairing your work suiting or feminine dress with trainers or more casual pieces teamed with tailored pieces means people are confident in combining these looks, giving them greater versatility with their wardrobes.”

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4.

5.

6.

7.

8.

1. Taylor www.taylorboutique.co.nz 2. Trelise Cooper www.trelisecooper.com 3. Working Style www.workingstyle.co.nz 4. Trelise Cooper www.trelisecooper.com 5. Working Style www.workingstyle.co.nz 6. Wallace Rose www.wallacerose.co.nz 7. Trelise Cooper www.trelisecooper.com 8. Working Style www.workingstyle.co.nz 9. Trelise Cooper www.trelisecooper.com 10. Taylor www.taylorboutique.co.nz 11. Trelise Cooper www.trelisecooper.com 9.

11.

10.

12. Working Style www.workingstyle.co.nz

12.

REGULARS

Book Reviews Reviewed by Sarah Ell

Good Company: How to build a business without losing your values

The Sophisticated Property Investor

By Julietta Dexter Published by Atlantic, $32.99

By Jeff Brill Published by Brill Management Ltd, $34.95

It’s all about cutting the ‘bluster’, says Julietta Dexter.

The Covid-19 pandemic has brought leadership into strong focus. Countries have risen and fallen in response to how their governments have handled the crisis.

Worldwide, praise has been heaped on Kiwi Prime Minister Jacinda Ardern’s handling of the outbreak here. Her compassionate, communicative style has won fans.

Many investors feel confident to invest their money in houses to rent, but often feel all at sea about commercial property.

We all live in a house and we think we know what makes a good one. But we might not feel so comfortable investing in shops, office blocks and factories.

Former real-estate agent turned commercial property manager Jeff Brill is an expert on the topic.

This has, at times, been in stark contrast with other countries, where bullshit and bluster have been the order of the day.

He says in today’s uncertain market, investing intelligently in commercial real estate is the key to financial freedom.

This book, then, is timely. It looks at how more compassionate leadership can lead to greater results.

He first published this book two years ago, and released this new edition just pre-Covid.

Ruthlessness and other traits traditionally seen as ‘masculine’ have dominated the business world, says Dexter, chief executive of British PR company The Communications Store.

In it, he lays out the information and tools ‘sophisticated’ investors need to build a commercial portfolio, starting with the basics, the key terms and sums.

She suggests that traditionally ‘feminine’ attributes, such as caring and communication, can build businesses and lead teams just as successful as those ruled by dominance.

He then turns to zoning, valuations and tax, plus feng shui – which Brill considers to be critical to attract Chinese buyers.

Good Company looks at this style of leadership in practice and discusses the importance of a strong corporate culture which values inclusion and communication. It shows how to be ethical and still make money, suggests recruiting strategies and explains how to deal with crises. The approach does work.

Dexter points out that the companies on the Forbes ‘Just 100’ – the top 100 most ethically responsible organisations in the US – generated a higher five-year return on capital, created more jobs and paid their employees better.

It won’t convert every old-school business owner or manager, but for the curious, it does offer a helpful template. Perhaps someone should send a copy to a president or two, and a couple of high-flying CEOs in the US.

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The book might seem a little too technical at times for the uninitiated, but there’s a full glossary of terms, a development costs planner and lots of practical examples.

In this new edition, you’ll find out how to start a portfolio, including Brill’s tips on choosing the right people for your team and how to build a residential portfolio, too.

Brill says becoming a sophisticated investor isn’t for everyone.

“Not everyone has the discipline to stick with the habits, no matter how mundane, that are required.”

This book could be just the push some investors need to start exploring the ‘other side’ of the property market.

Maybe it’s time to take a more sophisticated approach than the basic residential option.

JUNO

Junior Harold helps you learn how to set a savings goal and take steps towards achieving it.

plan, In your out how think ab ing to o you’re g ey to n o earn m r goal. u o reach y

$

Think about what your savings goal is. Your savings goal might be for something really big and might take time, or it might be something small.

Get Your Dream!

When there’s something that you really want and you need to save money to get it, it’s a great idea to set a savings goal.

Next you need to work out what steps you need to take to achieve your goal. Planning what you need to do will help you get on track.

You might be able to do some chores around the house to get some pocket money. Maybe you get money for your birthday or Christmas? Are there jobs you can do in your community to earn money?

Don’t make the goal too hard – you might still want to spend some money while you save.

Think about how you’re going to keep your money safe. You could try to find somewhere safe at home or maybe ask an adult to help you open your own bank account.

Think about how much money you can save each week, or each month.

This will help you work out how long it will take to reach your goal.

Write down your goal and plan, then share it with people closest to you.

This can help you to keep on track.

Watch your savings grow.

s to With thank d the Harold an tion Life Educa Trust.

TIMELY, CONCISE, ORIGINAL RESEARCH We are an award-winning provider of independent macroeconomic and financial markets analysis, and forecasts.

Our independent status allows us to produce impartial analysis, delivering the original insights our clients need to develop the best possible strategic plans and investment decisions.

We offer comprehensive global coverage across 27 subscription services, ranging from timely data- and event-driven notes, to longer thematic pieces.

Our Consultancy team provide cutting-edge research to address specific issues or problems that our clients face.

OUR CLIENTS MAKE BETTER DECISIONS, MORE QUICKLY

#ÖÐî #î ; òè ; ´Öä ; ; ´ä|| ; îä¹ È

www.capitaleconomics.com businessaustralia@capitaleconomics.com

MARKET INSIGHTS

Why Kiwis Are Covid Confident Kiwis watched their KiwiSaver balances plummet during lockdown, but it hasn’t dented their confidence, a new survey says. Why asks Amy Hamilton-Chadwick.

It was a surprise. Kiwis were unfazed by Covid shocks to New Zealand and our financial markets.

The Financial Markets Authority did a survey of Kiwis during the worst of the recent market disruption during Level 3 lockdown.

It discovered that 66 per cent of investors were ‘very confident’ or ‘fairly confident’ about our financial markets – in fact, ‘very confident investors’ were at an eight-year high.

That’s good news for the FMA, the body tasked with regulating the markets and keeping Kiwi financial institutions honest.

The FMA’s annual Investor Confidence Survey was done in May, but despite the challenges at that time, the 1003 New Zealanders surveyed were just as confident about our markets in 2020 as they were last year (up from 65 per cent to 66 per cent).

Surge in shares That confidence was been reflected in a lockdown surge on the New Zealand Stock Exchange, which hit a record in mid-April.

Overall, 23 per cent of the FMA survey respondents said they were planning to increase their investments.

Over half of those people (52 per cent) were planning to buy shares, 37 per cent were planning to invest in a managed fund or similar, and 33 per cent were planning to

invest in residential property.

Why are we confident?

But why are we feeling so confident?

More than a quarter (27 per cent) of respondents to the FMA’s survey said they had confidence in New Zealand’s ability to bounce back, with another 18 per cent saying our economy was strong and wellpositioned compared to other nations.

Most respondents, 71 per cent, felt the pandemic would pass, and markets recover.

Investor enthusiasm is also being buoyed up by the extremely low interest rates available on savings accounts and term deposits.

It doesn’t take much of a return to make an investment look attractive when most banks are offering less than 2 per cent.

The FMA found 29 per cent of investors were looking for opportunities in the market this year, and the NZX top 50 has rebounded strongly since its low in late March.

The property market has also held up surprisingly well, with house prices in June up 9.2 per cent, compared to June 2019, according to CoreLogic data.

Values seem unlikely to drop anywhere near the 10 to 15 per cent predicted back in March.

There could still be struggles However, it’s possible we’re feeling too optimistic overall.

Many people were concerned about their household income: 45 per cent worried about their personal finances and 28 per cent said they couldn’t afford to think about investing.

If nearly half of us are concerned about impending financial problems, household spending will definitely be down. With the end of the wage subsidies and mortgage holidays in sight, the recovery for could be slower and more painful than we think.

With borders still closed as at 7 August, a lack of international tourists is going to leave a “5 per cent hole in the GDP”, say ANZ economists, and even more concerning is the potential for a fresh community outbreak of Covid-19.

It’s “inevitable”, according to Ashley Bloomfield, Director-General of Health.

We’re doing brilliantly, but the virus can’t be held at bay forever.

Why is overconfidence a problem?

It’s really encouraging to see how positive people are about New Zealand’s future – and their confidence may be well placed.

If a vaccine is available within the next year, we could soon be reaping the rewards of our newly boosted international reputation.

Even without a vaccine, right now New Zealand’s economy seems to be recovering strongly from the impact of Covid-19.

The risk for individual investors is that overconfident people start to take risks.

Overconfidence has been shown to make investors think they’re better at predicting returns, make them trade more often, and make them more likely to overpay.

That’s because when your investments keep performing well, you start to believe in your own superior skills.

You might be one of those Kiwis who’s feeling really good about the markets – maybe you’ve kept your income, your shares have rebounded, and your house price has stayed high. That’s fantastic, and you should stay positive. But hold onto your sense of caution.

Think carefully about each investment decision you make, don’t cut corners on your research, and always consider the negative potential consequences as well as the positive ones.

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Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we’re going as a nation.

Bungy cord attached We can see from traffic volumes, domestic passenger flights, credit-card spending and electricity volumes that the New Zealand economy is getting back on track after being thumped in April and May.

June unlocked pent-up demand as we got back our economic freedom. July saw a flurry of Kiwis hitting the domestic travel routes.

These green shoots of recovery are welcome. The challenge is to make sure they don’t turn brown in a world where Covid19 is showing no signs of let-up.

Wall Street…

The belt tightens?

Shares have largely recovered from their March lows, buoyed by low interest rates, aggressive monetary policy programmes around the globe, a strong rally in technology stocks and the hope that a vaccine is around the corner.

The New Zealand government went big, rolling out a massive $62 billion Covid-19 response and recovery package.

It’s been the correct policy response to lean off the government balance sheet and support the economy through difficult times. But there is a cost to pay.

Net debt is projected to rise above $200 billion or above 50 per cent of gross domestic product (GDP) by 2024.

Locally, house prices bounced back in June after weakening in April and May.

Ideally, a strong economy would be at the foundation of getting debt back down.

Realistically, we’ll need to tighten the fiscal belt, and brace for a discussion about tax rates down the track.

APPLY HERE

…. versus Main Street Unemployment is still rising as economic destruction continues around the globe.

risen above 200,000. In the United States, the unemployment rate is double-digit.

The Australian unemployment rate has risen above 7 per cent. The number of people on the jobseeker benefit in New Zealand has

Markets might be forward-looking and unemployment lagging behind, but the gap between Wall Street and Main Street is telling.

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MARKET INSIGHTS

Monetary magic Lower interest rates are supporting households. Challenges from rising unemployment remain, but lower interest rates mean household interest payments as a share of families’ disposable income fell below 7 per cent.

The average since 1998 is 9.5 per cent.

Who pays?

These will be hard to sell.

Will we ever get net government debt back down towards 20 per cent of GDP? It’s unlikely.

The New Zealand population is also ageing and that carries a fiscal cost. New Zealand Superannuation expenditure is projected to hit $19 billion by 2024, or around 14 per cent of projected core government expenses.

We’re likely to see higher levels of government debt and we need some tough decisions (less spending or higher taxes) to get it back down.

Tie me kangaroo down, sport The calm before the storm

Rising Covid-19 cases in Australia are a real cause for concern. They highlight the importance of strict border control, after New Zealand did the hard yards at alert levels 2 to 4.

The acid test for the tourism sector is coming from November to April. That’s when we normally get a massive influx of visitors versus Kiwis departing overseas.

Frankly, the prospects of a trans-Tasman bubble have been dashed, and a weaker Australian economy is not great for our exports into Australia, which have fallen below 2019 levels.

Summer is when we’ll see challenges.

Kiwis will travel locally rather than overseas, but the lack of international inbound tourists will hurt.

Hey, big spender!

The world remains completely unbalanced.

At one end, we have the United States running a huge current account deficit, which is a sign of insufficient domestic savings to fund investment. It has a net external liability position of around $12 trillion with the rest of world.

On the other side, we have the net savers such as Germany and Japan funding the big spender.

The conundrum is getting America to save more, and Japan and Germany to save less.

Figures from the Ministry of Education show 57.7 per cent of children are ‘regularly attending school’.

That’s down from 67.2 per cent in 2016 – and a worrying slide.

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.

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Correct as at 28 April 2020.

Kids by numbers

YO U R I N V E S T I N G

How To Be Ahead of the Game If you spent hours on a gaming console while you were in lockdown, you’re not alone.

Chris Smith of CMC Markets says gaming is booming, and investors can buy a piece of the multibillion-dollar action.

Many industries have taken massive hits to revenue and earnings, but there are some winners from the Covid-19 lockdown measures.

One is that digital trends are booming around the globe.

With consumers stuck at home, gaming has grown in popularity and has quickly become a major force within the advertising landscape, too.

Gaming as an industry has multiple streams, including traditional gaming, eSports, hardware, cloud storage, streaming and graphics chips.

Even before the pandemic, eSports and gaming had exploded into the mainstream with rates of online play-time skyrocketing, live-streams watched by millions around the world, and even stadiums full for tournaments in recent years.

To get a better understanding of this enormous scale of growth, the 2019 Super Bowl got an estimated 98 million unique viewers. The year before, a more niche

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MARKET INSIGHTS

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YO U R I N V E S T I N G

League of Legends eSports event got an impressive 60 million unique viewers.

This surge in online gaming and streaming via platforms from major players YouTube and Twitch has boosted the appeal and interest for investors wanting exposure to this industry.

Types of Gaming

Gaming Many people remember the pioneering games that started the gaming revolution – Atari joysticks and Nintendo Game Boys. These days, technology and devices produced by Microsoft and Sony are incredibly different and connect more players than ever before.

Online Gaming Playing a video game through the Internet or any other computer network.

According to research from Newzoo, worldwide video game sales totalled US$148.8 billion last year, rising 7.2 per cent from the year before. This year, it estimates the global video game market will increase to US$159.3 billion in revenue.

eSports

Platforms such as YouTube and Twitch are now competing with streaming services like Netflix and traditional TV for viewership.

Short for electronic sports, pertains to competitive or professional gaming.

Twitch is a video live-streaming service for gamers which was bought by Amazon for US$970 million in 2014, ahead of the gaming boom.

In the second quarter of 2019, Twitch viewers live-streamed more than 2.72 billion hours, surpassing YouTube Live and Facebook Gaming.

It’s now estimated to be worth around US$4 billion, with an average of 15 million viewers tuning in every day. eSports Typically played by professional gamers, eSports are multiplayer video games played on a competitive field. eSports have been on a growth trajectory for many years, largely driven by fans in Asia and an increasing number of news articles highlighting the major prize pools won at eSport battles.

Other research from Newzoo suggests that this year the number of eSports viewers worldwide will reach 589 million, from 380 million last year.

Business Insider intelligence has released a report saying that total eSports viewership is expected to grow at a 9 per cent compound annual growth rate (CAGR) between 2019 and 2023, from 454 million to 646 million viewers.

Many advertisers are now shifting their spend to new eSports digital mediums to target its large and growing audience of 102 JUNO |

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Source - Visual Capitalist

millennials who were previously hard to reach.

Last year, eSports revenue from sponsorships, media rights, advertising, game publisher fees, merchandise and ticket sales totalled $1.1 billion, up 26.7 per cent.

How to invest in gaming For investors, the video game market consists of buying shares of the ‘pure play’ game publishers that focus on a specific product or activity or buying tech shares that have varying exposure to the gaming industry.

These companies could be distributors, streaming services, hardware developers, game publishers, or software developers.

Ones to watch Here are some of the major game developers and publishers to keep an eye on and the exchanges that list them: •

Activision Blizzard Inc. (NASDAQ-listed)

•

Electronic Arts Inc. (NASDAQ-listed)

•

Tencent Holding Ltd. (SEHK-listed)

•

HUYA Inc. (NYSE-listed)

•

Nintendo Co. Ltd. (TYO and NASDAQlisted)

•

NetEase Inc. (NASDAQ-listed)

•

Sea Ltd. (NYSE-listed)

•

Take-Two Interactive Software Inc. (NASDAQ-listed)

Major tech firms have also provided a safer way to get into the gaming industry, which couldn’t otherwise be serviced without the support of major cloud storage companies like Amazon, Alibaba Microsoft (MSFT) and their own gaming development at Microsoft, and Google parent Alphabet (GOOGL).

For investors interested in this industry who don’t know where to start or which company to pick, exchange-traded funds (ETFs) and share baskets are a good place to start.

MARKET INSIGHTS

Global Esports Revenue Projections Through 2022 Millions $3,000

Newzoo

Goldman Sachs

SuperData

PwC

BII

$2,500

$2,000

$1,500

$1,000

$500 2018

2019E

2020E

2021E

2022E

Source: Business Insider Intelligence, PwC Global Entertainment & Media Outlook 2019-2023, Newzoo, Superdata, Goldman Sachs

Similar to ETFs, share basket products allow investors to diversify risk within an industry by trading on a selection of shares from the same industry grouped into one basket, as opposed to trading on a single share.

Examples are baskets for gaming, streaming, remote lifestyle, and driverless cars.

ETFs and basket products You may want to research these ETFs and basket products: •

Wedbush ETFMG Video Game Tech ETF

•

VanEck Vectors Video Gaming and eSports ETF

•

Roundhill Bitkraft eSports & Digital Entertainment ETF

•

Roundhill Sports Betting & iGaming ETF

•

CMC Markets Gaming Share Basket

Looking ahead The gaming industry has many different stakeholders driving its growth.

When hit augmented reality game Pokémon Go launched in 2016, it became the largest revenue-earning game in its first month, with an estimated 1.5 billion gamers around the world.

In 2019, Google released Stadia, a cloud gaming service that allows gamers to play without a console, rather than via traditional Sony and Xbox consoles.

Looking ahead, commentators predict there will be an estimated 4.1 billion active smartphone users in the world by 2023 – all connected to the internet.

Mobile is the largest gaming platform, producing US$68.5 billion in revenue in 2019, which is nearly half of the total market including PC and tablet gaming.

Growth is expected to double as 5G penetration increases globally, and areas

such as virtual reality continue to evolve.

Internet, mobile connectivity, and graphic chips keep improving. Even car manufacturers like Tesla are installing games in their vehicles by default.

A simple Google search of an eSports live event will gauge the scale of growth in this multibillion-dollar industry.

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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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.

Italy and Greece There’s relief in Italy and Greece after a European Union coronavirus recovery deal. Italy will get €209 billion, with Greece getting €72 billion.

United States The US election is to be held despite Covid-19 chaos. President Trump will face the public against the backdrop of 50 million Americans filing for unemployment.

Lebanon Following the Beirut explosion, all eyes are on Lebanon’s economy.

French president Emmanuel Macron is calling for a clean-up of government corruption and mismanagement.

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MARKET INSIGHTS

Russia Russia has delayed goals to be one of the world’s top five largest economies by moving a host of ambitious social and economic targets from 2024 to 2030.

South Korea South Korea heads into recession with gross domestic product (GDP) falling by a worse-thanexpected 2.9 per cent year-on-year. Exports fell the most since 1963.

Australia

Hong Kong has launched a new share index, the Hang Seng Tech Index, which features 30 of China’s technology giants, including Alibaba, Tencent, and JD.com.

Correct at 7 August 2020.

Hong Kong

Coronavirus measures will see the Australian budget in the red by $85.8 billion in 2019-20 and $184.5 billion in 2020-21, the biggest deficit since World War II.

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YO U R I N V E S T I N G

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MARKET INSIGHTS

Bulls in China China was the first country hit by the coronavirus, but it’s bounced back so fast that it gives the rest of us hope, says Victoria Harris of Pie Funds.

The Covid pandemic has had deep and impactful effects on economies across the globe.

Countries still caught in the grip of the pandemic have been astonished to find that China has come out the other side stronger and more resilient, giving the rest of the world hope of an eventual return to normality.

In December 2019, China publicly reported its first case of COVID-19. This was nearly a full three months before it reached our shores in New Zealand.

The effects on the Chinese economy seemed to be severe, but have turned out to be short-lived, because many economic indicators are back near pre-crisis levels already.

For example, Chinese gross domestic product (all goods and services produced) has historically grown at about 6 per cent a year.

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In the first quarter of this calendar year, when the pandemic was at its peak, its GDP fell nearly 7 per cent. However, it rebounded 3 per cent in the second quarter, reversing nearly half the Covid impact already.

Share market buoyant This buoyancy has also been reflected in the Chinese share market.

The Shanghai SE Composite Index was down sharply in January to March, falling 15 per cent in local currency.

However, this index held up reasonably well compared to the S&P500, which fell over 30 per cent from its highs in February to the lows in March.

Since then, the Chinese market has rebounded strongly, finishing the seven

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months to July up over 11 per cent versus the S&P500, which is virtually flat.

has been and are praising their own government’s response.

This outperformance was driven by a surge in investor sentiment in late June.

The Chinese government went hard and fast with lockdown measures which may have seemed extreme at the time but are now being praised by locals.

Investors foresaw another bull market for China, due to it being less affected by the coronavirus outbreak than other major regions.

Since coming out of lockdown at the end of March, there have been some big changes in consumer behaviour as China adapts to a new post-COVID world.

Chinese become patriots In particular, local Chinese have become more patriotic.

They’re looking at the United States and seeing how much of a basket-case the US government’s handling of the virus

China is also a major exporting nation. This means it relies heavily on the demand for its products from the rest of the world.

So, even though China came out of lockdown early, the rest of the world did not (and some countries still have not).

They’re buying local This has led to a big shift by Chinese consumers to support local and domestic brands, particularly Alibaba (the Amazon of China) and Tencent (games and social media).

MARKET INSIGHTS

This isn’t a trend specific to China, but when a nation of 1.4 billion people makes changes like this, it sends ripples throughout the globe.

A few industries are seeing big changes in behaviour.

In cosmetics, too, Chinese women are supporting local cosmetics brands like Judy Doll and Perfect Diary. They’re going from strength to strength at the expense of big multinationals like L’Oréal and Estée Lauder.

There will always be some exceptions, but China is also experiencing many trends we’re seeing here in New Zealand: •

The acceleration of digital payments because cash is considered ‘unhygienic’.

One is the tourism industry. With global borders shut, the Chinese (like Kiwis) are turning to domestic travel.

Students staying home In the education industry, there has been an upheaval.

•

A significant step up in online sales as everyone becomes more accustomed to buying online.

This has led to a boom in the southern Chinese provinces, like Hainan, and in top five-star hotels because they’re considered more hygienic.

Schooling abroad is a long-term commitment for any student (and parent) and not a decision taken lightly.

•

‘Suburbanisation’ or de-urbanisation now that working from home is becoming more commonplace.

We’re already seeing Chinese student enrolment numbers to schools in the United States and Australia at nearly half the levels they were pre-Covid.

•

Increased used of cloud computing, which offers better flexibility and reliability for businesses.

Others are the cosmetics, food, and sports apparel industries.

Naturally, health has become a huge focus over the past few months. People are incorporating more protein into their diets and, with gyms closed, many Chinese have taken up jogging. This boosts local sports brands, such as Li Ning and Anta Sports, versus Nike and Adidas.

Students are worried about the increase in infections, heightened level of racism towards Chinese people, and the constant changing of visa requirements. So, many students are now opting for local rather than foreign education.

During a crisis, the rule of thumb is that it’s the survival of the fittest, whether it’s people, companies, or economies.

Those that survive (or are less impacted), usually become stronger and more resilient over the longer term.

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YO U R I N V E S T I N G

Europe’s Over the Virus Crisis The euro-zone has been a weak link in the world economy since the global financial crisis in 2008. But it’s weathered the pandemic surprisingly well. Andrew Kenningham reports.

The euro-zone has been at or near the top of investors’ worries for years.

When it launched in 1999, it was widely seen as a positive step toward closer union.

But politicians didn’t set up a strong enough central bank or financial union to offer financial stability.

storm. Later, the governments of Italy and Spain looked as if they might struggle to meet their debts.

The German government seriously considering forcing Greece out of the Eurozone as an example, but the fear of ‘Grexit’ only made things worse.

In 2008-09, Europe sank into a deep recession after the global financial crisis: Germany’s economy shrank by nearly 6 per cent, its biggest fall since the second world war.

Eventually Europe came out of the debt crisis after Mario Draghi, the president of the European Central Bank (ECB), said it would do “whatever it takes” to keep the currency together.

The slump quickly spread to the southern countries – Greece, Italy, Portugal, and Spain – as banks and investors, which had previously been desperate to lend to them, suddenly cut off their funding.

It started buying billions of euros of government bonds to help tide countries over the crisis.

A run on the banks Forecasters predicted countries would be forced to leave the euro-zone and default on their public debt. There was panic, which triggered a run on the banks.

Initially, Greece was in the eye of the 110 JUNO |

SPRING 2020

There were fears the euro-zone wouldn’t survive this new virus-induced blow.

Italy and Spain would have to borrow enormous sums because of the collapse in their revenues and the staggering cost of their job subsidy schemes. This raised the spectre of a new sovereign debt crisis.

It’s true that for a while in March this year, the euro-zone seemed to be teetering on the brink of a new financial crisis.

Head of the European Central Bank, Christine Lagarde, hesitated over whether to throw the bank’s massive firepower behind the single currency.

The pandemic hit The situation was still fragile when the pandemic reached Europe early this year.

Bond prices fell and borrowing costs rose.

Investors worried most about Italy, where the pandemic was raging, and bond yields were rising at an alarming rate.

One government after another brought in strict lockdowns and forced non-essential businesses to close. The worst affected were those which were already the most fragile: Italy and Spain.

The euro-zone surprise But since the middle of March, euro-zone governments have confounded their critics and mounted a strong defence of its currency.

MARKET INSIGHTS

The first and most important step was that the ECB launched a new ‘pandemic’ bondpurchase programme.

This was huge by past standards (initially €750 billion, later increased to €1,350 billion) and was much more flexible than previous programmes.

While the pandemic lasts, the ECB has said it can buy unlimited amounts of government bonds from any affected country.

It’s also ditched its previous rule that it would buy bonds in proportion to the size of each economy: now it’ll buy whatever’s needed.

This seems quite a technical policy change, but it was also a political revolution.

Germany had previously tried to constrain the role of the ECB. Big step On top of this, Europe made a unexpectedly large step towards creating fiscal union within the member nations.

The governments of all the EU countries agreed to borrow a large amount (€750 billion) to finance government spending to help countries through the crisis.

This was an even bigger pivot for Germany, because its opposition to fiscal union had been even fiercer than its control of the ECB. This year’s step towards fiscal union has been widely compared to the moment in 1790 when Alexander Hamilton, now famous as the hero of the Broadway musical, took on the debts of the Thirteen Colonies and created the US treasury bond market.

So, why did Germany take such a different approach?

Firstly, there was no scope to blame particular governments, as happened in 2009’s debt crisis.

Secondly, German Chancellor Angela Merkel was widely praised for how she handled the pandemic at home. Her rising popularity gave her room to push through a

pragmatic, pro-European policy with little opposition.

Storm clouds remain The future for the euro-zone still looks difficult.

Like most of the rest of the world, the region has not eradicated the virus. Some parts of the economy have sprung back to life as the lockdown was lifted, but much of it remains barely active.

The fear is that unemployment rate will shoot up as job subsidy schemes are wound down. The outlook for tourism-dependent southern economies is the bleakest.

But at least the threat of a new existential crisis in the euro-zone has passed, for the time being.

For a change, the European Union can claim to have had a ‘good crisis’.

One of the founders of the European Union, Jean Monnet, famously commented that Europe would be “forged in crisis”. In 2020, this seems to have been true.

SPRING 2020

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JUNO 111

Navigating the winds of growth Financial markets go in cycles and if you’ve been around a while, you will know roughly every 10-15 years shares – and even property – can go through tough times. Earlier this year was no exception. That’s why we stick closely to our 5 key principles for responsible investment returns – no matter what the weather.

We warmly invite you to visit our offices in Takapuna or Havelock North for a cuppa if you’d like to know more, or get in touch via our website.

Read more at tinyurl.com/pief5

We invest like it's our own money. Because it is.

You don't own debt. Debt owns you.

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The best sailboat is nothing without wind.

Make hay while the sun doesn't shine.

To download the Product Disclosure Statement and Statement of Investment Policy and Objectives, visit piefunds.co.nz, or companiesoffice.govt.nz/disclose. Past performance is not a guarantee of future returns.

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