Welcome to a low rates Future.

The thing about being in Real Estate is that you will always be asked after the state of the market and the manner in which it is likely to perform in the expectation you will know. If I did, I would be rich and wouldn’t need to work.
Here are some random thoughts that might provoke discussion.
Firstly some notes taken from an address by Tony Alexander, guru extraordinaire
• “Young people are entering the market – there is a 4 year catch up
• Real Estate activity is very much regionally based with Auckland and Christchurch a sellers market, stock hard to find and prices rising. Other regionals will follow over time and the sellers market is likely to be wider across the country through until mid to late 2014.
• Banks are and will be reluctant to support property development as it is perceived as high risk. (Ironically this function is increasingly being undertaken by Chinese Banks funding Chinese developers.)
• Prices are no longer going to go down
• There is a major shortage of housing, in particular in Auckland and Christchurch
• There is a major shortage of tradespeople
• Auckland construction has commenced ahead of Christchurch
• Low interest rates are likely to be here for a long time
• Aging population is likely to use their home for different reasons including room/s for grandchildren
• Migration is negative 3,000 [last 12 months] but it is likely that the cycle will change to positive again soon
• Aussie – most business in recessional mode other than mining
• 600,000 New Zealanders live in Australia and 1m elsewhere in the world. They are starting to come back to NZ.
• Europe will effectively be “munted” for the next 20 years. USA not far behind.
• 30% of Auckland population will be Asian by 2015
• Our Government debt is 38% of GDP; 40% of NZ debt funded from overseas”

Interesting and along the lines of previous thoughts espoused. I was asked today about interest rates and what might happen; I believe we will be in a low interest rate environment for over 5 and possibly the next 10 years. Simply, low low interest rates are probably the sign of an unhealthy economy; higher rates reflect risks of inflation, lots of trade and consumption etc. very simplistic I know.
The distribution of wealth plays a significant part in the capacity to recover from any downturn in the economy; the essential ingredient is a buoyant middle class confident, able and willing to spend. The middle class and their spending are the Job creators and the economic drivers of the economy; not the poor who lack capacity; nor ironically the seriously rich who only spend a fraction of what they earn.
Sadly it is the middle class all over the world who have copped a serious beating, seen their assets shrink and who have suffered huge financial losses, the middle class can no longer spend as it did in the past. The middle class cannot borrow to spend as they did; the capacity to borrow and spend, 2000-07, completely disguised the declining purchasing power of the middle class and they drowned in debts magnifying the financial meltdown.
The middle class shrank markedly and then decided to pay down debt, live within the means they had and finally, to save. A trifecta of disaster for a national economy, sales and consumption slowed and slowing , less tax revenue generated; employers become reluctant or unwilling to hire and so it goes on for longer. A happy middle class, optimistic and confident has always provided the rise from recession but look at the graph below, optimism at high levels has not translated to high spend and GDP increase.

Thanks to Tony Alexander for the Graph.
Apply the thoughts to the consumers in the Eurozone, add those of the USA (our traditional saviours of the world economy) and I see no reason to believe enough consumption will take place to see interest rates go north, taking our exchange rate with it. I believe it to be more probable that rates will even decline further before they rise as a domestic stimulus; and that the rise when it comes will be slow and distant.
How to survive a sustained low interest rate environment when you have never been a part of one becomes a daunting task. Look at the next little graph and it may help clarify why I believe in residential real estate, there just isn’t enough of it to go round and the affordability of people to support mortgages increases with the lower rates especially taken in comparison with increasing rents.

Courtesy of Tony Alexander
Look at that, no sign at all that construction levels will rise to a level sufficient to tread water with organic increase, no relief in sight to current shortage; au contraire, the shortages will maintain or get more pronounced. When the emigration/immigration figures turn as they are expected to, the shortages will become dire.
I can’t see any immediate set of circumstances that will set the middle class spenders spending, it is a vicious circle, until they do the recovery such as it is will be sporadic and vague, wishy washy and unconvincing – we need ‘convincing’ for an end to become visible.

 

September 05 2012 | Uncategorized | 1 Comment »

How High? How Low?

Thinking about the market, the current heated exciting behaviour and heady prices being achieved you have to wonder at the sustainability of it all, the fragility or otherwise of the current state of things.
If you suffered through 2008 and the immediate aftermath, confidence comes slowly, it is hard to have faith in things economic or even a future to enjoy. One fairly bright light locally has been residential real estate, in Auckland anyway. The market has contracted, it’s just a fact, the volume of sales taking place continues to be well below average; but rather than as a result of shortage of money or lack of purchaser confidence the sales reflect a shortage of property available to sell. As a result prices are high and rising; phew – imagine the woeful state of affairs if in NZ there were bucket loads of available homes and low sale numbers, prices would not be rising and people would be feeling poor.
The very thing that will tend to prevent any Govt. tampering with the home market is the wish to avoid the poverty effect, the desire to foster a sense of confidence and well being in the public at large; folk feeling poor don’t spend, eat out, change cars or hire new staff. The speed with which money spins in the economy slows and with it growth stalls – a governmental nightmare a la USA, Euro-anywhere type thing. Deflation is a far greater risk than that of inflation, deflation carries far greater negative series of consequences and Government will go to great lengths to avoid the onset of the behaviour.
Interest rates are playing a big part in the strength of the market; they are low and make home ownership relatively inexpensive. Rates are more likely to lessen than increase, particularly in the short term; if the rates did climb so would the exchange rates which would negatively affect exports. It may be a few years, possibly 4-5 in my mind, before we see rates go up significantly.
I was reading a blog by Olly Newland, property guru extraordinaire, he was commenting to the effect that in his opinion rates would stay low which supports property prices. He also identified 7 pressure points on housing stocks which are detailed below. (I lifted these points from his blog.)

“Where is the pressure coming from?
• Very little new construction of ‘affordable’ housing
• A decades worth of houses lost through leaky home crisis
• The tragic earthquake in Christchurch destroyed thousands of homes
• The huge add-on costs of building new houses, not to mention GST and council fees
• Immigrants who consider Auckland as a paradise for housing as compared to overcrowded towns and cities they come from
• Lower interest rates which allow greater borrowing
• Rising rents due to the shortage of housing and recent tax disincentives all of which act as major upward drivers of prices.
Another direct lift from Olly’s site gives you some idea why cost of new homes is unlikely to ever become ‘affordable”.
A builder friend of mine recently completed a development – a nice property, somewhat better that a group-house box, but not a mansion either.
The charges he had to meet (and pass on in the price!) included:
• Building consent $10,000
• Resource consent $5,000
• Storm water approval $2,500
• Compulsory inspections $15,000
• Crossing permit $500
• Water meter $5,000 (actual cost of meter: $400)
On top of all that, the Council decreed compulsory double glazing, stainless steal nails, extra and approximately another $20,000 in sundry charges as inspectors and engineers visited and revisited the site many times and often with overlapping and conflicting demands.
In addition, all the slab, excavations, retaining walls and bracing were inspected twice and he was double-charged and often treble-charged as a result of a new regime in the latest building code.
All these charges added at least an extra $100,000 to the building costs – to which, naturally, must be added the developer’s margin, and the ubiquitous GST impost of 15% which added many tens of thousands of dollars on top of all the rest.
My developer friend said that if the charges and taxes were set a fair and reasonable levels, the property could be sold for an estimated 25% less (!) and still have left him a fair margin for the 12 months’ arduous work he put into it. (Not to mention the risk to his capital.”
From this exercise which is repeated up and down the country, it is no wonder that developers are unable to build more affordable houses. The costs are just too great for the meager margin they can earn for their time, trouble and risk. This is the true reason building consents have slowed to a crawl, and why there are bun-fights between buyers breaking out all over the place as people try to bid against each other for existing homes – and hence drive up prices.”
So there it is, prices holding strong, rising even; volumes lower than usual, probably the status quo lasting a few years, catastrophes excepted.
All our major trading partners have slowed or are facing slowdown; the Herald on line for 24 July noted Australian economic analysts Deloitte Access Economics warning of an end to the golden weather as Chinese demand slows, its times like these that being small is good, we only produce a small quantity of product in world scale and fortunately a lot of it is protein.
Interesting times to be living through, I still believe in a great future for our ‘little land that could’ to paraphrase the children’s book.

July 31 2012 | Uncategorized | 2 Comments »

Prices and Pressure and Prices

These are strange times to be in Real Estate, generally the country suffers pretty static growth; even the strong 1.1% growth for the last quarter proved largely to be inventory that failed to sell through. We muddle along, bouncing on the verge of zero growth and yet houses zoom ever upward, every day comes news of some recent sale that astonishes.
There is very definite preferences starting to show, the brick and tile, one level, well presented homes on easy care sections are attracting incredible purchaser attention; particularly if they are in the sub $700,000 price range. On a recent weekend we held 2 half-hour open homes on such a home and attracted a phenomenal 72 groups who attended, generating 5 offers, another attracting 50 groups and an astonishing 9 offers! Incredible!
The NZ Herald on 2/7 that for the first time since January 08, an appalling time in real estate, the inventory of homes available for purchase dropped to below 30 weeks, ( some 27% below the long term average of 41 weeks).
Commentators all agree that it is a sellers market, there’s a surprise, comment in the same paper notes “Price surge pushes central city homes out of reach”, it is not just the central city and it is not a recent condition. I do not believe that it will be a short-lived situation either and expect that the causal reasons will be with us for a good 3-4 years.
Tony Alexander opines in his latest newsletter that immigration figures are possibly about to turn positive again. A net loss of 4000+ (to Feb) may well be the peak and see a return to the 15000+ average inflow of the past 10 years. Other than the mining related Aussie market, things are not all rosy in our biggest destination, Europe is ailing and the US growth seems to have stalled. It is probable that our outflow will slow and our inbound numbers will increase as life in our land looks better and better by comparison.
When we look at the causal factors we have:
• An established chronic shortage of homes. Pressure on stock.
• Building consents are at approx. half the levels required to keep pace with organic population growth, and have been since ’07. Pressure on stock.
• Distinct lack of available land to build homes upon. Pressure on stock.
• Sections available are expensive, $300,000+/- is pretty much the base. Pressure on stock sub $750,000
• Building costs have markedly increased driving prices up. Pressure on cheaper homes.
• Mezzanine funders, the primary finance source for developers, have largely disappeared, as have the developers who used to create the new homes and subdivisions. Pressure on stock.
• Weekly rents are on the increase. Attracts new entrants to the rental market, increases pressure and demand for homes.
• Some highly borrowed investors are selling, and have sold; their properties as tax deductions disappear; increasing pressure on stock and rents.
• Mortgage money is cheap – 3 yr. fixed at 5.75%. As long as the Europe shambles continues we will have affordable money. Aussie banks are seen as a safe haven internationally, money will be available. Equally the Reserve Bank evidences no significant inflationary pressure; ergo the base rate is unlikely to go up anytime soon. Pressure on Stock.
• These constrained times have become the new “norm”, adjustments have been made and the population in general is ‘getting on’ with the business of life. Pressure on stock.
• The boomers have adjusted and are in the market for the 3Brm, 1 level little luxury jobbies I alluded to in the previous e-news. Ironically often purchasing homes that have served the identical task for the preceding elders as they wend their way to retirement homes etc. Pressure on stock.
• Immigration is likely to return to long term averages. Pressure on stock.
Feel free to disagree, discount any point you feel does not apply, there is no policy or plan I can see from local or national government to alleviate these pressures on available stock. There is no possibility of cheap sections; the RMA precludes that, no possibility of ‘affordable’ homes – in Auckland anyway.
Prices are open to dropping if supply becomes plentiful, money becomes expensive to borrow or people do not feel secure enough to borrow. Walt Disney based his business on the fact that there is always a new bunch of 5 year olds, every year, and real estate is the same; there are always new people in every price range who can and will buy. The make up of the buyers does, and will continue to, change; different immigrants come to live etc.
I believe that Auckland property will only become more expensive, less affordable. I sincerely suggest that if you do plan to own Auckland property, probably property anywhere, time is not your friend or ally and procrastination will be expensive.

July 13 2012 | Uncategorized | 2 Comments »

Boomer Bust

There is increasing evidence of a nasty and chill financial wind blowing through the expectations of the Baby Boomers as their retirement days approach at increasing speed. The causes of the problem are many and include the recent financial meltdown, world recession, Euro horror and the huge evaporation of middle class wealth in the USA, Aussie and NZ; the problem is that a lot of people have not amassed sufficient monies to live off once their working days are done and the Boomers are increasingly reaching that point.
A second front in the battle for any hope of an enjoyable aged lifestyle is the fact that we live so much longer, and that the extra years we have gained are so horrendously expensive. The fastest growing demographic in the US is centenarians, folks over 100 years old, the cost of healthcare alone will become a colossal burden on the state and, more particularly, on personal resources.
Many Boomers are seeing the inheritances they were expecting from their parents, inheritances they thought might augment their own retirements, disappearing as their folks just keep on living. It’s not just the cost of power and veges; but the new hips, knees, valves and the medicines consumed. The actuality is that for a large sector of our society there will be a need to contribute to the well being of our parents rather than the gift of a financial lump sum when they pass.
Elderly investors living from the interest on their capital, amassed from decades of scrimping, saving and doing without, were the folk who chased the marginally higher returns from Bridgecorp and others of that type only to see their money vaporise. Suddenly, Nek Minnut, they are faced with having outlived their resource and whether as a result of illness, redundancy, financial misadventure or whatever, the result is the same and poverty in old age is not for the faint hearted.

                                           “We have how much to live on????”

New products and options appear with new opportunities; reverse mortgages, annuity insurances etc., etc. If you have looked at the rate a reverse mortgage eats up equity it is frightening. You can still outlive your monies and of course there is little left for the kids.
We are not a people who easily talk about delicate and potentially divisive issues but there is probably merit in discussing plans and expectations with parents and children. Difficult to do when the majority of us are without too much discretionary money after all the bills are paid. Scary to be looking to fund aging parents or to fund children and their families doing it tough; particularly if our own retirement option looks a little dodgy.
On another note, it is interesting to see a new product evolving for the Boomers with some means. ‘Active Adult’ communities are sprouting, communities offering scaled-down versions of mansions with everything. Medium sized maintenance free, spacious and loaded with the little luxury mod-cons loved by the boomers but without the body corporates, the busybody committees or outside influences. The ability to enjoy autonomy and economy – of scale even, the invention of a ‘Spool’, larger than a spa and smaller than a pool. Boomers cashing up the McMansions are happy to buy this kind of product for good money, we see the disproportional growth in the prices paid for three bedroom one level property daily. This type of property close to facilities is almost impossible to replicate and will be sought after and attract premiums. A cluster of such homes in Howick has sold very successfully for premium prices.
A quick look at the stats just received shows that activity levels in the local Eastern Beaches area have had a big bounce. Note a record median sale price at $620,000 and the second highest number of sales transacted in the past 12 months; bodes well for the neighbourhood I think.
This is a great time to consider creating a property portfolio, creating a plan to create capital to assist towards whatever your future holds.

June 12 2012 | Uncategorized | No Comments »

Aussie Nirvana?

Tales telling of hordes of our disillusioned heading for the ‘lucky’ country, Australia, have been all over the media of late. All is seldom as it seems, however as according to the Australian Sunday Mail publication, some12% of all Queensland homes are worth less than the value of the mortgage they carry. In far northern Queensland the figure gets as high as 22.6%, the Gold Coast shows 19.4%, Sunshine Coast 15.5% and Brisbane City shows 9.2% of mortgaged properties have negative equity! That is an astounding set of figures and worrisome when you consider that Qld. is the state of choice for our countrymen. Fox Symes is Australia’s largest debt consolidation agency, specialists in refinanced debt; they comment in the article that increasingly refinancing is impossible and that borrowers struggling under their debt burden find themselves unable even to sell their property to solve their problems.
Aussie lenders do lend to a very high loan to valuation ratio, the highest quoted in the article was 98%! Even the standard trading banks offer 97% (Anz, Westpac, Queenslanders credit union among them). Given that Brisbane Real Estate prices for example fell 6.8% last year and are now some 9% below their peak it becomes easy to see how problems could arise and borrowers find themselves between a rock and a rock.
When you consider the distant world little old NZ is doing well; particularly when compared with Europe. Simply staying afloat when all else around you is sinking is actually a great success and whilst growth here is an unimpressive 1.1% it certainly looks stunning against the 6-8% economic contractions of Spain, Greece and other PIIGS. A good indicator of how things are in the UK comes from Tony Alexander who notes that the Nationwide Consumer Confidence index has fallen from ‘very depressed’ to ‘horribly depressed’.
With the US real estate market showing signs of life, Aussie holding firm against the tide and New Zealand moving slowly forward we can look forward to our future with some confidence; especially as lift will come as the long awaited Christchurch rebuild gets under way.
Real Estate news in our part of the world is dominated by the headlong rush to new price highs in various parts of our city; long predicted by Tony Alexander – since 2004- as demand increasingly exceeds supply. Even here in the Eastern Suburbs, intoxicating tales of superb prices achieved, leave one breathlessly wondering where it all might end. I can say with some confidence that building costs are definitely on the rise; land is hard to find and is expensive in sought after areas and even the not so sought after. Good news if you are in the market already, not so hot if you are trying to get a foot on the ladder.
Winter Sales
In a previous communication I mentioned that over the last 4 years there was virtually no difference in the figures for sales effected in the winter as opposed to the rest of the year, contrary to the commonly held idea that Spring / Summer was the time to do the business.
You heard it first here; combined with an increasing shortage of homes available to be purchased this is truly a very good time to make your move.

May 29 2012 | Uncategorized | No Comments »

What about the kids………?

In several discussions with friends and colleagues a theme emerged; if houses continued to rise in price how on earth our young ones would ever afford a home of their own, particularly in Auckland? The spending habits and capabilities of 25-40 year olds are heavily influenced by what appeared to us to be poor understanding of money and the way it works; most particularly paper money that can be printed to order. (Credit in one form or another.)

The consensus held that home prices would continue to climb, that incomes (particularly after Taxes) would fail to keep up and that our children and grandchildren would have less of the ‘good life’ to enjoy. Education assumes ever greater importance and is increasingly expensive, even more so if private schooling and tertiary education is factored in; if parents don’t pay for the learning either they do not receive it, or they accrue large student debt.

In terms of housing the problem is that with high living costs, mortgage costs, medical etc. etc. few people have much in the way of cash or discretionary income to put toward any homes but their own even if they really did want to help.
Traditionally the elder generation left legacies and properties to their offspring, used to pay off mortgages, buy holiday homes, travel and generally to enjoy. Unfortunately the Baby Boomers have seen their net worth and inheritances compromised if not vaporized by the financial excesses of all sorts of investment vehicles and to make it worse they are trying to defy gravity by refusing to age at all, let alone gracefully. I think you can bank on the Boomers spending the bulk of their worth before they agree to kick any buckets.

The Boomers will also work a lot longer because they need to simply to pay bills or, as a matter of choice to stay engaged. Either way the competition for higher paying jobs is effectively heightened. Quite bleak prospects really; a form of ‘the death by a thousand cuts’ for the kids and grandkids. Particularly if they are prevented from getting on the ladder at all. Take a look at the table below and note the %ages of positions taken up by older employees.

 

These are American stats used purely as indicators, what comes out to me is the very high %ages of these positions held by older people; I believe a similar situation applies here.

So, the young enjoy a big debt burden as a hangover from their education, increased home costs in $ terms and relative to wages, medical and child care costs increasing, more competition for the better jobs (especially where experiential data is advantageous) and an increasing tax burden for the aged and their care. (Not to mention Govt. debt reduction as an inhibitor) A future to look forward to!

Truly, help is required but how? We have pondered together to try and find a way to help given excess cash is not freely available.

Huge advantage can be granted by careful use of collateral held and the ability of our kids to pay monthly. Auckland rents of $600 a week will support a mortgage of approx. $450,000 and homes can be bought for that; any savings can be added in the usual way.
If there is an acceptance that a home like Mum and Dads, spacious and with luxury extras, is not possible; the Boomer parents can use held equity to satisfy the bank security issue to effect the purchase of a modest home.

 Effectively equity in another property guarantees the bank to an amount limited to an appropriate deposit, i.e. in the case of a $500,000 property the guarantee could be limited to $50-100,000. The kids get onto the property roundabout, in time there will inevitably be a sufficient rise in the property value to enable the resultant equity in the kid’s property to secure the loan and for the guarantee to be extinguished. Cost to the parent is minimal, risk can be easily managed and the parent has created a huge benefit for their offspring.

When you are ready to help them make their move it’s as easy as you wish to make it:
• Step 1 – Decide you are prepared to help, to what degree and how to be able to assist all the kids that may need it
• Step 2 – Identify the level of risk you can comfortably accept. If you are prudent the risk of actual loss is small if not non- existent.
• Step 3 – Stick to your guns, i.e. if you are happy to give the kids a head start into a median level house; don’t get talked up into a more expensive property.
• Step 4 – Create a workable budget that can be lived to and establish some control mechanism that monitors repayment compliance.
• Step 5 – Have a clearly identified and agreed exit strategy.

These are troubled and uncertain times, we have endured and prospered during similar previous episodes and we will be presented with such times again. I do believe that making the best of these days is essential if we are to enjoy the lives we have and to live to our best potential.

November 01 2011 | Uncategorized | No Comments »

Things that make you go hmmmmmnnnnn…..

 John Maudlin, the consistently accurate financial commentator from the US, wrote a very provoking article arguing that the social security system there was a Ponzi scheme in every sense. (I believe NZ has striking similarities and is in fact much the same.)  Ponzi created a financial scheme whereby investment was sought from party A with the promise of over market returns. Money was collected from party B with the same promise but the money taken was used in part to pay returns to party A. Party C offered the same promises provided money used in part to pay returns to parties A&B and so on. The scheme must inevitably collapse as the requirement for new money exceeds the supply. Ponzi schemes are illegal, total failure is the only possible outcome and the failures are usually catastrophic – a la Bernie Madoff.

Previously I referred to Bismark and the creation of government funded retirement by means of universal pensions after age 65, beyond average life expectancy.  I have been able to access US data via John Maudlin  showing life expectancies in the US from 1908at  51.1 yrs. (33.8 years for a Black Male!) to 2003 at 77.5 yrs.; essentially our life expectancy increases by one year in each 4 year period.

Have a look at the graph and notice the rate of increase in the gap between life expectancy and ‘retirement age’.

 

Retirees today (PartyA) are living off the proceeds of their contributions, contributions from the ‘Baby Boomer generation (Party B), the children of the Boomers (party C) and maybe from their grandchildren (Party D). Problem is that when we retire the children of our grandchildren may be unborn and so in no position to contribute. Who will pay?  Kaboom!

Just a little scary.

The Aussies have been diligent savers and contributors to Super funds for decades and did build huge cash reserves toward the funding of retirement costs, the bulk of these funds have been placed in shares, managed funds etc. and unfortunately have been severely impacted lately. After a recent visit to the Gold coast a colleague reports it was a real eye opener with shops and businesses closed, long term retirees forced back to work and some even compelled to sell their homes to make ends meet. The Aus. super scheme is means tested so more of the population will qualify increasing the national expense significantly.

The cost to the country is unsustainable, probably would mimic the graph above. As has started to happen in the UK, the government here will have no option but to modify NZ entitlements; I see an increase in the qualifying age from 65 to 70 and then to 75 as costs blow out and the population protests the increases in taxation needed for the funding. – Add the cost of Carbon tax and health to the costs of the aged and you start to see a problem. John Maudlin was kind enough to draw attention to the ‘Catastrophic Success” of the advances in medicine that see so many of the causes of death put on hold, simply we cannot be relied on to die on time as budgeted and planned for.

It becomes apparent that reliance on any form of government funded pension is a risky business; total reliance is just silly – especially if you are 45ish. The need to self fund is absolute.

When the share market goes Phut!, Gold softens by $100’s overnight, even if the value of your little investor rental falls it seems that weekly rental values have held firm and/or increased without a hiccup during the entire Global Financial Crisis. Residential rental investors holding good family homes in good neighbourhoods have been immune to the storm going on about them, I see no reason for that situation to change; particularly as investors leave the market and rentals become ever shorter. Of course it is my pleasure to deliver such beasts, it does take skill and experience to hunt them down, satisfying too.

Rely on more storms, some almost perfect. Unbelievably in the US there is a new govt. backed scheme that funds buyers into homes otherwise unsellable (must be outside of city limits) with 100+% funding!  24 billion US$ ex the Dept. of Agriculture (?) being used to buy new little homes when there is a colossal inventory of unsold existing homes. Go figure, the more things change etc. but you would have thought they may have learnt?

October 04 2011 | Uncategorized | 1 Comment »

Proud Kiwi with Great Cause

The advent of the long awaited world cup brought with it the utterly excellent opening ceremony, it was glorious and I was moved to feel huge pride, in my country, my people and in the life we take for granted. The outstanding day that was Saturday showcased the commonplace beauty of NZ; an everyday beauty we take for granted. Listen to the visitors as they comment in awe, makes me wonder why as a people we are so preoccupied with the a glass-half-full filter.

 I found the following info interesting from Tony Alexander.

 “We often think that our situation in New Zealand is not that good. But when one thinks about the woe overseas we look like a paradise.”

“We are always debating the state of the economy and many people may well have the impression that New Zealand is a deeply troubled place. ………thought NZ was in the same category as Greece and Portugal .”

“The NZ government has a debt to GDP ratio of only 38% compared with 150% in Greece and rates such as near 100% in the US, 120% in Italy, and near 85% for the Eurozone on average. “

“This week there were no riots in New Zealand. No shops were looted and no police formed skirmish lines against loutish mobs. This week we saw no panicked expression of concern in the financial markets regarding the state of our government finances, the lending books or our banks, their capital bases, or even their ability to rollover maturing loans in foreign markets.”

Read the entire Perspective at: 

 http://tonyalexander.co.nz/regular-publications/newspaper-column/some-perspective/

Cause for thought at a time when we are achieving near record prices for our exports, and life is actually progressing as per usual, the economy is moving ahead progressively, albeit slowly.

Auckland continues a strong showing in the Real Estate field, a little graph makes for easy understanding:-

  

Pretty clear to see the pattern, I do understand that the Christchurch recovery is now well under way but Auckland is the only major city to see the ’07 peak eclipsed; probably not true of every suburb, definitely lead by the inner city suburbs.

 

Activity in the Eastern Beaches area sees sales up on July at 173, median much the same but with a shortened median days to sell. Multiple offers on the less expensive properties are almost the norm. A bank officer relayed to me that pre-approved purchaser levels in his organisation were at an all time record high and I am sure the same would be true of all the banks. The table below shows the statistics for the year so far.                        

Month No. of Sales Median Sale Price Median Days
Sell
April 2011 174 $547,000 40
May 2011 187 $561,000 37
June 2011 189 $565,000 31
July 2011 143 $571,000 34
Aug 2011 173 $568,588 28

 

Not so bad is it? Clearly there are some major obstacles ahead, I am sure we will not escape the state of America and its economy or the situation with the EU and Europe but I am equally sure we will find a way to flourish and prosper. So many of the sales taking place are to first home buyers and others new to the market, I find that very positive, a statement of hope and belief in a future.

As a completely jaundiced Real Estate person with an utter faith in the future of property I am pleased to see the solidity that property continues to demonstrate as a safe haven for investment, any well balanced portfolio should contain some property and I am more than happy to prove a case.

At lunch today one of the folk had just returned from a quick jaunt Ireland and Spain, two of the PIIGS basket cases, upside down economies of the region; he was amazed to find them to be ‘standing room only’, choc -a-block with folk spending up large and fully enjoying their gift of life. Life is in the business of going on.

Tony A is right, we are in no way in dire straits, we have a fabulous country and every reason to look to our futures with confidence and hope.

September 15 2011 | Uncategorized | No Comments »

Ssshhh! Futures under construction — May be one is Yours!

 

If you are reading this piece, clearly you are not dead, expired or defunct; in which case we have in common that we are ageing. Slowly, quietly time slips away until the elderly time is upon us, then the noise starts. The fact that old age and ‘retirement’ comes to us all is obvious, everyone knows it’s true but like a big fat elephant in the room we are somehow able to ignore its existence.

Even a slow train comes eventually and the Boomer thing is the biggest of the slow trains with 77 million of them aboard. (High maintenance old folk with high expectations – expensive!). 77 Million aged persons beginning to fall out of the workforce and moving forward to retirements filled with leisure and fulfilment. Really?

 Nasty reports and articles in the media are starting to tell a different story. UK daily mail reports that of the 7.3 million people aged between 55-64 years 26% have not one penny in a pension fund. (30% of those aged 45-54 and 47% of those aged 25-34 have no pension fund.) In 1967 8.1 million private sector workers had a company pension, in 2004 the figure was 4.8 million and today 3.3 million and dropping; all at a time when the population has increased by approx.19%. Recent market movement has seen the pension fund holding of millions of workers devalued to a figure less than the actual contributions made. (NZ. would be similar or worse proportionally.)

A recent Rabo direct survey (8/11) found that half of Kiwis don’t save and that, interestingly, it is not just low income earners who struggle to save, it’s across the spectrum.

Baby Boomers in their millions are going to be compelled to work longer; in fact there are a host of new considerations to be faced:

  • We will have to accept personal responsibility for our retirement finances.
  • Employer subsidised schemes are on the decline, it is unlikely that trend will reverse.
  • We will be extending our careers or retraining for alternate/second careers. Simply for the money, or for a sense of social involvement. The process has already started in the USA.
  • Retirement will be for a looooong time, maybe as long as 20-25 years – in any case far too long to be poor, scrimping and basically doing it tough.
  • We are going to live longer, the good foods we enjoy here and modern medicine will see to that. (A girl child born today has a life expectancy of approx. 100 years. Frightening! For men it is a little less.)
  • You can guarantee that Universal super will become a little less ‘Super” and probably a little less universal. A safe bet is on taxes increasing too. Qualifying ages will for sure rise.
  • Even possessing the funds to be able to afford retirement is no guarantee of enjoyment, 20 years is a long time if you’re bored, unfit, lonely or infirm.

What to do?

 The most difficult step is always the first one; recognising and accepting the true situation. The issue is far too big to ignore, you would simply have to take steps to address the problem. Actually taking any step, however imperfect is preferable to inaction; imperfect plans imperfectly implemented will generate a better outcome than doing nothing.

Acceptance of the responsibility for your own financial wellbeing inevitably requires adjustment to lifestyle, sacrifices actually. We are not good at that, we suffer from lifestyle inflation. It is self evident that saving won’t happen if spending rises at the same rate as income; often the spending comes first!

Diana Clement wrote this sentence for the Herald “Sometimes we can never get enough of what we don’t need” and I observe it to be true; new bigger homes, cars boats, exotic expensive foods and fancy Doodads. An inevitable consequence of saturation advertising.

We have come to believe we deserve big rewards, we are entitled to …… well just about anything we want and certainly entitled not to have to budget.

I suspect that our world has run out of wriggle room where spending is concerned; fiscal austerity will be the new focus as governments worldwide try to stop debt escalation. Entitlements today will become privileged ‘options’ tomorrow; ‘means testing’ at ever lower levels will become the norm.

Avoid the train smash in advance rather than try to live with the consequences in retrospect; it’s easier. There are all sorts of options including shares, Kiwisaver type vehicles, precious metals and of course real estate. All have a story to tell and can play their part as building blocks in your better future.

The folk today that we have helped to create retirement incomes and capital bases have in common that they all started in small uncomplicated ways and then made accelerated progress as their confidence grew along with their capital. Perfectly ordinary folk in all respects except that they were prepared to defer a little gratification and take a step to guarantee some improvement to their prospects. Without exception they overestimated their one year result but absolutely underestimated what they would achieve in 10 years.  Ironically they did all start with Real Estate which ultimately gave the ability to invest in the shares etc.

It is not rocket science, not tricky, not even really hard. Results have been created with a simple plan, a little courage and stick ability over time; whatever volatilities the market has thrown our way.

Fact is that we will have to create an income whether times are good or times are tough. There is no alternative other than to live on the $260 – $340 a week of the Government largesse, or to ffffade away and eventually expire.

 Real Estate is the option I understand, know and see work every day. It can play a part in creating an ‘Elderly time’ worth the experience; take some time and find a trusted adviser ask them show you how it has been a success for others. 

Nothing to lose, all to gain; should be a no brainer!

August 24 2011 | Uncategorized | No Comments »

What future in a crazy world.?

In a world going topsy its difficult to plot a sensible course, a safe way to your destination, one that sees you make progress, one that provides some hope for a secure future.  Little is more paralyzing than the fear arising from rapid change in a completely unexpected fashion; we have seen a lot of that in the past few days and weeks.

Who would have thought we would be watching live footage of the British society imploding in such a nasty way; the loss by America of the prized AAA credit rating and the resultant extreme volatility of the share markets and currencies.  Fortunes made and lost in a matter of heartbeats, trillions vaporized and rumour upon rumour developing lives of their own; almost beyond credibility. 

As it happens some of the events were predictable to a degree, the wrangling between the Democrats and Republicans could only ever have come to a sticky end; the most telling outcome to me was that the American representatives held their own wellbeing and interests above that of the nation, little was effected to rectify the underlying problems and so the downgrade. 

We are quite removed from the vortex of the storms, miles from anywhere and blessed to be a small nation that produces excess protein in a world hungry for it.  To some degree we are insulated from the worst of it. We are subject to a degree of risk as a benevolent, socialist country that offers entitlements and benefits we cannot afford and have created similar elements as those erupting in the UK.  Our big risk is a workforce with a significant proportion of poorly educated, poorly skilled, lowly paid workers. The underclass if you like, a section of society that will not enjoy all the benefits available in NZ and be resentful for that.  As disenfranchised as the youths wreaking havoc in the UK. 

Commentary over the past few years has indicated that none of these outcomes should come as a surprise, they were largely predictable.  Any institution (household, business, and nation) that consistently spends more than it earns must sooner, or later, run out of money. Large scale printing of money thieves wealth by stealth via inflation and plays a large part in the impoverishment of the middle and working class sectors of society by requirement of ever increasing hours to be worked to pay for staples such as food and rent essentially a poverty trap.  Sadly, inflation is also a tool well used by the affluent to create capital. 

What about houses, residential rentals etc.?  None of the recent shenanigans caused weekly rents to vary, house prices to fall or even to rise.  As the table shows the 6 month results for this neighbourhood are remarkably consistent, probably as a result of the lack of liquidity of the asset combined with the lack of change in the primary price driver demand.                       

Month No. of Sales Median Sale Price Median DaysSell
Feb 2011 154 $555,000 56
Mar 2011 226 $540,500 38
Apr 2011 174 $547,000 40
May 2011 187 $561,000 37
Jun 2011 189 $565,000 31
Jul 2011 143 $571,000 34

Statistics courtesy of REINZ.

 Real estate is not immune to lack of consumer confidence, relative unaffordability and difficult access to funds. We see results of some of these factors in the fact that new housing starts are at extreme lows, housing occupation densities are high and rising and that prices are holding steady, the lower levels of sales that do take place do so reasonably quickly. Low confidence levels, poor sense of job security, debt aversion and difficulty accessing money account for the low volume of sales; as soon as the confidence factor alters watch the sales volumes and prices go.  Real Estate is an asset that does benefit from inflation, well the owners do. 

What will see confidence rise? Probably a series of small incremental improvements in the NZ accounts followed by a world cup or two would do the trick in the absence of any major catastrophe. The rebuilding of Christchurch and flow on from good commodity prices enjoyed by the farming sector will help, consumers are already tentatively relaxing the death grip on their wallets. 

Ironically, we are reasonably insulated from all but the most fierce of storms, the biggest danger we face is fear itself.  Fear is by its very nature contractive, causing paralysis and inaction. As we get accustomed to our circumstance it becomes our norm, we lose our fear and at that stage we start to plan, actuate those plans and then hallelujah – we progress.  Essentially, the first step in our progress is acceptance of the fact that our futures lay fairly and squarely in the palms of our hands and absolutely nowhere else.  Radical and simple but no progress is possible without assuming responsibility for our own individual wellbeing. 

I can predict ageing, retirement, educating the kids; actually life continuing as it should, new houses will be built to accommodate new generations, some for owners and some for tenants. They will progressively cost more to buy and to rent.  Actually history repeats and the more things change……… 

Nothing so far has come about that stopped us dead as a nation. Britain joining the EEC and cutting us loose was to my mind a bigger threat to our well being than the current circumstance and we survived that as well as every other calamity that befell us subsequently. 

Life does go on, events will sort out and even if a new reality exists, we will prosper.

 

August 16 2011 | Uncategorized | No Comments »

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