David Whitburn

Introduction

This month has been an interesting one with the market showing some signs of life, and strong demand and rent increases coming through in the desirable areas of the Auckland’s North Shore and Central and Eastern Beach suburbs (St Heliers, Kohimarama, Mission Bay & Orakei).  The house prices are climbing in Auckland, albeit on thin volumes.  The number of days to sell a house has improved too (down to just 30 days).

Fixed mortgage rates are continuing their ascent, but we now have extremely low floating interest rates.  I cover off what I think investors and borrowers should be doing later in this article, after something that is worrying me a bit at present: New Zealand’s debt.

Government Debt

Unemployment is continuing to rise and manufacturing firms and exporters (including tourism operators) continue to do it tough.  Whilst our economy is stabilising, we are not going to do an Iceland and have our sovereign nation bankrupted.

New Zealand is quite different to Iceland as whilst we have a lot of foreign debt, it is more of a hill, as opposed to the mountain that Iceland had.

If you look at New Zealand’s Financial Statements – as a registered company in the US (Company Number: 216105), we (NZ) have to file annual audited accounts, which are provided to the Securities and Exchange Commission, and stored here:  http://sec.gov/Archives/edgar/data/216105/000110465909016652/a09-7159_1ex99dd1.htm you will note that NZ has $31.9 billion of direct public debt (ie. Government debt) as at 30 June 2008.  Unfortunately this number is now rising and apparently the Government is overspending to the tune of $200 million per week.  That’s right, New Zealand is making a ‘loss’ of over $10 billion/year, and is forecasting to make losses until 2020.

Whilst some of you may not care, for our children and grandchildren’s sake I think we should care.  This is far too much.  We need to ramp down Government services and stop the overspending.  Obviously after several quarters of recession, the policies of the previous Government and the global financial crises, we have a greatly reduced tax take.  Surely the corollary of this must be to reduce expenditure.  Sure it may mean that we have to pay more in ACC premiums, more tolls on roads, to use our national parks, but doesn’t this beat having such high debt amounts to service.  Or does having such high debt not really matter.  There are some conspiracy theorists out there that say this doesn’t matter, the money system we have is a crock, and just a system of control designed to benefit very few.  They would tell you to watch Money as Debt:

Money as Debt

As for me I think the system isn’t that bad, and that increasing your financial and property knowledge is directly proportional to your financial and personal success.  What I am uncomfortable with is New Zealanders collectively owing $303.5 billion dollars.  Refer to the C3 Monetary and Credit Aggregate table shown by the Reserve Bank here:

http://www.rbnz.govt.nz/statistics/monfin/c3/data.html

This page is updated monthly with new statistics so you too can monitor New Zealand’s level of debt.

Property Market Drivers

The property market drivers that I rely on are:

1. Affordability
2. Interest rate levels
3. Migration
4. Supply/Demand balance
5. House Sales and Building Consents
6. Liquidity
7. Global Financial Issues

I will cover off each one next week in another blog though.

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