David Whitburn

Archive for August, 2010

Since global financial issues are important to New Zealand, it is important to keep tabs on the largest economy of them all in the United States.  One of the world’s wealthiest companies is the US Federal Reserve (no it is not Government owned like in New Zealand, Australia, United Kingdom and the vast majority of other countries).  Their chairman Ben Bernanke has huge responsibilities and has the unenviable challenge to try to resurrect the ailing US economy.  This cannot be an easy task and it must be hard for Americans to stomach the fact that it is not if but when they will be overtaken by China as the largest economy in the world.  Earlier this month China overtook Japan as the second largest economy in the world.

Ben Bernanke - US Federal Reserve Chairman

Last month Ben Bernanke told a congressional committee that the economy was “unusually uncertain”, however importantly he did not predict that it would fall back into recession.  Who am I to argue against Ben Bernanke on the US economy – so I am not panicking and can’t recommend that you sell your assets know.  Far from it, as there are some very good opportunities to those who have the cash to buy them.  I have seen a mentoring student purchase a commercial property at half of its CV on a vacant property, and another student buy a residential rental property at $200,000 below its CV (just over 30% below value its independent registered valuation), and there are some exciting businesses to purchase shares in with different degrees of volatility.

Then earlier this month the US Federal Reserve said it would use the proceeds from its own investments in various mortgage securities to buy longer-term US Government Treasuries.  As a result significant amounts of money will be pumped in to bolster the US economy and companies like Apple and General Electric will continue to enlarge their already massive treasure chests.

Bernanke’s four options for the US economy

At the annual Jackson Hole (Wyoming) symposium yesterday with central bankers, Bernanke said the recovery had slowed to “a pace somewhat weaker” than forecast.  He said that there are four “unconventional” options for the kickstarting of growth in the US economy.  With the US June quarter GDP growth at just 1.6%, a worsening balance of trade position, and continued high unemployment statistics, it appears that there will be a long hard road to recovery over the next couple of years for the United States of America.

What option or combination is yet to be seen.  The monetary policy intervention will continue and it has to.  Lets hope the US can recover and that this will spread onto Europe, which is not in great shape either.  As a global financial markets are facing challenging times.  There may be a positive spin-off to this bad news, if you are a borrower in New Zealand in terms of lower interest rates.  It is likely that the US medium and long term swap rates will stay at their current low rates for a significant period of time.

Last Tuesday the 10th of August 2010 I had the sincere pleasure of introducing two of Auckland’s finest sons, in the Honourable John Banks Mayor of Auckland City and Len Brown Mayor of Manukau City, to the stage for the Auckland Property Investors’ Association August Keynote Meeting – the Super City Mayoral Debate.  With Len Brown (29.6%) ever so slightly edging out John Banks (28.7%) in the latest NZ Herald – Digipoll Mayoral Survey, and Andrew Williams the North Shore City Mayor only polling a very distant 3rd at just below 4%, we have a two horse race for the battle to become the first Lord Mayor of a United Auckland.

We had 15 minutes from each of the mayoral candidates, before structured questions from the APIA Board were asked by debate facilitator Andrew King (NZPIF Vice President, best-selling author and a previous APIA President), and then we had questions from our audience of some 270 – 300 people.

The topics were broad and included questions on transport, rates, planning rules, charging water to tenants like all other utilities (telephones, broadband, power, gas, Sky TV etc).  With rates being the second or third biggest expense to most property investors in light of depreciation claims being slashed earlier this year by the Inland Revenue and Government, this is very topical.  The last thing we want to see is big rate rises for property investors.

Len Brown

Len Brown talked of a need for a unified Auckland and that our city needs a Mayor that is a builder and a uniter.  His aspiration was to build the most liveable city in the world.  It would be a place to invest that invests on all great outcomes:

• environmental sustainability and a commitment to be an ecocity
• a powerhouse of an economy
• diverse social communities

The key is to build the city on inclusiveness and on communities, fairness especially in rate setting, and that Auckland needs to regain its “mojo” (eg not building the waterfront stadium and the Queens Wharf issues for the Rugby World Cup 2011 headquartered in Auckland).

John Banks

John Banks gave a strong presentation and his answers to questions gave a strong indication that he has issues with the Auckland Regional Council, and it spending massive amounts of money on legal fees, and building a united Auckland based on:

• opportunity
• security
• prosperity

Banksie wants to make Auckland an even better place to invest your money, make a dollar, pay your taxes and pass on a legacy to your kids.  Banks also rightly said that we would be competiting with cities not nations in the future, particularly our Australian counterparts in Sydney, Melbourne and Brisbane.

Minor skirmishes

Skirmishes in the debate included Len Brown questioning the issuance of over 40,000 fines for vehicles driving in bus lanes in John Banks’ Auckland City, and John Banks trumping Len Brown’s assertion that it is appropriate to have this meeting in the under the shade of Maugakiekie (One Tree Hill) and just down the road (Puriri Drive) of the statute of Sir John Logan Campbell, the founding father of Auckland, by emphatically saying “I wear the robes Sir John Logan Campbell wore”.  There were a few very minor altercations in this debate, but the mayors were of course very well behaved and both spoke excellently and would be fine leaders of the magnificent city that is Auckland.

How the Super City is changing the Local Governance Model for Auckland?

New Zealand’s Building and Construction Minister Maurice Williamson, this afternoon announced that the Government will introduce amendments to the Building Act 2004 that will help cut red-tape and bureaucracy and make builders more accountable.

The planned changes to the Act will be phased in over time.  Some of the incentives to build it right first time to be introduced to Parliament this year include:

• explicitly stating that builders and designers are accountable for meeting Building Code requirements;
• mandatory written contracts for building work above $20,000 that set out expectations, warranties and remedies, and how any disputes will be resolved;
• requiring those doing the work to explain what, if any, financial back-up or insurance they have to remedy any faults.

The planned amendments will also see some minor, low-risk work, exempted from the need for a building consent.  Examples of such exempted work will include:

• Replacement or alteration of internal wall and floor linings and finishes in a dwelling.
• Adding lightweight stalls (eg, used at fairs and exhibitions) to the current exemption for tents and marquees.
• Fabric shade sails and associated structural supports that do not exceed 50 square metres in area (with limitations on matters such as the level on which the sails are installed and distance from a legal boundary).
• Installation, replacement or alteration of thermal insulation in existing buildings (excluding exterior walls and fire walls). This clarifies that retrofitting ceiling and underfloor insulation will not need a consent.
• Penetrations with a maximum diameter of 300mm (including associated weatherproofing, fireproofing and any other finishings) to enable the passage of pipes, cables, ducts, wires, hoses and the like through any existing building. This clarifies that for example a heat pump can be installed without needing a consent, although the wiring must be done by a registered electrician.
• Signs and associated structural supports where the sign is no more than 3 metres high and the face area of the sign does not exceed 6 square metres.
• Height restriction gantries (e.g. a vehicle height warning in a car park).
• Private playground equipment used in association with a single household where no part of the equipment extends more than 3 metres above the ground.

Mr Williamson says the Government can only make changes to the building consent process to reduce costs once it has confidence in the quality of what is being built.

The Government is proposing to introduce a ‘stepped’ approach to building consents and inspections after mid-2012 once the other improvements are in place to drive quality, including the licensing of building practitioners.

You can read the Minister’s media release and find out more on the Department of Building and Housing’s website at: www.dbh.govt.nz/buildingactreview