David Whitburn

It was announced today that the operations of the Department of Building and Housing (“DBH”) would be merged into a ‘super Ministry’ along with the functions of the Ministry of Economic Development, the Department of Labour, and the Ministry of Science and Innovation. The intention is that these operate together from 1 July of this year. DBH has a range of activities including Tenancy Services, Tenancy Tribunal, Weathertight Homes Resolution Service, Licensing of Electricians and Building Practitioners, as well as Building Act and building code administration.

The new ministry will be called the Ministry of Business, Innovation and Employment and be headed by the highly competent businessman Steven Joyce. Change is scary for those working in these departments as there will be redundancies. Some people will jump to conclusions and panic before the give the merger a chance.  For a start 4 CEO’s will become 1. There is some cross-over and duplication so some efficiencies will be gained. This merge is interesting as DBH seems a slightly unusual fit. However I like the big picture thinking of the Government to keep its expenditure under control, and restoring a business focus to Government. Therefore this merger in a strive for efficiency should be of little surprise as we continue to borrow over $250 million/week to cater for our deficits.

We have already had cutbacks in funding to DBH.  In light of the Christchurch earthquake stretching resources and not replacing some staff resigning, and continued tough economic times meaning rent arrears are still more frequent than we’d like them to be, we have Tenancy Tribunal application times ballooning out to over 2 months. When you need to evict tenants, this is just too long.

So I wish the new Ministry of Business, Innovation and Employment (I will call this “MOBIE”) well as we want to encourage job and wealth creation, help the exporters of our beautiful country.  MOBIE’s challenge will be to ensure they had as much customer focus as DBH, which I thought was outstanding.  I valued the relationship DBH and I have had and I continue to have in my capacity as President of the Auckland Property Investors’ Association.  If they can start by getting the mediation timeframes down and Tenancy Tribunal application times down, that would be most appreciated.  I am excited by the change, and with these timeframes ballooning over the past year to unacceptable levels, change had to occur.

I hope it works.

Postscript – see my comments to Landlords.co.nz on Friday 16 March 2012:

http://www.landlords.co.nz/read-article.php?article_id=4145 (I trust that the new Ministry will be customer focused and strive to urgently reduce timeframes for resolving tenancy disputes and wish them well.)

HSBC have just dropped their fixed interest rates. Of particular note is their 1 year fixed interest rate at 5.29%, which is the lowest advertised 1 year rate in my just over 10 years of property investing to date. Whilst senior executives at banks often get interest-free loans, and more sizeable numbers of staff get 1.0% off the floating rate and 0.5% off fixed rates at various banks, and significant discounts to advertised rates are available to key customers.  Their other rates are similar to retail offerings of other banks, however this 1 year rate is very special, and is likely to buy them more customers.

HSBC Premier Home Loan Rates

Note that to qualify for HSBC Premier you need lending of at least NZ$500,000 or savings of NZ$100,000 or more.

As many of my regular readers know, I am an avid cricket fan. This is the world’s second most popular sport after football.  One of the reasons is this is India’s national sport and one of their greats, Rahul Dravid has just announced his retirement from international cricket at the age of 39, as the world’s second highest test run scorer with 13,288 runs, with an excellent batting average of 52.31, 36 test centuries and the record for the most test catches as a fielder with 210. Dravid also scored 10,889 runs at an average of 39.16 with 12 centuries and 83 half-centuries, taking 196 catches and 14 stumpings (he filled in occasionally as wicket-keeper for the team). With his friends and long-time team-mates Saurav Ganguly and Anil Kumble having retired in 2008, there can’t be too long until Laxman and the world’s highest test run scorer Tendulkar retire to truly make this an end of a great era for Indian cricket.

Rahul Dravid’s Career Batting Record

Features of Rahul Dravid’s Career

Rahul Dravid is nicknamed “The Wall” as statistics show he is one of the very hardest players to dismiss with his impeccable defence, technique and powers of focus over his career. He took an amazingly high average of 123 balls to be dismissed.  Since his career started in January 1996, only fellow legend Jacques Kallis has a higher balls per dismissal average currently at 126. Dravid featured in a record 738 partnerships with the most century partnerships at 88, and the most 50 partnerships at 126. He has batted for countless hours with Sachin Tendulkar and they shared in 20 century partnerships as Dravid provided the re-inforcing steel into a powerful Indian batting lineup. Whilst his strike rate and range of shots was not as great of that as Tendulkar, Laxman, and Sehwag, he anchored the batting and whilst he was at the crease a current world record 32,039 runs were scored.

His slip catching skills were excellent, and he took 210 test catches, mainly in the slips. This is a record that will take some beating too.  Dravid also captained India in 25 of his 164 tests, winning 8, drawing 11 and losing 6. Only Mahendra Singh Dhoni and Saurav Ganguly have better records. He also had a winning record as one-day international captain of India, Dravid won 42 games, with 33 losses. Dravid scored 10,889 ODI runs, the 7th highest total on his retirement yesterday after Tendulkar, Ponting, Jayasuriya, Inzamam-ul-Haq, Kallis and Ganguly.

Favourite innings of Rahul Dravid

I remember his 180 runs as part of a 376 run partnership in March 2001 with VVS Laxman at the magnificient Eden Gardens in Kolkata against the overly dominant Australian test team. In the first innings the legendary Australian captain Steve Waugh scored a magnificent century, largely when batting with number 10 Jason Gillespie and number 11 Glen McGrath, to carry Australia to 445 from 8 for 269. Then McGrath in particular, also Gillespie, Kasprowicz and Warne cleaned out India to dismiss them for a paltry 171. Waugh enforced the follow on, and with the openers gone, Laxman in at first-drop and then Tendulkar dismissed India were in deep trouble and facing an innings defeat at 3/115. Ganguly and Laxman helped steady the ship before Ganguly was dismissed by that famous c Gilchrist b McGrath combination at 48. Then something very very special happened. Dravid came in at number 6 (lowered after poor scores in the first three innings of this vital Border Gavaskar Trophy).  Stumps were called to end day 3 with Dravid on 7 and Laxman on 109. They then formed a plan to bat all of day 4, and talked at the end of every over, with Laxman on record as saying Dravid would tell me “this is what we have put in all the hard work for”.

They slaughted a bowling attack including two of the all-time greats in Shane Warne and Glen McGrath, and batted all day amassing 330 runs in 90 overs.  As he did so often in his career, Dravid routinely caressed the ball through the covers and effortlessly flicked the ball off the stumps through mid-wicket for boundaries. The next day they needed to score quick runs and by the time Laxman was dismissed for a memorable 280 they had taking the game out of Australia’s reach and put the ball into India’s bowlers court. With a declaration at 657/7, Australia had a target to chase down of 384, or more likely try to save 5 hours of Indian bowling with Harbhajan Singh in fine form. Australia couldn’t with Harbhajan taking 6 wickets in their second innings for a grand total of 13 in the match. Dravid was influential in a victory that dented Australian confidence and proved to themselves and other countries that this mighty Australian team could be beaten.

Dr Bollard as widely tipped held the Official Cash Rate at 2.50% in his announcement a few minutes ago. He stated that the strong New Zealand dollar will keep interest rates lower for longer by keeping imported inflation in check while eroding the value of exports.

While helping contain inflation, the high value of the New Zealand dollar is detrimental to the tradeable sector, undermines GDP (gross domestic product) growth and inhibits re-balancing in the New Zealand economy…

Sustained strength in the New Zealand dollar would reduce the need for future increases in the OCR.”

RBNZ has kept the OCR at 2.50% since the dropping it 50 basis points (0.50%) in March last year in the wake of the devastating Christchurch earthquake on 22 February 2012 that took 185 lives and caused ~$30 billion of damage.

Putting interest rates up means tougher times for exporters, leaky building home-owners and those with damaged homes in Canterbury that did not get “red-stickered” with the compensation from the Government to buy their homes at land value.  So exporters that help drive our country’s economic growth and also property owners will be happy with this announcement.

What this means for property investors?

Interest rates will stay lower for longer meaning that investors on floating rates are not expected for face interest rate rises until the very end of this year, possibly later.  Fixing remains an attractive proposition for many that want certainty over flexibility, but as always I am advocating an interest rate averaging concept, but one that can be weighted to where rates are seen to give a lower interest cost over time.  For example I am just negotiating a deal with one of the banks for 5.50% fixed for 3 years right now, as I see little chance of floating rates falling below that level for too long.  That would take another devastating natural disaster or deflation to cause that, and in event the numbers work very well.

Why not ask your bank for a big discount, and look around for opportunities to refinance, which are plentiful particularly in the sub 80% Loan to Value Ratio (LVR) space.

This is part 2 of my two-part mini blog on the Auckland Council’s new charges for the council 2012/13 financial year which begins on 1 July 2012.  It follows from the rates changes which included a link to the Auckland Council draft rates website.

Domestic wastewater charges for 2012/2013

1. Domestic (residential) customers of Watercare that have water meters: (including GST)
   • Annual fixed charge for wastewater: $190, plus
   • Volumetric charge: $2.281 per 1000 litres of wastewater. Your wastewater volume would be calculated at 78.5% of your water volume (the assumption is that on average, 78.5% of water that enters a home goes down the drain via showers, washing machines, dishwashers, toilets, sinks etc.  If you or our tenants water the gardens a lot this charge may seem unfair, but this is set in stone).

   The table below shows how much a household could expect to pay for wastewater, depending on its water consumption habits if the council’s proposal were adopted.

2. Domestic (residential) customers of Watercare that do not have water meters but are connected to the wastewater network: (including GST)
   • Annual fixed charge for wastewater: $582

Commercial wastewater charges for 2012/2013

1. Non-domestic (commercial) customers of Watercare that have water meters: (including GST)
   • Annual fixed charge for wastewater: $313, plus
   • Volumetric charge: $3.637 per 1000 litres of wastewater. The volume of wastewater, as a percentage of the water volume, would continue to be based on wastewater audits carried out since the start of 2008. Customers that have not undergone an audit would have an industry-specific percentage applied.
2. Non-domestic (commercial) customers of Watercare that do not have water meters but are connected to the wastewater network: (including GST)
   • Annual fixed charge for wastewater: $845

United Water is required to meet the average charges for Auckland, meaning its charges are likely to be similar to that of Watercare.

In news just to hand, the Auckland Council have released their proposed property rates for the 2012-13 year after a massive rating revaluation review and amalgamating all the legacy councils of the region.  Click here to see how these land taxes may affect you:

It looks like houses in excess of 1 million dollars are being hit hard by rates increases, and there seem to be slight rates increases for properties across the board from $200,000 – $600,000.  Houses from $600,000 – $1,000,000 initially appear to have rates increases in the vicinity of 10-20%.  Multi-income properties (eg. houses with sleepouts, granny-flats and minor dwellings) are faring better in most areas with the uniform annual general charge unfairly hitting two (or more) dwelling units, meaning more significant rates decreases for some owners.  Two of my properties like this have their rates bills more than halved.  However it is important to note that wastewater charges are going to be excluded from the rates.

This means that you will be billed separately by Watercare for all properties in the Auckland region (with the exception of United Water for now) for properties in the old Papakura District.  I will blog on water charges tomorrow morning in part 2 of this blog.

Last month the Inland Revenue released a number of pieces of interesting information about taxpayers.  What staggered me was that Inland Revenue had over $7 billion owed to it.  Look at the growth in debt from little over $2 billion in June 2002 to over $7 billion in June 2010.

Total overall debt

This is a little more alarming – $7 billion is owed to Inland Revenue as tax debt.

Wage/salary distributions for individual customers, 2001 to 2010

Wage/salary income includes any gross earnings received from any employer, from which PAYE was deducted. Specifically excluded are: New Zealand Superannuation, taxable welfare benefits, student allowances, earnings-related ACC payments and shareholder employee salaries (with no PAYE deducted).  You can see the green line below of how incomes have been building since 2005 and indeed 2001.  Still comparatively few people earn over $100,000 wage and salary income though.

Notes:

1. The years refer to income years ended 31 March. Returns filed more than two years after the end of the income year are not included in the table.The 2010 data are incomplete until after 31 March 2012 and will be updated next year.
2. The table includes people with part-year PAYE incomes and can also potentially include children.
3. People who did not receive any wage or salary income (as defined above) are not included in the table.
4. The data are based on a random sample and have been scaled up to population estimates. The sample is 2% of wage and salary earners and 10% of IR3 filers.

Percentage of returns filed on time, 2003 to 2010

This section shows a ratio of number of on time filings to a total number of filings per tax year. The ratio is presented separately for major tax types and customer groups.  Income tax returns are routinely late, whereas only around 1 in 10 PAYE and GST returns are filed late.

Percentage of payments made on time, 2003 to 2010

This section shows a ratio of number of on time payments to a total number of payments per tax year. The ratio is presented separately for major tax types and customer groups.

Building consents are one of the key indicators of supply.  The highlights are:

• 1,098 new dwellings were approved, including 198 apartments (of which 174 were retirement units).
• Seasonally adjusted new dwelling numbers rose compared with December 2011, following volatility in the latter half of 2011.
• The trend numbers for new dwellings approved continued to rise from the historically low level of early 2011.
• Earthquake-related consents identified in Canterbury totalled $25 million, including 17 new dwellings.

Compared with this time last year residential consent values have risen $76 million (25 percent), and non-residential consent values have fallen $1.5 million (0.6 percent).

This year is shaping up to be a good one with property investors, particularly for those with investment properties in Auckland.  Property investment is all cashflow, equity and growth.  As with many relationships balance is crucial, and the balance between supply and demand governs the outcomes for our rents and capital growth.

Some smaller towns and rural areas are suffering from a declining population with businesses closing down are seeing higher vacancy rates, yet there have been some solid rent increases in Christchurch homes that are still habitable and of course in Auckland properties.  The old adage location, location, location holds true and property investors with city fringe properties and in the popular seaside suburbs of the eastern beaches (eg. Kohimarama, Orakei), North Shore (eg. Devonport, Takapuna) and East Coast Bays (eg. Murray’s Bay, Brown Bay) are seeing significant rental increases.  An investor I know with a property in Milford and another in Rothesay Bay has there rents over $150/week higher on each of their 4 bedroom properties in just one year, and a property manager tells me of rents in a luxurious Orakei property still let to a corporate tenant being over $250/week higher.  In the more stock standard West and South Auckland suburbs statistics from the Department of Building and Housing show rents have been rising significantly.

The average rent in Herne Bay and St Mary’s Bay for a 4 bedroom home in the period from 1 August 2001 – 31 January 2012 has leapt up to $941/week.  Have a look at the rental trends as shown below for the 5 selected areas of Wellington’s Northern Lower Hutt (ie. Stokes Valley, Taita and Avalon), South Auckland’s Manurewa, West Auckland’s Te Atatu and Royal Heights, as well as Takapuna in Auckland’s North Shore, and Sydenham, Woolston and Waltham in the city fringe’s south and south-east of Christchurch.  Take a look at this graphed from landlords.co.nz.

No matter how you look at it, rents are going up.  Rents don’t just go up for the sake of it, they go up as a result of various factors, mainly economic ones, and a few emotional ones (eg. perception of schools in zone) too.  It’s easier to analyse the economic factors and one that has hit the media lately is building consents.  There were just 13,662 consents issued for new dwellings last year, down 12 percent from a year earlier and the lowest since Statistics New Zealand began tracking the figures 46 years ago.

Planning for Auckland’s growth

There have been a lot of conjecture around the Auckland Mayor Len Brown’s dream to have Auckland rated the number 1 most liveable city in the world, and plugging the weakness of not having a world class public transport system, as this will cost a tremendous amount of money, necessitating further rate increases and other measures for funding this.  Whatever happens we do need to plan ahead as Auckland has over 1.5 million residents, so over one-third of New Zealand’s population (4.44 million).

Obviously people need a place to live, so this is why Auckland property investors are in for a treat.  There is a significant undersupply of housing in Auckland at present.  This is exacerbated by high council contributions and levies and a more difficult environment to raise construction and development finance.  The demand for housing in Auckland is huge.  The Auckland Plan discussion document (2011) stated we need 330,000 dwellings by 2040 for the midline projection in our population.  This is an increased demand of nearly 40%.  A growth rate of just 1.6% means Auckland grows by 24,000 per year.  We are essentially adding a town the size of Timaru each year.  So this is clearly New Zealand’s city with the biggest population growth in it, which means rent increases and value increases will continue, and this prognosis should hold true for many decades to come.

I write a regular monthly column in the NZ Property Investors magazine. This is the leading magazine for property investors.  If you are serious about improving your knowledge with property investment, you should be subscribing to this magazine.  Here’s a look at the first page of my article which covers the reasons why I invest in property: