Archive for the ‘General’ Category

With the Rugby World Cup on the MV Rena shipping accident we are forgetting the devastation to Christchurch.  Dr Bollard in his opening address to a Rotary Forum in Wellington spoke on Economic impacts of seismic risk: lessons for Wellington.  He stated “institutions should focus on preparedness, competency, leadership, delegation and resilience rather than detailed plans for specific situations that may not repeat themselves.”

MV Rena stranded on Astrolabe Reef - with acknowledgements to Maritime NZ & the NZ Defence Force

Rena vs Canterbury Earthquakes

The Rena is a tragedy and not a tribute as some overseas people have suggested to the All Blacks by “painting leading beaches black”.  Nor is it the result of deep sea drilling or offshore drilling as some Greenpeace, Green party and Mana party activists have said. However as far as events go, it is nowhere near the level of the Christchurch earthquakes.  This was an accident created by man, not God.  It could have easily been avoiding by using Google Earth or a little local knowledge as that reef is exposed at low tide and has been there for an extremely long time!  The earthquakes were unavoidable.  No-one died on the Rena, 182 human lives were lost in the Canterbury earthquakes.  The beautiful Mt Maunganui, Papamoa and other Bay of Plenty beaches were impacted, as were numerous birds, fish, fisherman, tour operators and more.  However 165,000 were damaged by the earthquakes, many are uninhabitable still now.  The rebuild costs have been put at NZ$20 billion.  The shipping clean up costs may reach as high as $20 million (one-thousandth the size).

The Canterbury earthquakes will cost our economy nearly 10% of its GDP to rebuild Christchurch – an enormous cost.  Japan’s March earthquake is thought to be 3% of their GDP.

The Lesson for Wellington

I want to share with you Dr Bollard’s speech portion in relation to what the most earthquake prone city in New Zealand, our capital Wellington, needs to learn from these earthquakes:

We have learned that an event like a major earthquake has many unpredictabilities and uncertainties about it, elements that are incident and location-specific, with characteristics that unfold in different ways. And these make it difficult to plan crisis responses in detail. We have learned the same thing about financial crisis, as in the semi-ironic title of the classic Reinhart & Rogoff book on international economic crises entitled “This Time Is Different”. This means institutions need to focus on general preparedness, competency, leadership, delegation powers and resilience, rather than on detailed plans for specific situations which may not repeat themselves.

We have also learned that some earthquakes cannot be thought of as a short sharp event, but rather are a rolling set of shocks with a long period of continuing after-quakes. These can cause on-going damage, delay assessment, continue disruption, and slow reconstruction. The impact of ongoing seismic instability on insurance and construction can be very marked.

We have seen how earthquake damage is hugely sensitive to magnitude, depth, location and timing of day and week. In 2009 the biggest earthquake in the Southern Hemisphere occurred in Fiordland, 7.8 on the Richter Scale. It caused no damage at all. The much smaller February 22 Christchurch aftershock was so disastrous, not just because of its vertical acceleration, but its location under Christchurch and its timing on a week-day lunchtime. The same sensitivity could apply to Wellington.

We also know now that structural damage is only part of the story. The February Christchurch earthquake showed that soil liquefaction can also cause land damage that is highly problematic for buildings and underground infrastructure. Given that most private insurance does not cover this, it presents major problems for rebuild. This is further exacerbated by land-slips. Both liquefaction in valleys and reclaimed land, and slips on higher ground could cause major economic complications in Wellington.

Christchurch has also taught us that some sectors are very sensitive to earthquake disruption. For Wellington we might assume that certain people-based industries (like tourism and education) would be vulnerable, although much office-based services would relocate as necessary once telecommunications and electricity could be resumed. Wellington might be expected to be more resilient in that many of the buildings have been built or altered with earthquakes in mind (e.g. wooden houses with corrugated iron roofs and reinforced chimneys), or in the case of older commercial buildings, reinforced to meet earthquake standards. These standards are now being reviewed in the light of Christchurch, and will likely be increased, requiring significant further upgrading in Wellington (and possibly driving a small commercial building boom as happened in the 1980s). The challenge here will be to avoid a costly regulatory over-reaction to a one-off event.

Christchurch with its flat terrain and grid roading structure allowed easier repair of above-ground infrastructure and access to all suburbs. This cannot be assumed in Wellington where slips would close roads limiting access, and where the whole city could find its air, rail, sea, motorway and road links with the region cut completely for some time. Hill top communications and electricity transmissions are quite different in Wellington, gravity-flow underground piping is quite different, and the Cook Strait cable represents a particular vulnerability.

A further concern is that earthquake insurance coverage could become much more limited, more expensive, and more restrictive in Wellington, following the Christchurch experience. Already we are seeing big increases in reinsurance premiums, tighter covenants, high excesses, and a move from full replacement to indemnity policies.

Following the September and February earthquakes, there was immediate transmission of images world-wide with passers-by posting cell phone pictures live to television stations and on the internet. This engendered an immediate (but limited) market reaction, hitting the New Zealand dollar and stock prices. At the Reserve Bank, we spent time explaining the event to overseas financial institutions and that limited excessive financial market reactions. A bad Wellington earthquake with an epicentre in the nation’s capital, could engender a more extreme financial market reaction, and it would be the Reserve Bank’s role to intervene to ensure an orderly foreign exchange market if that proved necessary. If the country’s political leadership and key administrative infrastructure were caught up in an earthquake, this could drive a bigger financial reaction, and make government policy responses much harder.

For Dr Bollard’s full speech please click this link.

I just love Australians. Their confidence is rivaled on a global scale by perhaps only Americans. I love how they celebrate their wins and how their media berates and ridicules all opposition.  Their media had booked them into the final, and recounted stories of great All Black Rugby World Cup chokes (1991 vs Australia, 1995 in the final vs South Africa with a ‘dream team’, 1999 vs France, 2003 vs Australia, 2007 vs France). There was a picture of Wallaby winger James O’Connor standing over the Kiwis in a Queensland newspaper and picks from Wallaby greats of a famous Australian win. Some Aussies had already confirmed their victory.

Congratulations to the Mighty All Blacks

In an epic battle last night, we conquered our demons and beat Australia in a crucial Rugby World Cup match. It was beautiful and our mighty nation, especially Auckland partied and celebrated success and excellence. We won the game 20 – 6 over Australia.  It was over by half-time at 14 – 6 with the the Wallabies mentally defeated at the All Blacks fortress Eden Park.

A stadium in which the All Blacks have not lost at since 1994 (we lost to France back then with a try ‘from the ends of the earth’ – I was there back then and marvelled at the French attacking prowess). We had South African fans walking to Eden Park in their Springbok rugby jerseys carrying All Black flags, and tens of thousands of people wearing black to support our team. There were a few thousand Australians in their gold jerseys too, but they were totally drowned out by the All Blacks fans in a sell out crowd of just over 60,000 people.

Features of the game

The game had a huge anticipation with a very nervous crowd and country, hoping we didn’t stuff up and could play to our potential.  We did this and Australia did not.  Quade Cooper started the game with the first of many of his mistakes, kicking the ball out on the full. Australian coach and former All Black Robbie Deans erred by not pulling Cooper off after around 20 minutes.  It was plain for all to see that he was not on song today. Why Matt Giteau was not in the Australian squad is something for Wallaby Assistant coach David Nucifora to answer, but his stability and experience would really have helped Australia in the pivotal first-five eights position.  That was a mistake and Deans should’ve worked a way to end the feud those players had.  Then the Australian tactic of giving away possession by peppering Cory Jane and Israel Dagg with high kicks was just bizarre.  You only had to look at Super 15 matches and previous tests to realise these players and left wing Richard Kahui are extremely competent at catching the high ball.  This was a total waste of possession. Questions should be asked by Australians as to why Deans didn’t instruct this tactic to stop sooner, and at least why he didn’t get the team to value possession in the half time speech.  Deans proved once and for all that he was not the right choice of coach for the All Blacks and next week the NZRFU will confirm how wise their appointment of Graham Henry was despite the 2007 Rugby World Cup quarter-final loss.  For the record I think Graham Henry is a true tactician and mastermind and his record is truly amazing.

Top players and the crowd

The All Black forwards were too strong up front with a dominant scrum that caused the Wallabies many issues and penalties against them.  David Pocock is a great player (I would argue the best openside flanker in the world), but he was largely rendered useless yesterday, and Will Genia and Quade Cooper were doing it tough on backfoot ball.  The All Blacks were too strong and denied the Wallabies possession – game, set and match! For the All Blacks my top players were Jane, Dagg, Kaino, Mealamu and Cruden.  For the Wallabies their fleet-footed speedster James (‘Bieber’) O’Connor, Ioane and Pocock played well.

Even their superstar young winger James O’Connor couldn’t inspire a victory for Australia.  The crowd support was immense.  Some of it wasn’t pretty like the chants of “Cooper’s a [t]anker” (ok something that rhymes with that word), and “you f%^ked up, you f%^ked up” along with the crowd getting carried away after a massive All Blacks scrum destroyed the Wallabies to give us a penalty, which Piri Weepu dutifully kicked over to stretch the lead to an essentially unbeatable 20 – 6.  Brad Thorn pumped his fist and engaged the crowd who started the “four more years, four more years” chant at the Australians. These sledges continued out into the streets of Auckland, through the night as fireworks were lit, ships horns were blasted in the Waitemata Harbour and hundreds of thousands of Kiwis in the streets, pubs and venues all over the world celebrated.

Time to prepare for the Rugby World Cup Final

What a game! What a victory! The focus moves to the rugby world cup final vs France this Sunday night – were we hope to repeat history at the home of rugby, Eden Park, as New Zealand strives to winning their second rugby world cup crown, like the mighty 1987 team did. Check out this video below to get you ready for next weekend’s rugby world cup final:

These are some interesting time in the interest rate markets with special rates being offered and a realisation that rates will stay low for longer.  Late last week HSBC Premier dropped their fixed interest rates to 5.49% for 6 months, 5.65% for 1 year, 6.10% for 2 years, 6.50% for 3 years, 7.05% for 4 years and 7.35% for 5 years fixed.  ANZ then announced their Rugby World Cup special rate (albeit one month into this wonderful tournament) with a market leading 5.50% fixed for 1 year, which their sister bank (the National Bank) has matched.

ANZ’s rate when combined with free home insurance for a year and a contribution towards legal and valuation fees makes this a popular rate choice.

Then Kiwibank this morning offered something truly special with a very low 30 month fixed loan rate of 5.99% – that is 11 basis points off the leading 2 year rate offered by HSBC Premier and 51 basis points off the leading 3 year rate, again offered by HSBC premier.  I think that this rate offers great value and if I had better service from my own experience with Kiwibank I would advocate them more, and they still charge higher fixed rate break fees (not that this rate will be easy to beat).

Whilst spreading your borrowings is still a good thing to do for certainty, you can afford to be overweight with shorter term 1 year fixed or less right now.  I am a big fan of offsetting loans like BNZ’s TotalMoney and the Kiwibank Offset Loan, and also revolving credit accounts.  The key is to not look at the loan facility limit and think I can go out and spend wildly as I have money in there.  Paying down debt is not a bad thing, particularly since you can redraw up to the limit to enable you options such as a buffer for repairs and maintenance costs, or to buy a great property producing cashflow that you can significantly add value to further increase your equity.

Rugby World Cup Semi-finals

Two big games this weekend with Wales vs France in semi-final 1 tomorrow 9pm at Eden Park, and semi-final 2 Sunday sees New Zealand play Australia 9pm at Eden Park.  I am picking a consistent and well coached Wales to beat France, and the All Blacks to beat the Wallabies to continue the Wallabies 12 losses in a row record on Eden Park.  A ground they play regularly on, but they haven’t won since 1986.  In fact the All Blacks haven’t lost since 1994 at Eden Park – making it the ultimate New Zealand rugby fortress.

New Zealand are favourites to win the match and the overall statistics are part of that reason.  The first official international between New Zealand and Australia was held in 1903.  Since then there have been 166 Tests between the Wallabies and All Blacks, and Australia has won just 47 at a percentage of just 29.81.  This is Australia’s worst sporting record against all countries.  Long may it continue.  Go the All Blacks on Sunday!

As a short announcement, I want to let you all know that I have sold my shares in NZ Wealth Mentor Limited to David Leon.  The terms of this arrangement remain confidential.  I will be supporting NZ Wealth Mentor and its clients in the transition and appearing at Property Masterclass on October 29-30th 2011. I have recently moved out of their Khyber Pass Road premises and wish David Leon success as he runs NZ Wealth Mentor himself in the future.

I resigned as a director in early-mid March 2011, so there is no change on that front.  I have been invited to the Advisory Panel of NZ Wealth Mentor (this is definitely not a directorship) where I will provide some technical content to some of their property events.

Going forwards I am focusing on my own investments and also on providing quality generic property investment education by courses with www.positivepropertyinvestment.co.nz.

My book - in all leading bookstores this week

My book writing journey

I am delighted that my book Invest and Prosper With Property has been released into bookstores. I started writing the manuscript for this book in January 2010 with the purpose of answering my friends and family members questions on how to invest in property successfully.  I wanted to do a good job, so I decided to give a broad coverage of all property investment topics. After several hundred hours of work had been invested I decided I would like to have it published so I didn’t just sell a few hundred copies or have to give them away. I made the decision to seek out the services of a professional publisher. My friend Amy Hamilton-Chadwick was a professional editor and she edited the manuscript and gave me excellent feedback to make it more readable.  Then it was time to brief out my manuscript to publishers and having been told by so many people about how hard it is to get a big name publisher behind you I was expecting it to go the way of most of my offers on properties – rejected.  This was a most pleasant surprise to me and full credit to Jan Riley of Random House who introduced me to the publishing team.

I was most impressed with the professionalism of Random House from the outset, with their large Auckland presence, an enviable list of best-selling books, and their reputation as one of the very best non-fiction publishers (as well as fiction publishers) in New Zealand, and worldwide.  So I choose them and Random House have been excellent in distributing my work through bookstores nationwide.

Topics covered in my book

There are number of topics covered in my book as it is designed to function as manual for those wanting to invest in property or for those who already invest in property and wish to keep their knowledge up.

Chapter Line-up

1. Why should I invest?
2. Why should I invest in property?
3. What do I need to know to get started?
4. Could I really become seriously rich?
5. Should I buy commercial or residential property?
6. What do I need to know to be a great investor?
7. What kind of goals should I set for my success?
8. What investment strategy is best for me?
9. How to get a great deal
10. How to find great properties
11. How do I check out a property?
12. How do I structure my property ownership?
13. What do I do about paying tax or getting tax rebates?
14. How can I find the money to invest in property?
15. What is a revolving credit or offset account?
16. Fixed vs Floating interest rates
17. How can I save money on my mortgage?
18. What type of loan is right for me?
19. How to structure your loan
20. What do I need to know about accounting and taxation?
21. Depreciation: making it as simple as possible
22. Renovate, redecorate and revalue
23. What do I need to know about valuations?
24. Keeping your investment safe
25. Managing your property
26. How to minimise the risks
27. Don’t derail your own success
28. How to prepare an offer
29. Due diligence
30. Education
31. Useful websites
32. Glossary
33. Index

Sunday Star Times Book Review

Leading financial journalist Greg Ninness of the Sunday Star Times reviewed Invest and Prosper With Property in today’s business section:

OF ALL the useful advice contained in David Whitburn’s book Invest and Prosper With Property, one particular paragraph stands out.  It is a section of the second chapter which asks if property investing will be hard work. ‘The short answer is yes’ the book says…

Whitburn now works as a property mentor and is the president of the Auckland Property Investors Association.  The book draws on his experience, and of others he has seen succeed or fail, to provide a guide that should help investors avoid many common pitfalls and structure their activities in a way that will help them succeed.”

Where do I buy Invest and Prosper With Property?

Now this is available in all good bookstores nationwide with official release date being Friday 7 October 2011, but some bookstores have it already.  This is also sold by a few international online bookstores including a couple of physical bookstores in Australia too. Very shortly the book will be for sale on www.investandprosper.co.nz.

I think it will be an excellent investment for anyone wanting to improve their knowledge on property investment at $37.99, so firmly recommend that you buy it.  I also hope that you enjoy reading it as much as I enjoyed writing Invest and Prosper With Property.

David Whitburn – 2 October 2011

NZ downgraded to AA

Two of the big three international credit rating agencies, Fitch and Standard & Poors have given New Zealand sovereign credit downgrades from AA+ to AA.  They have reviewed the countries and their debts, and we are seen by them to have too much to justify our AA+ rating.  As a result we are downgraded.

Andrew Colquhoun, Fitch’s head of Asia-Pacific countries stated last night (NZ time):

New Zealand’s high level of net external debt is an outlier among rated peers – a key vulnerability that is likely to persist as the current account deficit is projected to widen again”

Main Issues

New Zealand has debt (ie. our country’s net external debt) at too high a level to justify our previous AA+ Fitch rating.  We were at 70% of annual gross domestic product (GDP) in the June 2011 quarter.  One of the biggest issues was household debt, where New Zealand has 150% household debt over household (disposable revenue).  This hasn’t changed since the global financial crisis hit in 2008.

The NZ Dollar has weakened in international markets falling to around 76.2 US cents at time of writing.  Nearly two months ago we were over 88 US cents.

Impact on Property Investors

There is a real risk that fear will grip in for a little while and banks lending policies tighten.  We still source around 40% of money lent in NZ from overseas, and the perceived risk will have gone up as a result of the Fitch downgrade.  Standard & Poors are the largest credit rating agency (who downgraded the United States of America famously to AA+ early last month), so we wait with baited breath as to what they will do.  The overseas funders are likely to expect a slightly higher return, so there is a real risk interest rates could rise a little bit to compensate them for this risk.

Some Good News

Fitch said the news isn’t totally bad with:

New Zealand remains well placed among the world’s highly rated sovereign credits, with its creditworthiness supported by moderate public indebtedness, fiscal prudence, and strong public institutions.”

I have already told you why I believe the envy tax (also known as Capital Gains Tax – CGT) is not a good idea. Mainly we do not need it. We can trim Government spending to match what we earn, and reward those that put their capital at risk to employ fellow New Zealanders who don’t take the same risks.

When tinkering with the economy and tax system there is always a risk of undesired outcomes. Increasing the rents on tenants who are already facing financial pressures with increasing fuel, grocery and power prices amongst others is not a good thing.  The whole system relies on balance. It is a bit like a see-saw. When you add a new item to one side like an envy tax to weigh down property investors, it does raise tenants rent upwards.

The Minister of Housing, Phil Heatley knows this.  Have a listen to his landlords.co.nz interview below:

No change in OCR

The Reserve Bank of New Zealand has just issued its September Monetary Policy Statement.  This was interesting as the RBNZ Governor, Dr Alan Bollard said:

If recent global developments have only a mild impact on the New Zealand economy, it is likely that the OCR will need to increase New Zealand’s suprisingly strong local economy remains largely at the mercy of developments in the troubled global economy and financial markets…

For now, given the recent intensification in global economic and financial risks, it is prudent to continue to hold the OCR at 2.5 per cent.”

This shows that whilst the New Zealand economy had performed “relatively well”, despite headline inflation increasing slightly since the last Monetary Policy Statement 3 months ago in June, we are increasingly part of a global economy and have terms dictated from overseas events.  With some leading French banks being given credit downgrades and other large European bank on negative ratings outlooks, and Greece looking like having a Sovereign bankruptcy, we have a volatile climate.  On speaking to leading financial commentator Bernard Hickey of Interest.co.nz over a beer on Tuesday night after our great debate at the Auckland Property Investors’ Association on the moot is property investment productive, he thought that there is even a chance that the OCR could drop.  I agree – however I think the status quo will be maintained for a while. However it is all just crystal ball gazing really such are the uncertain global macro-economic times we live in.  Dr Bollard acknowledged this with ”at the same time, however, global economic and financial risks have increased.”

On a micro-economic scale rents are rising in New Zealand on the whole slowly, with Auckland going up a bit faster on the back of increased demand from positive migration, and continued undersupply of new houses.

Time to pop the champagne as the manuscript for Invest and Prosper with Property has now been written, approved, with a book cover finally choosing after dozens of mockups and numerous qualitative analysis being done.  It has been indexed now and is with local printers.  It will be released in just over 3 weeks time.

This is the culmination of over one year’s hard work in drafting the book, working with editors, publishers and key stakeholders. Now it is time for the fun part, promoting it by seminars and events, and hopefully hearing stories of you enjoying the book and profiting from education that you have obtained from reading it.  I will give you details of the book tour and doing around the country so you can go to the city nearest you to see me live talking about the book and how to invest in property correctly.

A lot of people have asked me why I wrote this book.  The answer is simply that I was asked so many questions from friends and family asking me things like:

• why I invest in property
• how to invest in property
• how to choose an area to invest
• how property investment works
• what property investment strategies I use
• how to avoid making mistakes
• how to finance a property correctly, and much more.

A note to confirm that the legislation to abolish Gift Duty has been passed, so your time consuming and costly gifting programmes will not continue.  Parliament passed the Taxation (Tax Administration and Rememdial Matters) Bill today, so gift duty will be a thing of the past from 1 October 2011 in New Zealand.

This legislation has not received the Royal Assent yet (perhaps one of the first pieces of legislation for Jerry Mateparae to assent) in light of him being sworn in yesterday, replacing 5 years of magnificent service from Anand Satyanand.

I think that this is great legislation and will save tens of thousands of New Zealanders hundreds of dollars every year from transferring their assets into their trusts.  Well done Peter Dunne who championed this through and the National and ACT parties for their keen support.