Archive for the ‘Interest Rates & Loans’ Category

In the wake of the devastating earthquake where it looks like around 240 New Zealanders and global citizens will have sadly been killed, and many more injured, there is going to be some financial damage too.  Costs are likely to come in at over $10 billion. Fortunately this doesn’t appear that it will be against New Zealand’s Sovereign Credit Rating, nor the big 4 Australian banks (Commonwealth Bank of Australia – owner of ASB, National Australia Bank – owner of BNZ, ANZ – owner of ANZ and National Bank, and Westpac).  This would have been disastrous for Cantabrian home-owners in negative equity situations as a result of the earthquake, and also for home-owners struggling in what looks like a double dip recession (certainly it appears this way when inflation is backed out of the equation too).  This blog acknowledges the devastation on the great people of Canterbury arising from this second massive and larger giant earthquake, but focuses in on the financial impacts for property investors which include:

1. Interest rate changes
2. Insurance premium increases
3. Government policy/tax changes

1) Interest rate changes

Looking at the latest home loan rates at http://www.mortgagerates.co.nz/ you will note that there have been price movements this afternoon.  ANZ and their sister bank National Bank were the first to cut rates reducing one-year rates by 50 basis points, 18-month rates have dropped by 26 points and its two and three-year rates have fallen by 16 and 11 points respectively.  This was followed by cuts to short and medium term interest rates by ASB and their boutique sister bank, Bank Direct, Westpac and TSB Bank. This earthquake is a game changer and all previous predictions are off.  Our GDP forecast for the year was 2.3% now it has been reduced to a tiny 0.3%.  The Canterbury region which Christchurch dominates is responsible for 15% of New Zealand’s GDP. It will struggle to be anywhere like as productive as it should be, and massive Government subsidies will be required. I now predict the OCR will be lowered by 0.50% on 10 March as an emergency measure to return it to its lowest point in 40 years.  This is what the market is predicting anyway, with the flow off into short and medium term interest rates.  Take a look at the following table:

Source: Interest.co.nz - Interest Rates at 1 March 2011

2) Insurance Costs

EQC Levies

Firstly I need to tidy up the misconception that after a natural disaster everyone is entitled to a payout from the Earthquake Commission (“EQC”).  This government body was set up under the Earthquake Commission Act 1993, to provide a natural disaster fund for homeowners and tenants who hold insurance.  The levies are 5 cents (plus GST) for every $100 insured, raised from landlord’s taking out building cover and tenant’s taking out contents cover.  The most you can pay a year for one dwelling and its contents is $67.50 including GST. This will give you the maximum cover of $100,000 (+ GST) for your home and $20,000 (+ GST) for personal belongings. EQC pays the value of  damaged land at the time of the earthquake or natural disaster, or the repair cost, whichever is lower.

Dwellings are covered on a replacement value basis. Personal property is insured on the same basis as the household insurance policy covering the same property.  Some retaining walls are covered, but on an indemnity basis.

Clearly this is going to be a massive claim on the EQC and although costs have not been calculated with claims deadlines for aftershocks to the 4 September 2010 not being closed yet.  It may well be the the EQC war chest is emptied and that the Government needs to borrow funds to top it up.  Going forwards EQC levies are likely to triple and you need to budget for this cost increase.

Insurance Premiums

Private insurers and their re-insurers are going to get hit hard in the pocket.  This is concerning to property investors as insurance costs were already going up in light of GST rises and increased claims in New Zealand as a result of the 4 September 2010 Canterbury earthquake – now general property insurance premiums will be much higher too.

3) Downstream costs from Government Policy

There has been talk by the Minister of Finance Dr Bill English today of removing the middle class tax relief that is Working for Families tax credits; and removing interest-free student loans. This will restore the policy to how I had in the 1990s at Auckland University where I could get my fees and course costs paid with a low interest rate (from memory it was just under the banks floating rates).  If we borrow too much it will put our plan to get to a Government surplus by 2014/15 into jeopardy prejudicing further Government spending or tax cuts.

No surprises here that Dr Alan Bollard, the NZ Reserve Bank Governor left the official cash rate unchanged at 3.0%.  He noted in question time a slight improvement for future forecasts.  We need to remember that the Reserve Bank has three major functions:

• operating monetary policy to maintain price stability;
• promoting the maintenance of a sound and efficient financial system; and
• meeting the currency needs of the public.

In terms of monetary policy the overall goal is price stability, which is laid out in the Reserve Bank Act 1989 and defined and specified by a Policy Targets Agreement. Currently the Reserve Bank must keep CPI inflation between 1–3 percent, on average, over the medium term. This is a good thing on the whole as inflation is rising prices, meaning money is losing its value.

Today’s announcement:

Dr Alan Bollard said:

The outlook for the New Zealand economy remains consistent with the projections underlying the December Monetary Policy Statement.

Domestic economic activity was weaker than forecast through the second half of 2010. September quarter GDP declined unexpectedly, and retail spending appears to have fallen in the December quarter.

Forward indicators of activity have firmed somewhat. Trading partner activity continues to expand and New Zealand’s export commodity prices have increased further. Within New Zealand, business confidence, across a range of industries, has picked up and imports of capital equipment have grown. Furthermore, there are tentative signs that housing market activity has stabilised, after having trended lower for some months.

The recent increase in the rate of GST has caused headline CPI inflation to spike higher as expected, but underlying inflation remains comfortably inside the target band.

As noted previously, while interest rates are likely to increase modestly over the next two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing.”

My prediction

On looking at the data and the monetary policy targets of the Reserve Bank, I think that they will defer raising the OCR until September 2011.  What this means for you is that you should consider floating, or if you get a good fixed interest rate discount a 1 – 3 year rate offers good value.  I am an advocate of an interest rate averaging strategy, to hedge future interest rate rises (or falls).

On a stunning summer’s day yesterday at the well appointed Exhibition Hall in Waipuna Conference Centre, overlooking the Panmure lagoon, I was the keynote presenter at Property Masterclass run by NZ Wealth Mentor.

David Leon - Property Masterclass Master of Ceremonies on 27 November 2010

I covered a lot of topics as the keynote presenter, and those attending particularly enjoyed my take on the market, drawing attention to where we are at in this current stage of the property cycle and my predictions for the future in terms of the various Auckland sub-markets.  I gave a thorough analysis of all of the key market drivers, showing and interpreting graphs from the economics and research of the major trading banks, Reserve Bank of New Zealand, Statistics New Zealand, Quotable Value and the Real Estate Institute.

In another segment on stage I talked about how we as investors are running a property business and the fact that we have to wear a number of hats.  One of the leading property educators in the United Kingdom Gill Fielding talked about the importance of being skilled in a number of different disciplines wear you have a number of buckets to control or hats to wear.  I love this analogy so I talked about the various hats we have to wear as property investors in terms of the CEO hat – managing everything in our business; CFO hat checking our bank statements, keeping accounts, monitoring the financial performance of our portfolio, paying taxes, Renovations/Maintenance hat – looking at how we maintain our very valuable assets and renovating to increase our cashflow and equity; Legal hat – when doing due diligence on properties, looking at legislation changes and ownership structures; and Property Management hat on – where you have to manage your tenants or your property manager, to ensure you minimise vacancies, charge market rent and collect your rent and take the appropriate action when tenants are not behaving,  I also covered ownership structures, including the key changes in light of LAQCs losing their potency in that they lose the ability to offset losses against personally earned income.  The new tax structure the Look Through Company (“LTC”) was introduced too, with Chartered Accountant and my colleague from Deloitte Tax many years ago Amanda Macdonald (Tasman Tax and Accounting Services based in Albany) also presented on this topic being the tax and accounting expert she is.

Finally I gave covered my opinions on US tax deeds and liens that have been promoted in New Zealand heavily over the past couple of years, and I covered the good, the bad and the ugly things about lease options, giving an example of the massive win-win situation created in my last lease option deal that resulted in my tenant buyers settling the property and giving me a giant hug as they achieved their dream of being home owners in New Zealand, as well as the sheer joy of meeting their goal.  I also enjoyed presenting on the strategies I am using in today’s market and covered my revamped and intense mentoring programme where I take my mentoring clients out to do deals with me.  I have some new clients from this event and am looking forward to training them shortly.

Other speakers

Senior Resource Management lawyer Andrew Braggins talked about the spatial plan for Auckland the Supercity, which highlit the growth areas in the Auckland region, major infrastructure and planning thoughts from the head planner and CEO at Auckland Council, who are in Andrew’s network.  This presentation was enjoyed by attendees who were impressed with Andrew’s knowledge and communication skills, as he enlightened them about the hot spots in Auckland.

Andrew also briefly covered how to dispute council fees, levies and contributions both under the Building Act (including seeking a determination from the Department of Building & Housing) and also the Resource Management Act (including a judical review application he recently did on a property he rents out).

Jan Galloway then gave a masterclass in property management, including listing out the issues in relation to the Residential Tenancies Amendment Act with the fines for unlawful acts by Landlords and Tenants all covered – luckily these were included in the comprehensive bound manual we gave our event attendees.

Renovations expert Mark Trafford told attendees about a number of ways not to do renovations in a photo driven presentation.

Gary Hey, a director and shareholder of large mortgage broking firm, Mortgage People, then address the property cycle from a finance perspective.  He talked about how lenders’ criteria are changing and it is much easier to get finance for property now (compared to say 6 months, 1 and 2 years ago).

International Rating Agency Standard & Poor’s (“S&P”) has lowered the outlook on NZ’s AA+ sovereign credit rating to “negative” from “stable”. This is not great news for New Zealand borrowers as if New Zealand’s sovereign rating were actually downgraded to only AA our interest costs would rise.  This would have an impact on business owners and struggling home owners and property investors, as we continue to navigate our way out of this cyclical downturn slowly but surely.

S&P Sovereign ratings credit analyst Kyran Curry stated:

The outlook revision on the foreign currency ratings reflect our recognition of the risks stemming from New Zealand’s projected widening external imbalances in the context of the country’s weakened fiscal flexibility…

New Zealand’s vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

Standard & Poor’s stresses, however, that these weaknesses are mitigated by New Zealand’s fiscal and monetary policy flexibility, strong institutions, economic resilience, and its actively traded currency.

The main risk to the ratings would be a significant weakening in the credit quality of New Zealand’s banking sector, which is largely owned by the Australian banks.  That said, however, a range of factors ameliorates some of these risks, including a high degree of foreign-currency-debt hedging and an actively traded currency. New Zealand has independent and effective monetary policy settings with a highly traded and free-floating currency that allows external imbalances to adjust. A large portion of the nation’s external debt is denominated in New Zealand dollars, while much of the remainder finances companies with revenues in foreign exchange or is hedged. In sum, we view New Zealand’s financial and capital markets as supportive of the rating.”

The negative outlook on the New Zealand foreign currency ratings reflects the possibility of a ratings downgrade if New Zealand’s external position does not improve. Rising public savings will be an important component of such an improvement.

The rating could fall, too, if New Zealand’s current account weakens because of any higher real cross-border funding costs within its banks. On the other hand, the ratings could stabilize at the current levels upon a sharper-than-expected improvement in the external accounts, led by stronger export performance and higher public savings.

New Zealand needs to tackle its growing government deficit in the light of softening international prospects.  We are still borrowing over $200 million a week, which is over $10 billion per year.  This has a significant interest servicing cost and the potential to place a noose on future generations of taxpayers.

A major issue is that together New Zealanders always want to borrow a lot more than other New Zealanders are willing to lend.  As a result the difference has to be imported, which means that the net international liabilities of New Zealand (note that this is private and not Government debt) at 30 June 2010 was NZ$164 billion.

The private debt our economy has is akin to that of Portugal, Ireland, Greece and Spain (the “PIGS” countries that are stressing global financial markets) and has long been pointed to by the credit rating agencies as a significant problem.

John Key’s thoughts on this

Our Prime Minister John Key thinks that Prime Minister the downgrade in outlook by S&P is because of NZ’s high private indebtedness and S&P’s reassessment of risks following the Irish banking crisis, where a bailout up to $100 billion Euros may be required (similar to the bailout Greece had).  Concerns are mounting on Portugal’s debt and to a lesser extent Spain too.  As a result S&P felt they had to put us on a negative outlook. John Key said:

In fact the Finance Minister (Bill English) met with Standard and Poor’s two weeks ago, (and) there were no specific issues raised at that point.

With the position in Ireland, that has had an impact on their (S&P’s) assessment of countries that have an over-reliance on debt.

What I will say though is the way it’s been positioned by S&P and other rating agencies to us is, if your [public] gross debt to GDP or net debt to GDP is less than 30%, then you are in a small group of countries for which the rating agencies have no concerns in that regard.

That was absolutely where New Zealand was positioned, with a very small group of other countries – Korea, Australia and one or two others”.

Bill English – Minister of Finance’s View

Bill English issued the following press release to explain the situation and he points out it is private debt and not Government debt which is the issue (as John Key did), and he re-iterated the Government’s commitment to balance the books and return to surpluses by 2016.

Standard and Poor’s decision to put New Zealand’s foreign currency rating on negative outlook highlights the need to reduce our heavy reliance on foreign debt. This is a long-standing problem for New Zealand and has left us vulnerable as a country. The Government is taking steps to reduce this external vulnerability and to move the economy towards savings and exports.

They include the tax changes in the Budget this year and work currently underway with the Savings Working Group. From here, it’s important that our economic programme continues.

Standard and Poor’s praised the New Zealand Government’s commitment to get back to budget surplus by 2016, and it noted that New Zealand had outperformed most other advanced economies in the past two years.

However, it said the negative outlook on New Zealand’s AA+ foreign currency rating reflected risks stemming from its widening external imbalances and relatively low levels of national savings.

As Standard and Poor’s notes, New Zealand’s household liabilities – at about 156 per cent of disposable income – are 50 per cent higher than 10 years ago.

Banks and the Government, which are borrowing in volatile international financial markets, face higher interest costs on their increasing debt. In the past 10 years alone, New Zealand’s net foreign liabilities have jumped from about $90 billion to more than $160 billion.

Bill English also pointed out that, despite the negative outlook on its AA+ rating with Standard and Poor’s, New Zealand still enjoys the highest possible Aaa (stable) rating with Moody’s (another International Rating Agency).

I think we have to watch this space and the international events we are faced with that create an environment of uncertainty.  Also consider negotiating some good interest rates on 2 and 3 year fixed rate periods with your lender, as I just don’t see these rates getting materially cheaper (the odd cut up to 0.1% for competition reasons aside may happen) and I don’t see the floating rate being decreased in the short or medium term.

On Saturday the 27th of November 2010 I will be the keynote presenter at NZ Property Masterclass – a full day seminar at Waipuna Hotel & Conference Centre in Mt Wellington, Auckland (near Sylvia Park on the edge of the Panmure Basin), with standard tickets at just $29, and gold tickets at $98.

Improve your financial knowledge, get updated on the current market and learn what strategies I am using for wealth creation for the remainder of this year and in 2011.

My topics covered

Come hear me present live at NZ Property Masterclass event, where I will be talking about:

• Loss Attributing Qualifying Companies (“LAQCs”) being abolished and introducing the new tax structure, the Look Through Company (“LTC”)
• a Market Update with my opinions on where the market is heading for 2011 backed up by graphs and facts
• the untold truth about US Tax Deeds and Liens to follow up from my popular blog in March
• the good, the bad and the ugly with Lease Options, and a number of lease option promoters
• how you can create wealth in 2011, using the strategies I am successfully using on NZ properties in the current market.

Also included in the low $29 ticket price is access to 5 other fantastic speakers.

Your other speakers

Speaker #2:  ANDREW BRAGGINS  LL.B, BSc - Buddle Findlay

1. Local government, environment & resource management, litigation and dispute resolution expert
2. Andrew advises a range of clients, including developers, network utility operators, local authorities and financiers
3. Andrew has an in-depth insight into how local authorities work, having spent 3 years as a local government in-house council, and acting for many councils
4. Member of the Resource Management Law Association & Water NZ
5. Barrister & Solicitor of the High Court of New Zealand

Learn all you need to know about how to deal with councils, the structure of the new Supercity and the Supercity’s impact on you as a property investor.

Speaker #3: JAN GALLOWAY  BA Cert. Crim (Criminology) - Corinthian Management

1. Principal Corinthian Property Management
2. Over 25 years as a property manager
3. Multi-millionaire property investor
4. Managed a leading central auckland property management division
5. Auckland Property Investors Association Board Secretary
6. Multiple award winner (property management related)

Jan knows all you ever needed to know about tenancies and the issues that arise from them.

Speaker #4: MARK TRAFFORD - Owner of Renovate to Profit

1. Principal of Renovate to Profit and Maintain to Profit
2. Renovating properties for over 20 years!
3. Accomplished Property Investor
4. Regular Contributor to Property Investor Magazine
5. Sought after speaker

Mark is an excellent property investors knows everything there is to know about renovating properties having done many dozens of properties.  He is an excellent project manager with unparalleled networks of quality tradespeople.  Join us and learn more about creating wealth through smart renovations!

Speaker #5: GARY HEY BCom - Mortgage People

1. Owner and Director of Mortgage People, a leading Auckland based mortgage broking firm
2. Bachelor of Commerce, member of the NZ Mortgage Brokers’ Association
3. Commercial, Industrial and Residential developments advisor as well as residential investment properties financing expert
4. Sought after speaker having a background in education

The banks and other major lenders criteria are changing and it is easier to get finance for property now.  Gary loves finding funding for your deals.  Bring on your best questions forward and he and his team will be there to assist you.

Overview of key topics covered during the day

1. The current market cycle – using current & historic data to identify our current position & determine where, when & how to purchase your next property deal
2. LAQCs & LTCs & what it means to your investment portfolio
3. Practical strategies to increase your rent easily in the current market
4. Hot strategies for 2011 – the strategies NZ Wealth Mentor’s principals and mentoring are using to make money from NZ property today, and how you can meet your financial goals in 2011
5. Understanding the new paradigm for obtaining finance – How to get banks to lend you $$
6. Where are the best strategies to use in 2011?
7. The untold truth about US Tax Liens & Lease Options – what you must know before you ever think of investing on them.

We will discuss all the current hot topics so that you can leave the event well informed and ready to invest successfully.

2 Ticket Options

There are standard tickets priced at just $29 which don’t include lunch or any extra.  The Gold Tickets however are priced at $98 and these include a delicious buffet lunch in a private room with David Whitburn and many of your presenters.  You also get a portfolio review and wealth plan by NZ Wealth Mentor’s head of property mentoring and Auckland Property Investors’ Association President, David Whitburn, to help you set and reach your financial dreams.

So are you going for GOLD???

In NZ Wealth Mentor we want to make sure you get all your financial goals. If you book online before November 20th we will also include our “Financial Mastery Success Plan” in the ticket price. Financial Mastery Success Plan is designed to look at your financial situation today to build a brighter future. It retails at $175 and you will get it for free as a part of this time constrained offer (3 days to go). Make sure you don’t miss out and book your gold seat (select from the menu) for NZ Property Masterclass today.

The US Federal Reserve as expected announced that they would buy an additional $600 billion of US Treasuries, setting a variable pace of around US$75 billion of purchases per month up to June 2011, to extend the rescue package and seek to reduce unemployment and avert deflation.  The US central bank kept its pledge to hold interest rates low for an “extended period.”  Xerox Corporation announced they would be cutting 2,500 jobs around the time of this announcement, so there is a lot of recovery still to be had in the US.

US Federal Reserve to print US$600 billion to counter deflation and raise employment

There has been an impact on currencies markets like this as money printing challenges credibility in the perception of America’s global trading partners and money markets.  In currency terms the US Dollar is unsurprisingly weaker with the ‘Aussie’ going past parity and reaching a 28 year old high of 100 Aussie cents to 100.68 US cents overnight, before closing still stronger than the US Dollar at 1 AUD to 1.0048 USD.

The New Zealand dollar surged to its highest level since 2008 after a government report showed employers added more jobs than economists estimated, boosting expectations for the central bank to raise interest rates.  The Kiwi (NZ Dollar) gained a percent to 78.78 U.S. cents as from 77.99 cents in New York yesterday. It reached 78.86 cents, the most since June 2008.  The kiwi also advanced 1 percent to 63.86 Yen.

Statistics New Zealand said the unemployment rate dropped to a seasonally adjusted 6.4 percent in the third quarter, compared with the median estimate of 6.7 percent in a Bloomberg survey of economists.   This is a good result and has left me unchanged in my prediction that the next OCR rise will be a 0.25% rise in March 2011, and floating rates amongst major trading banks will rise by a similar amount. The NZ two year swap rate which is closely (but by no means perfectly) correlated with the 2 year fixed rate rose to 4.04% last night. So I would consider looking at the 2 and 3 year fixed rates for value right now if you don’t adopt an interest rate averaging strategy.  That said I strongly believe that you should have some money floating is fantastic if you are using a facility like BNZ’s Total Money where you can pool or offset balances, or a revolving credit facility properly.

PS> I have updated my blog on Paul Henry’s inappropriate attacks to include a handwritten thank you letter I received from the Right Honourable Sir Anand Satyanand, our Governor General – thanking me for my comments and support.

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Reserve Bank of Australia Governor Glenn Stevens yesterday raised the Benchmark Rate (the equivalent to New Zealand’s Official Cash Rate) by 25 basis points to 4.75%, whilst the Melbourne Cup was on.  It was the first interest rate rise in 6 months.  This is interesting in that Australians already face higher interest rates, and whilst the Global Financial Crisis in mid-late 2008 did impact their housing markets, they haven’t had a recession and many experts view that Australian property is in for a very rough ride over the next year or two.

Interestingly the Commonwealth Bank of Australia (owner of ASB Bank and Sovereign in New Zealand) raised their floating rates by 0.45% (20 basis points more than the benchmark rate was raised), drawing consternation from Australian Treasurer Wayne Swann, with this is “a cynical cash grab” by an ‘arrogant’ bank.  Also the Australian Dollar (Aussie) reached a new height with $1 Australian Dollar buying $1.0024 US Dollars at its overnight peak.  The Aussie is forecast to go much higher against the Dollar as the US Federal Reserve is planning a second round of Quantitative Easing.  They are predicted to print at least US$500 billion of money (using it to buy long-term securities).  Will this buy happiness on “Main Street”, possibly but probably not.  What it is more likely to do is cause the Dollar to continue to spiral down against many other currencies including the Aussie and Kiwi, and have large inflationary pressures.  The announcement from the US Federal Reserve is due shortly.

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The Real Returns from Term Deposits

We only have to look at term deposit rates which now range between 1.55% and 6.75% with major lenders across various terms from 1 month to 5 years.  If for example you have $40,000 on term deposit with BNZ and you wanted to place this on term deposit you would be quoted a rate of 4.40%.  When tax is taken off at say 33%, your net rate becomes  2.95%, as tax must be paid first and is deducted at source from the borrower (bank).  If you add the great cash savings eater that is inflation into the mix – lets use the September 2010 quarter figure of 1.5% (the lowest CPI figure since March 2004 quarter too).  Your real return from this term deposit is just a paltry 1.45%.  Your $40,000 in 12 months time is really only worth $40,580, a net increase of $580.  That is hardly motivating to save lots of money in the bank, hence a lot of people moving to ‘invest’ in their own homes and lifestyles, spend on themselves as you only live once, invest in shares, managed funds including Kiwisaver products, gold, silver, commodities, foreign exchange and of course property.  The returns are no exciting enough for so many people from term deposits.

Basically I consider that term deposits are too heavily eroded by taxation and inflation.  As a result in a diversified portfolio  would only recommend a small portion of funds be held on term deposit for any significant length of time.  Instead I am massive fan of property, that’s obvious having served on the Board of the Auckland Property Investors’ Association as long as I have and having been elected its President earlier this year.

What I would instead do with $40,000

In my opinion $40,000 is a deposit on a positive cashflow property that you could and should buy over 10% below value.  Ie. here’s what I encouraged my mentoring student to do last week.  They went to ANZ and got loan pre-approval that will be fixed for 2 years at just 6.44% with your APIA membership entitling you to ANZ@work package discounts (0.25% discount off fixed rates) and receive a $500 contribution towards legal fees.  They will be contributing $36,800 as 20% of the purchase price ($184,000) for a two bedroom unit in Kelston (West Auckland) that has a registered valuation of $212,000.  They are buying this $28,000 below value, which gives them instant equity at purchase.  Try doing this with a term deposit, gold, silver etc!  The property is positive cashflow to the tune of over $2,000 per year, after an allowance for repairs & maintenance, insurance, and taking tax considerations into account with no building structure depreciation, but getting a Valu-it report to depreciate fit-out and chattels.  This $2,500 return is a lot higher than the $580 return, and don’t forget you didn’t even invest all $40,000.

The funny thing is that there are plenty of good deals and opportunities in the market.  Sometimes you just have to open your eyes and look.  Remember to protect yourself in the event that there is a slight negative market movement, by buying below true value.

NZ Property Mentor – Seminar

I am the keynote presenter at the NZ Property Mentor seminar at the Employers and Manufacturers’ Association premises in Khyber Pass Road, Grafton, Auckland at 6:30pm – 9pm this evening.  Come to hear me talk more about:

1. The Current Market and House Price Movement -understanding the fear in the current market and contradicting statistics.
2. Rental Levels – learn about recent market movements in the Auckland market, and how you can put your rents up to maximise your cashflow from property.
3. Residential Tenancies Amendment Act – the governing document to determine rights and obligations between Landlords and Tenants has changed.  This has just undergone its largest changes in 24 years, so find out what these mean for you at this event
4. Interest Rates - where interest rates are likely to be heading and how you can profit from it.
5. Structure Update – Find out about the draft legislation which provides for LAQCs to be abolished, and for a new tax structure, Look Through Companies (LTCs) and with the tax depreciation changes earlier in the year. You will get get more information on what is the best structure for you.
6. Where we are at in the Property Cycle
7. Opportunities in Today’s Market
8. My new improved comprehensive 12 month Group Mentoring programme with NZ Property Mentor.

Don’t delay, learn about the current market, recent legislative changes so you can keep on top of the new rules and not make very expensive mistakes, and hear about some of the wonderful opportunities for profiting from today’s property market.  Go to http://www.nzpropertymentor.info and register for your tickets now.

Dr Alan Bollard, Governor of the Reserve Bank of New Zealand announced less than half an hour ago that the Official Cash Rate would remain unchanged at 3%.  He stated:

Despite some data turning out weaker than projected, the medium-term outlook for the New Zealand economy remains broadly in line with that assumed at the time of the SeptemberMonetary Policy Statement.

Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia.

“Domestically, recent data has turned out weaker than projected. Continued household caution has seen consumer spending and housing market activity remain muted, and many firms have become less optimistic about their future prospects. However, continued high export prices, along with reconstruction and repairs in Canterbury, will support activity over the coming year.

Overall, continued GDP growth is expected to gradually absorb current surplus capacity over the next few years. Headline inflation is expected to move higher following the recent increase in the rate of GST. The subdued state of domestic demand suggests this inflation spike will have limited impact on medium-term inflation expectations.

While it is appropriate to keep the OCR on hold today, it remains likely that further removal of monetary policy support will be required at some stage.”

Source: Reserve Bank announcement 28 October 2010 - http://reservebank.govt.nz/news/2010/4216773.html

My Interpretation and Thoughts on the Announcement

Lets look briefly at the global macroeconomic factors in this environment of fear and uncertainty.  What exactly will happen in light of the second round of Quantitative Easing by the American Government (and to a lesser extent the European Central Bank and Bank of England) where they will be printing trillions of dollars to encourage spending, devalue their currency and retire debts?  Is China going to finally slow down its outstanding >9% year on year growth in its Gross Domestic Product causing major damage to commodity based currencies like the Aussie and Kiwi Dollars?  If Asian countries (particularly China and India) import less from New Zealand then we will have an issue and our long road to recovery will be quicker.

Inflation is something the Reserve Bank must control.  The historically high levels of unemployment unfortunately are not a prime consideration to the Reserve Bank.  Therefore they are likely to raise the OCR on 10 March 2011 to 3.25%, and a bit of crystal ball gazing this far out but again on 28 July 2011 to 3.50%,  on 27 October 2011 to 3.75% and then on 26 January 2012 to 4.00%.  This means that I am a fan of the two and three year fixed rates at present, particularly if you can negotiate a slight discount on them.

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As the President of the Auckland Property Investors’ Association (“APIA” – a not for profit incorporated society that provides education, networking, lobbying and discounts for its members) I want to share with the readers of my blog about one of the key benefits of joining APIA.   Just a few months ago we entered into the anz@work initiative with our Principal Sponsor, the ANZ bank (part of ANZ National Bank – New Zealand’s largest financial institution).

ANZ@work

ANZ@work is an amazing banking package that is not widely available.  APIA is privileged to bring this to our members.  I apologise to readers who were at the July Keynote Meeting with depreciation expert Steve Tucker as the keynote speaker, and to those on APIA’s large email database, as you have to hear the basis of the ANZ@work package again:

• you must be a current APIA member
• 0.25% off your floating rate ANZ loans
• 0.25% savings off ANZ’s published fixed rates (when your loan comes to rollover the rate gets attached to it)
• For all new loans at least a $500 contribution towards your legal and valuation fees (and no loan application or loan establishment fees)
• Fee exemptions and much more – click this link here for full details.

Please note that ANZ@work only applies to APIA members with ANZ loans that are currently on the floating rate. You must wait until you fixed rate period expires at which time you can choose to refix and get the 0.25% discount off the term your choose to refix for, or get 0.25% off the floating rate.  Also the rates must be negotiated directly with ANZ rather than through your mortgage broker (owing to the higher distribution costs of mortgage brokers). If you are considering refinancing or purchasing a new property and your borrowings are too heavily weighted toward ANZ (avoid the one bank trap), then it is very worthwhile for you to consider the ANZ@work package due to the savings available.

If you are not yet an APIA member and own a property you should become an APIA member – APIA has an open door policy.  APIA membership is $347.50 (with one-off joining fee of $95 included) for individuals, $460 (with one-off joining fee of $95 included) for couples.  Register for your APIA membership here.

New properties and refinancing

Once you are an APIA member you can refinance your existing property if you consider it prudent to do so after investigating all financial scenarios and get the benefits of ANZ@work by calling an ANZ mobile mortgage manager.  Similarly you can purchase a new property by calling an ANZ mobile mortgage manager to get a mortgage pre-approval.  Call 0800 269 4663 (ext 1).

If you need help in this regard – drop me a quick email: david@davidwhitburn.com

Existing Properties with ANZ loans

If you have an existing property with an ANZ loan on it, you must pay special attention as not every staff member (ANZ have thousands of employees in New Zealand) at an organisation as large as ANZ knows about ANZ@work.  Your business banker, commercial banker, private client relationship manager, personal manager and branch manager may not know about APIA’s ANZ@work package.

There are three ways to get ANZ@work for members with ANZ loans that all involve you having your loan numbers handy and a current APIA membership where you give the number on your NZPIF membership card:

1. Ring 0800 722 524
2. Email specialistchannelsnz@anz.com
3. Go to any one of the hundreds of ANZ Bank branches in New Zealand and quote APIA’s ANZ@work Scheme ID as 831533, and prove your APIA membership is current by showing your membership card.

Can you please not try any other method.  Already the APIA Board has heard of members going to brokers who can’t find it, to tellers and even branch managers of ANZ branches without quoting a scheme ID, to their commercial/business/personal managers and it doesn’t work.  Some members even think ANZ@work is a con!  I can assure that this is not a con and already APIA members have collectively hundreds of loans registered to the ANZ@work package.  I tested this by ringing the 0800 number just now and the phone got answered within 4 rings and after introducing myself, I was told that on average there are currently 2 members a day still calling and moving their loans onto ANZ@work.

So please ensure that you follow the simple instructions, and if you are an APIA member having problems, I would like to personally know – so email me at president@apia.org.nz or on david@davidwhitburn.com.