Property Plus

Article: Property Investment

Groins And Groans with Frank Newman

When told of the news last night, a stunned All Blacks great Waka Nathan said… ‘Christ, we’ve got problems ... it’s bloody terrible’.” – as reported in the Sunday Star Times, 2 October.

Such was the attention and media coverage given to Dan Carter’s injury that little notice was taken of the downgrade in New Zealand’s credit rating by Standard and Poors from AA+ to AA, despite the consequences being more severe and long-lasting than a rugby player with a crook groin.

The simple fact is the lower a borrowers’ credit rating, the more lenders are going to demand as compensation for the risks they are taking. A one notch down-grade is actually not all that severe so don’t expect your mortgage interest rates to go through the roof, and may be hardly noticed in the vagaries of the market anyway.

However, what should not be underestimated is the warning that goes with the down grade. S&P are basically saying the debt metrics are heading in the wrong direction and something needs to be done about it before it gets worse. 

The major problems they identified were: high debt by households and the farming sector, our reliance of commodity prices (which have started to weaken), and pressure on government spending due to baby boomers reaching pension age and placing greater demands on our expensive health services.

The New Zealand economy has a few fundamental issues it needs to face.  The first is we have had a history of spendthrift politicians who have placed political ideology and self interest above the health of the economy. That needs to change but I doubt that there is any political interest in doing so.

The second issue is that we as a society have lost the savings culture. If we actually saved eventually we would not need to rely on debt. Politicians know this and in my view they will turn it to their advantage by making KiwiSaver compulsory. I suspect this will be either in the next parliamentary term or the one after that.

By doing this not only will our woeful savings record be addressed but they will get employers to pick up the superannuation tab, a bill the politicians knows they will not be able to afford in the future. No doubt they will shift this cost onto employers by progressively increasing the employer subsidy from 3% of the employees wage to 6 % or 7%, maybe more.

Staying with a, sort of, rugby theme; it seems the World Cup is not providing the bonanza we were made to believe. The hospitality trade, in Auckland at least, has taken a hit with some restaurants saying turnover is down as much as 50%. I suspect some landlords too have not profited as had been speculated in the media.

The hype and hoopla that preceded the World Cup is a little reminiscent of the hype that surrounds investment fads and manias. It seems to be a human trait that events are hyped into an irrational exuberance; at least initially by those with a vested interest in encouraging the mania and them by the media seeking to sensationalise news.

A wise investor, and perhaps a wise social commentator, would be best to remain level headed during such times and recognise manias for what they are.

Did You Know

From the did you know files, did you know the Department of Building and Housing has developed a range of quizzes to help test ones knowledge of the Residential Tenancies Act. They are good fun and a useful way of revising the things landlords and property managers should know. The website is http://www.dbh.govt.nz/rtaa-quiz