August 2019 Newsletter

Contents

  • Update on My Daughter-in Law.
  • House price Drop in Whangarei.
  • Rental Prices Jump.
  • Are Markets Signalling a Recession?
  • What Does That Mean for You?
  • House Battery Technology Versus Car Battery Technology.
  • How I Became a Volunteer Policing the Anti Money Laundering and Terrorism Act
  • Tips on Saving Tax Dollars. My revenge!!

.

Update on My Daughter-in Law

She is at home with her family and feeling a lot better as she travels the slow road back to full health. It will take time as Sepsis is the result of Septicaemia (Bacteria) getting into your bloodstream. Your body reacts by shutting down your organs to survive and the bugs together with your own immune system can turn on your organs and damage them.So many of you have sent your best wishes and we all feel humbled by your concern. Thank you.

House price Drop in Whangarei for the first time in years.

Average prices dropped by $500 June to July with the current average price for Whangarei being $547,711.  This is a very small drop, but well worth watching over the next few months. If it continues then we will be seeing the market dropping from its peak.

The most likely cause is the increasingly large number of smaller sales to first home buyers and nothing to worry about.

Rental Prices

The average rent for our companies’ rentals is now sitting around $455pw. This is a significant rise on earlier this year and shows how the limited supply is pushing rents up. Our rental team have been recommending rent rises for some time now only to have many landlords reluctant to raise the rents and have chosen instead to keep them below market. With the increase in compliance costs, recently introduced by the Government, rents have risen sharply as landlords take the opportunity to recover costs. Tenants are paying $40 more per week now than they were at the beginning of the year. Funny how that works eh!

The lowest priced property rented with Harcourts is $260 PW for a one bedroom and the highest is $580 PW. The highest demand from tenants is for a three-bedroom, one-bathroom home around the $475-$500 pw range.The number of written applications is down to around 40 pw, but this reflects word getting around that we are very fussy in our client selection.

Are Markets Signalling a Recession?

While this topic is beyond my specialist knowledge I have never been short in having an opinion. I am a keen observer of the financial markets  and believe the signs are now clear. A recession is coming!   Real Estate is a safe place to have your money in a recession as long as you don’t have to sell in a hurry.  NZ be is in a better  space than most to ride it out and we could even  see buying pressure in this one.  Worldwide the indicators are bad. (Source Andrew Walker BBC World Services Economics Correspondent.) 

  • Inverted Yield Curves. These words are gobbledygook to most people, but they are important indicators to everyone. Basically, an ” Inverted Yield Curve”  is about a Government borrowing money. They borrow it mostly from their own or another countries citizens , usually via your bank or financial advisor. They are called bonds. They promise to pay it back in a set number of years plus interest. An inverted yield curve is when it is cheaper for the Government to borrow money for 10 years than say 2 years. This means the savvy lenders are saying there is higher risk in the short term and it’s safer to lend the money over a longer term. Historically  Inverted Yield Curves happen before a recession. The USA and the UK are both showing these feared curves in their bond markets now.  
  • Global Trade Conflict. The trade war between the USA and China is affecting every corner of the world. Trade conflicts can lead countries protecting  their own interests rather than trading freely with other countries. The last time we had countries abandoning Global trade and concentrating on their own markets was the start of the great depression of 1929.
  • A “No Brexit” deal with the UK pulling out of the European Union will plunge both the UK and the EU further into a financial crisis.
  • The USA, China, Germany and England have all recorded financial slowdowns for the last three months.
  • The stock markets in the USA, Germany and the UK are having wobbles where there are sudden selloffs and then recoveries the next day. This indicates  nervousness and the possibility of panic selling.
  • German Bond markets are in negative territory. That means the money Fritz lends to the government reduces in value while it is lent. Fritz lends his Government $1000 and gets $990 back.
  • Our Reserve Bank has signalled they fear the worst ahead by dropping the official Cash rate to 1%. Twice the drop the markets expected. 

What Does That Mean for You?

  • The World going into recession doesn’t always  mean we have follow. It’s highly likely that we will, but we navigated the last crash in 2007 without disastrous results, thanks to some very clever stewardship by our government at the time.
  • A global financial crisis is not by default a NZ financial crisis. 
  • If we do go into recession then there will most likely downward pressure on house prices HOWEVER  there is a key difference this time around and that’s interest rates. The last few times we hit bad times; interest rates were very high by comparison to today. Those that couldn’t afford their mortgages were forced to sell at any price.  Banks sold people up in forced mortgage sales and these sales set new low prices, from which other properties were priced, thus creating a downward spiral.
  • From our experience Banks are very reluctant to force a sale and only do so when the borrower has either abandoned the property or gone all septic and refused to co-operate. Banks go out of their way to make the loan work for both parties, so most forced sales today are because the borrower has completely abandoned their responsibilities.
  • The current low interest rates mean most people who were able to afford to buy a house in the first place will be able to afford to keep the house, so we shouldn’t get the forced sales of past recessions. 
  • Rents are way higher now and rising, interest rates are way down and dropping, so the option of selling the family home  and reducing outgoings is going to be limited. Why sell your current house with its fixed or dropping mortgage payments,  to rent a house where the payments are going to go up every 6 months.
  • Jobs. We are currently at our lowest ever unemployment rate of 4.3%. This means we have a serious oversupply of jobs and serious undersupply of workers. This means that if thousands of jobs are lost through a recession, there is a lot of fat in the system and the unemployment rate would have to rise to 7-8% before the ordinary employable people started struggling to find employment.
  • Alternative income sources. Because there is such a shortage of accommodation NZ wide, owners can rent out a room for around $180-$220 per week or provide an Airbnb service. This income together with the low interest rates will make a significant contribution to a mortgage.
  • The first home buyers are coming onto the market in increasing numbers as their Kiwi Savers qualify for home ownership. The cost of renting and the cost of a mortgage is closing fast so there is little reason to stay renting unless you have to. Thus, the lower end of the market has a strong driving force that will continue through a recession. As long as the lower end is selling there will be a flow through affect to higher priced properties.
  • As interest rates drop, people with money are choosing to re-invest their money and a lot of that is going into housing. So we could see more buying pressure than less. 
  • Word of Caution. In a recession there are two types of property that tend to be adversely affected. The luxury market such as holiday homes/Baches and Strata Title properties such as high-rise apartments.

In summary I think a Global recession is very likely and within the next 12-18 months, and we in NZ will feel the pain, but we will come out of a recession far better than most countries and may even scrape through through without joining the recessionary swamp. While the market will slow, we should survive it without significant price drops and in specific price ranges ( $380,000-$500,000) we may see a rise. 
Real Estate and Gold are the places to be in a recession. 

Real Estate and Gold are the places to be in a recession.

House Battery Technology Versus Car Battery Technology

 I read an interesting article recently about the difficulties of using car battery technology in house batteries. This led to watching a YouTube clip about the Redflow Z cell battery. The Company owner  says the difference between car batteries and house batteries is the difference between a sprinter and a marathon runner. The sprinter needs heaps of power for short fast runs, while the marathon runner needs consistent power over a longer term. The “Flow Battery” is a technology where power is stored in the form of zinc on a plastic plate, very similar to galvanizing steel to prevent rust. The batteries work by pumping a Zinc Bromine solution over plastic grids. Through electrolysis, the zinc coats the plastic plate as future releasable energy. The liquid keeps circulating as required, either putting zinc onto the plates (storing energy) or taking Zinc off the plates (releasing energy) and has an infinite shelf life. Redflow is already producing units for residential use that store 10 KWH of energy. Two of these should power a house. They already have houses set up which are nearly 100%  power neutral. The battery stores the energy for years if necessary, has no fire risk, as Bromine is a chemical used in fire extinguishers and puts fires out, as opposed to Lithium which burns like a volcano on steroids.
The flow system appears to have no loss of storage capacity and provided it is being charged by solar cells keeps on working indefinitely. They are currently dearer than the equivalent Li-on battery packs, but are currently being put together by hand, so with automation, prices will come down and are expected to be comparable to the equivalent Li-ion battery packs.

How I Became a Volunteer Policing the Anti Money Laundering and Terrorism Act

Have I ever mentioned that I REALLY REALLY hate this act?I’m sure its intentions are noble, and it’s fit for purpose, ( actually I don’t) but what I hate is my part in it.  No one asked me if I wanted to be involved. I don’t!  and no one pays me for my time , but by law,  I have to comply or else they will throw me in jail! Nice one!!! 

As an example of the time commitment: – I recently listed three sections for sale.The first section belongs to  a person I have personally known and dealt with for over 20 years. His land is owned by himself and a trustee company. To comply with the AML Act ,  I had to sight and take a copy of his passport (proof of identity). Plus sight and copy a utility bill sent to his address (proof of address) . I then had to ask him how he got the money to buy the property( proof of income)  The Trustee company is owned by his accountant with three directors. I then had get the “Company Extract”  and the ” Certificate of Incorporation”  of the company  from the Companies office and do CDD (Customer Due Diligence) on all directors by sighting and copying their passports  and a utility bill as proof of identity and address. Remember they are just the trustees and have no financial interest in the property. Then I had to find out the trusts source of  wealth (how they managed to buy or own the property in the first place) and source of funds (how is the trust getting its funds to service and maintain the property). 

The other two sections are owned by a company that specializes in developing  sections. I have known and worked with the developer for around 15 years. I had to sight the passports of both directors of this company along with obtaining a copy of an account addressed to their homes. I then needed to ask them how they got the money to develop this section, ignoring the fact that I know its’ their profession and frankly none of my business.!

It took nearly a week to get all the required proofs. Meanwhile I had photographed the three properties, entered them into our computer system, and written the advertisements for them in 2 days. Due to the legislative requirements I could not begin marketing the properties for another 5 days. I would have spent as many hours on the compliance requirements as I spent on the entire listing process. I can’t charge anyone for this, (although the accountants and lawyers can) , and I am required to do this volunteer service, free for the government without any thanks and the overriding motivation that if I don’t do my job properly, they can fine me $300,000 or throw me in jail for two years!!! I wonder how many money laundering terrorists I will catch ?   Thanks, Jacinda, Winston and John! I just love being your volunteer. It would have been nice to have been consulted,  but I presume my Knighthood is in the Mail. (Sorry John but this stupidity started under your watch.)

I’m Very Immature for my Age and here is my Way of Paying it Forward!

To balance my “volunteering” , I have collected some obscure ways to get “Better Value” out of Government departments. I hope someone pays less tax, or gains some financial benefit from any of the following:-A rental property is a business and your business-related expenses are tax deductible. ACC. If you pay ACC levies you can negotiate your own deal under a secretive policy called “Cover Plus”. You negotiate what your weekly cover will be and pay your fee based on that set  amount. In the event of an accident you get paid the weekly amount agreed without having to revert to the current formula of 80% of your weekly income. This is especially pertinent if you are self-employed where your remuneration may not reflect your real earnings.Don’t Ask IRD a Tax related question. In a survey by the Dom.Post , 25% of the answers IRD gave to customers were wrong and in the case of GST, 50% were wrong. IRD are not responsible for giving you a wrong answer, as it is your responsibility to understand tax law and get it right, even if they tell you the wrong information.But wait!!! there’s more!! You can ask for a “Binding Ruling” from IRD. You pay about $6000 for this but when it hits the fan and you go to  IRD  with your “Binding Ruling” folded in your fist and a smug  “I’ve got this”   look on your face, IRD  can refuse to accept their own ruling.If you have a company and you have lent the company money as Shareholder funds, you can have the company borrow the money and pay it back to you. (you will still need to personally secure it with the bank ), but the loan is then tax deductible to the company and you can pay off personal loans like your mortgage. It’s a plus for your company and a plus for you.Check your personal credit card each month and don’t forget to charge all business expenses back as business costs.Donations are Tax Deductible. Lots of expenses are donations. You don’t have to have an actual  room set aside to claim for business use at home. You can claim for the portion of your house that you use for business purposes. It’s based on a percentage of space rather than an actual room.Renting out a room or flat on your property. If you let part of your property to another, the rent becomes income and you have to pay Tax on it. However, is you take in “Flatmates” then there is no Tax payable on the income. I am merely trying to volunteer my further assistance to the government to ensure my early Knighthood, but please check this information with an accountant or someone who specializes in this stuff before taking it as gospel. Tip …don’t ask the Tax department!

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