March 5, 2014
> FEAT UR E
Post-quake home insurance changes prompt warning A major change to the way houses are insured in New Zealand has prompted a surge in business for local surveyors and valuers. But local firms believe many homeowners do not yet fully understand the new system, and could be in trouble if they ever need to make a claim. House insurance premiums used to be based on the size of a house, and insurance companies would rebuild no matter what the cost. However, following the Christchurch earthquake, changes now being rolled out mean customers agree on the maximum price an insurance company will pay in the event of a rebuild. Warkworth-based Hollis and Scholefield director Steve Jack says business has increased four-fold as a result of the changes. “Our valuers are probably doing three or four insurance valuations each per week, whereas we used to do about one a month. But we are not getting the standard stuff, it’s more the old villa, quality architectural homes, or dwellings on difficult sites,” Steve says. Online calculators are available to calculate the cost of rebuilding, but many of those who are not internet savvy, or have a highly valuable or
Warkworth valuer Scott Morison says unqualified valuers have been setting up shop trying to make a quick dollar.
unusual house, are forking out for quantity surveyors, Steve says. Sheldon’s registered valuer Scott Morison says online calculators are okay for valuing standard brick and tile houses built on flat land, but for anything else the valuations are often inaccurate. “Almost without exception the calculators are to low in their estimations,” Scott says. “We are finding that people who are not confident with the calculations, or their house is not of standard construction or is on a steeper site, they are using us.” It is important to get the valuation
correct, as if the estimate is too low and the house is destroyed, they will have to opt for something smaller, or lower in quality. However, many are still unaware of the consequences, Scott says. “It might just take someone getting caught out, where their house has been destroyed and the amount they have insured their home for hasn’t been enough to rebuild their home.” Insurance brokers are also concerned that home owners are not taking the changes seriously. A local insurance broker says around 80 per cent of clients are staying on the default rate of $2000 per square metre, and there
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is concern that older people might not be aware of the changes. Insurance Council communications manager Samson Samasoni says he is confident the public is aware of the change, and insists help is available for the elderly. “We believe these estimates are exaggerated as there has been a lot of publicity and information provided by insurers, banks and brokers to assist people to understand the need to carefully calculate what they might require to rebuild their homes,” Samson says. The council has also worked with various branches of Age Concern and Grey Power to get the message out, he says. There have been reports of unqualified valuers and surveyors starting companies to cash in on the changes. Property Institute chief executive David Clark says home owners need to make sure they hire a qualified quantity surveyor or a registered valuer. As well as getting an accurate appraisal, registered surveyors have indemnity insurance, which means if they value your house incorrectly and you’re left out of pocket, you can get the money back through the courts, David says.
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March 5, 2014
March 5, 2014
Early advice could save you big bucks Accounting changes A surge in property development in Mahurangi has led to warnings about the importance of getting professional advice early in the process. Warkworth accountant Darren Knight says he has noticed a huge increase in building and subdivision in the Warkworth area, as developers rush to take advantage of low interest rates and pent-up demand. But he is also concerned that inexperienced developers, such as farmers, are not doing their homework first. “A lot of stuff that was stalled because of the GFC [global financial crisis] is going ahead now,” he says. “But it’s a double-edged sword because people like farmers have started chopping up land without getting accounting advice with regard to GST.” The way the Income Tax Act is structured means that developers can save a huge amount of money if they arrange their affairs correctly, says Darren. “But a lot of them don’t. They just go gung-ho into it, and by then it’s already too late — they’ve done the damage.” He recently discovered one client had gone ahead and got resource consent for a subdivision without informing him. “They didn’t realise some of the rules regarding minor versus major expenditure and all this type of thing, and it’s had a huge tax effect — we’re talking hundreds of thousands of dollars. The moral — if you’re looking at it from an accounting point of view — is ‘talk to your accountant first’.” Another issue Darren has noticed with the recent increase in activity is businesses expanding too fast. “A lot of people who were previously waged people or small businesses have gotten big quite quickly, so their accounting requirements have become a lot greater. They need to get their structures right and make sure they don’t buy too much equipment, for example, that they’re paying huge HP payments on.” A business downturn can hit quite rapidly, he warns.
shouldn’t be ignored
“It could go bang. I’ve seen it happen before — you get these guys who are left with all this equipment that they financed, and they go under.” It is also vital to make sure you’re doing everything by the book, such as having proper employment contracts, he says. “You wouldn’t believe how many people think people should be taxed in a certain way because that’s what their mate tells them down at the pub.” Before you jump in and do the wrong thing, it’s sensible to talk to your lawyer, engineer and accountant, and just let them know what you’re thinking, he says. “It’s good to sit down and have a plan of what you’re wanting to achieve and then let the professionals help you out.”
Accountants are urging businesses in the Mahurangi region to get up to speed with a new law that comes into effect on April 1. The new law means that small and medium-sized businesses will no longer have to produce detailed financial accounts — a move that is likely to save them time and money. However, many businesses appear to be unaware of the changes. The new accounting requirements will affect 95% of NZ businesses, yet research shows that over half of small- to medium-sized businesses do not know about the changes. And an overwhelming majority (83%) do not know what they will mean for their business. The new law, passed by Parliament in November last year, means most small and medium-sized businesses will still have to produce accounts for the IRD and the bank. However, they won’t have to produce the same type of detailed accounts as larger companies. “It’s quite natural that many businesses will be unaware of the changes,” says Graeme Mitchell, incoming chairman of the External Reporting Board (XRB), which has overall responsibility for setting accounting standards. “They typically only focus on reporting when they need to, but it is time for them to get professional advice to understand how the changes will impact them.” Mr Mitchell says the new law and accounting standards give businesses a greater choice to do what’s best for them, and for many this will help reduce time and compliance costs. “While it is difficult to quantify the extent of the savings, in a competitive business environment, we think this will be welcome news to any company director looking to streamline processes and make efficiencies where they can,” he says. Info: xrb.govt.nz
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March 5, 2014
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MoneyMatters Grant Clifton, Countrywise Financial www.countrywise.co.nz
Sorting out your bills
At the start of a new year it always seems like the expenses are never-ending. Those with school-age children will know the bills come in thick and fast: stationery, uniforms and school fees, and then there is always the credit card bill timed to arrive right at the end of January to remind you of the indulgences of Christmas. I met with some clients last week who really needed some good old-fashioned advice. They had recently gone back to work after a good long summer break. The bills had all arrived at once and they were feeling quite overwhelmed. Sitting down and working through a simple budget with a good financial advisor can uncover lots of areas where savings can be made and costs reduced. With the husband being self-employed and relying on irregular income, it always pays to have a Plan “B” to get you through the lean times. By looking at what current loans and payments they had, we were able to determine where some savings could be made. They were paying a number of high-interest loans and credit cards which are designed to be paid off over relatively short terms. They had been paying a credit card with an $8000 balance for nearly three years and not really making any headway into clearing it. They had last year taken out a hire purchase for a new fridge and washing machine and the interest-free terms were nearly expiring and about to be charged at 22.95%. The payments of these two loans alone were nearly $500 per month. After living expenses and paying the mortgage and other loans, they had no money left each month and so when the extra expenses like school uniforms and stationery arrived, they weren’t sure how to cope. By looking at their overall situation and arranging a consolidation loan, repaying the hire purchase, and reducing the credit card to a manageable level of $1,000 we were able to reduce their monthly outgoings considerably which left them with a cash surplus of over $600 per month. We did this by increasing and re-negotiating their home loan, getting a really good fixed rate and repaying some short term debt, thereby improving their monthly cashflow. So if you are feeling a little overwhelmed financially seek out some good advice. It really does pay to regularly review your finances — there are savings to be made.
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