INTO THE BLUE Investing sustainably in the South Pacific
GRUNT WORK From personal trainer to property king
Hot sectors to watch this year
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THE FTX EFFECT Will the demise of FTX kill crypto?
Five Focus Points for 2023 • China Opens Up • Electric Dream: Tesla Model Y
In this easy-to-read and practical guide, you’ll learn how investing in property can achieve your financial goals at every stage of your life - from buying your first home, to building a portfolio and into retirement. ‘Ed and Andrew’s book focuses on lifelong property investment and the changes in strategy needed along the way to build wealth for retirement and passive income!’ Tony Alexander, economic analyst and commentator
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I N F O R M E D I NVESTO R
Contents IN THIS ISSUE
12. What We Like
PERSONAL FINANCE
New art, luxe jewellery and money book launched.
14. Essentials Homeware and accessories for an autumn pick-me-up.
16. Going Up, Going Down Economist Cameron Bagrie explores how we are doing as a nation.
20. Tread Carefully Martin Hawes urges caution when it comes to property investment.
24. Top Five Property Myths We explore top enduring property myths and uncover the truth behind the cliches.
32. Building a Portfolio in a Downturn Is it possible to build a portfolio when times are tough? Ben Tutty investigates.
38. Pacific Trade We explore renewable and resilient energy systems in the Blue Pacific.
40. Short-Term Rentals Holiday rentals – can they be a good long-term investment?
44. Key Focus Points for 2023 CMC Markets’ Chris Smith explores the year ahead.
48. Crypto Following the FTX saga we take a look at the year ahead for crypto.
50. New PIE Funds for InvestNow Looking for an ETF with US or global exposure and low fees? InvestNow’s newest funds can help with that.
52. The Travelling Investor Michael Burge has 17 properties but chooses to live out of a suitcase.
54. Worldview Andrew Kenningham looks at China’s reopening and the effect on the world economy.
58. Snapshot What’s been happening in the world of finance, investment and innovation?
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62. What to Watch Pie Funds share what they expect to be hot in 2023.
64. The Great Townhouse Debate Are too many being built? Ed McKnight explores the stats.
66. Do You Need a House to Build Wealth? Dean Anderson from Kernel Wealth on how to set yourself up for retirement without owning a house.
68. Saving Your House and Your Relationship The stress of paying your mortgage is likely to add stress to relationships, writes Lynda Moore.
70. Money Grows on Trees In the agrisector, money can grow on trees, according to Syndex experts.
72. Asset Protection Are you regularly reviewing your property insurance sum insured? A timely reminder from Vero.
74. KiwiSaver and Property There are ways KiwiSaver can help you buy property and some it can’t. Booster has the facts.
76. Take Responsible Investing to the Next Level Booster’s socially responsible fund is driven by investor feedback and extremely thorough.
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Contents PROPERTY
80. Next Six Months Vital for Success Scott McKenzie from PMG discusses the importance of the next few months.
84. Property Market Uncovered Kelvin Davidson from CoreLogic on how the market has been faring recently.
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87. A Property Retirement Plan Andrew Nicol shares a case study showing a comfortable retirement achieved through property investment.
90. Getting the Best Mortgage Deal There’s a key difference between an adviser and a broker. Peter Norris explains.
92. Commercial Property Funds Property investment but without the high barriers to entry and admin headaches.
94. Taking Away the Tenancy Pain The Rental Bureau and their unique system for renting your investment property more efficiently.
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96. Architecturally Designed Transportable Homes
Shamil Gujarati on Transbuild’s fixed-price build options.
INVEST IN YOURSELF
102. Fashion Update All the best styles for the autumn season.
106. Introducing Volvo’s Polestar 2 Liz Dobson finds this Swedish EV has a lot to offer Kiwis.
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112. Electric Dreams Telsa’s Model Y is an all-round winner.
EDITOR’S LET TER
Published by: Opes Media
Bringing Clarity to those Property Myths
Informed Investor 33 Federal Street, Auckland Central, Auckland. www.informedinvestor.co.nz
Let’s clear the air around the current slump and recognise it’s just part of a natural cycle that can, and should, be ridden out. In this, our autumn issue of Informed Investor, we explore all things property. It’s an asset that underpins the wealth of many (as Andrew Carnegie put it, “Ninety per cent of all millionaires become so through owning real estate”) and a beautifully tangible way to create wealth. However, if you are to believe the conventional wisdom (and the doom and gloom merchants in mainstream media) now’s a terrible time to be a property investor. House values are slumping, rental yields are low, and credit is hard to come by. It’s all quite dispiriting. But there is another way to view this: the current slump is just part of a natural property cycle that can, and should, be ridden out. Our lead story by Amy Hamilton Chadwick deals with this, alongside four other property myths. In response to those naysayers who claim the end is nigh for property investment, Matthew Gilligan, property investor and managing director of GRA, has the following to say. “In the past 40 years I’ve never seen a downturn that hasn’t recovered to peak value within five years. Reduced values are temporary. The burden of interest rates will rein in inflation, and I think we’ll see a recessionary environment in 2024. Then, in 2025, we’ll start to see recovery of values as rates drop again and demand increases.”
Our second story, on creating a portfolio in a downturn, is also useful for those worried about property investment. Writer Ben Tutty gives a compelling argument around why now is a good time to buy, especially if you follow three simple rules: buy property under value, focus on cash flow and add value wherever possible. Property is the focus of this issue, but we also have our usual range of informative features to keep you up to date with investment issues. We look at whether the downfall of FTX will kill crypto (there’s mixed opinions on this one) and look at how New Zealand is faring in the face of high inflation and the threat of recession. We also explore autumn’s best new fashion trends; review the Tesla Model Y; and launch a new car section. It’s been a challenging few months, especially for those in the North Island who have been battered by weather on all fronts. We hope you are all keeping well and safe, and find education and inspiration between the cover of this magazine. Take care.
Joanna Mathers Editor
Editor Joanna Mathers
Resident economist Ed McKnight
Art Director Mark Glover
Printer Webstar
Account Manager Stephanie Bryant – 021 165 8018
Retail Distributor Are Direct
This magazine is subject to NZ Media Council procedures. A complaint must first be directed in writing, within one month of publication, to the email address, stephanie@informedinvestor.co.nz. If not satisfied with the response, the complaint may be referred to the Media Council PO Box 10-879, The Terrace, Wellington 6143; info@mediacouncil.org.nz. Or use the online complaint form at www.mediacouncil.org.nz. Please include copies of the article and all correspondence with the publication. Cover photo by Pierre Châtel-Innocenti on Unsplash Quote spread illustration designed by pikisuperstar / Freepik AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 8
Informed Investor is an investment magazine published quarterly by Opes Media. You need Informed Investor’s written permission to reproduce any part of the magazine. Advertising statements and editorial opinions in Informed Investor reflect the views of the advertisers and editorial contributors, not Informed Investor and its staff. Informed Investor’s content comes from sources that Informed Investor considers accurate, but we don’t guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk: Informed Investor magazine is not liable to anybody in any way at all. Informed Investor does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. Informed Investor magazine does not give any representation regarding the quality, accuracy, completeness or merchantability of the information in this publication or that it is fit for any purpose. To advertise in Informed Investor, you must accept Informed Investor magazine’s advertising terms and conditions. Please contact Stephanie@informedinvestor.co.nz about advertising. Informed Investor is printed on environmentally responsible paper. The paper is produced using elemental chlorine-free pulp, sourced from sustainable and legally harvested farmed trees. The magazine is recyclable. PRINT ISSN 2744-6085 DIGITAL ISSN 2744-6093
UP FRONT
Meet Some of Our Contributors CAMERON BAGRIE
KELVIN DAVIDSON
Cameron is the managing director of Bagrie Economics, a boutique research firm. He was previously chief economist at ANZ, a position he held for over 11 years.
Kelvin joined CoreLogic in March 2018 as senior research analyst, before moving into his current role of chief economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.
ANDREW KENNINGHAM
LAINE MOGER
Andrew is the chief Europe economist for Capital Economics. He was previously an economic adviser for the United Kingdom Foreign Exchange.
Laine is a journalist at Opes Partners, having come from a reporting role at Stuff. She regularly writes for Informed Investor and NZ Property Investor and has a wealth of knowledge around property.
ANDREW NICOL
CHRIS SMITH
Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has more than 15 years’ experience in banking, finance, and property.
Chris is the general manager at CMC Markets. He has more than 15 years’ investing experience in financial markets, global equity, commodity, and forex markets.
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C ONTRIBUTORS
AMY HAMILTON CHADWICK
MARTIN HAWES
Amy specialises in property and finance journalism. She has been a writer and editor for almost 20 years. Amy is a registered financial adviser.
Martin is the chairman of the Summer KiwiSaver Investment Committee. He’s an authorised financial adviser and offers his services throughout New Zealand.
ED MCKNIGHT
LYNDA MOORE
Ed McKnight is Informed Investor’s economist. After working for the Auckland Philharmonia and Hatch, he now crunches data for Opes Partners.
Lynda Moore spent 20 years in her own accounting practice before co-founding Money Mentalist. She blends psychology and neuroscience with money coaching.
MIKE TAYLOR
BEN TUTTY
Mike is the founder and CEO of Pie Funds. He’s also portfolio manager of Pie Funds’ Chairman’s, Global Growth 2 and Conservative funds.
Ben is an Auckland-based but not Auckland-bound property investor and freelance writer. He’s travelled and worked across Asia, Europe, and Australasia, writing for some of the biggest names in property and finance.
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RE U P GFURLOANRTS
What We Like Showcase of the best new products, art and accessories. Shades of the sea Photographer Mark Glover’s horizon shots create an atmospheric focal point in any large living space. Glover’s Auckland studio overlooks the Waitematā Harbour and he’s been taking pictures of the everchanging seascape for around 10 years. There are shades of Rothko in his abstract works; the images appear to be painted. But instead, Mark uses his photographic skills to distil sea and sky into their most basic tonal form, azure, pale rose, alongside crisper textural images in blackand-white. The images can be printed to order in any size (but bigger is better for the greatest impact).
The works can be viewed at on Instagram at: www.instagram.com/northeast_studio or email northeaststudionz@gmail.com
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W H AT W E L I K E
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Lynda Moore Our wonderful contributor, Money Mentalist Lynda Moore, has released a new book, Conversations with Money: A Love Story, aimed at helping readers “remove financial blocks and create more wealth”. In it she explores how our relationship with and attitude towards money influences our decisions and helps identify behaviour that can hold us back from financial well-being. It’s easy to read and highly engaging, and she shares her own (heartbreaking) story of love and loss and the role money played in it. Over the book’s three sections, Moore explores personal beliefs around money, how money affects relationships, and provides practical exercises designed to help us thrive financially. An excellent resource for those wanting to change the way they engage with money and create long-term wealth and well-being in their life.
Visit https://moneymentalist.com/book for more information.
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ESSENTIALS
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UP FRONT
Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we’re going as a nation.
Seven per cent The annual inflation remains stubbornly above 7 per cent, for the third successive quarter. While lower fuel prices have helped ease inflation of late, strong contributions from housing, food and service sectors contributed to the cost of living pain.
Recession There are widespread calls of a pending recession with the Reserve Bank and Treasury projecting one. Leading indicators such as NZIER’s Survey of Business Opinion are also pointing to one. Business sentiment has tanked to a record low. A net 73 per cent of respondents expect conditions to deteriorate. It does not get much worse than that. Experienced domestic trading activity fell 15 points to -13 per cent and suggests an economy hitting reverse. When trading activity is negative it normally means a negative GDP result.
The playbook Rapid rises in interest rates bring recessions. Housing has cracked, and retail spending too. But job markets are holding up, with firms scrambling for staff. That is not your normal recessionary playbook. A pullback in growth for many businesses represents an environment that is less good, and not necessarily bad. An environment that is less good though with little strain leaves questions over how inflation will disappear? Disinflation (a reduction in the rate of inflation) is associated with economic weakness, pressures on profits, discounting, and job losses. We are not seeing job losses.
The real inflation story If you want a real time barometer of living costs look no further than food price inflation. Food costs are the everyday items we notice. Food price inflation is now above 11 per cent, led by fruit and vegetables. The latter is being driven partly by mother nature, with what seems like an ongoing series of supply disruptions hitting various items. But farm price inflation is having a huge impact on food prices as well, rising around 15 per cent in the past year.
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The playbook #2 Financial markets are anticipating interest rate hikes will turn into falling interest rates in late 2023 and 2024 in New Zealand and the United States. This playbook is based on history, concerns over a recession (which typically central banks respond to by cutting rates) and signs inflation is cooling rapidly in the US. That playbook faces challenges. Inflation looks sticky. Central banks, including the US Federal Reserve, are saying rates will remain elevated for a while. It is a game of chicken between markets and central banks.
MARKET INSIGHTS
Looking for the bungee cord
Welcome #2
House prices continue to retreat, dropping another 1.7 per cent in the month of December, taking the annual decline to 13.7 per cent and 15 per cent below their November 2021 peak. Weak sales, rising days to sell and inventory suggest those talking a near-term recovery are too early. The market has not yet based, a precursor to a recovery taking hold.
NZ welcomed 231,300 visitors in November 2022, up 226,000 on November 2021, led by 105,000 Australians. The November 2022 number of overseas visitor arrivals is 62 per cent of the pre-Covid number of 372,100 in November 2019.
The interest rate on bank mortgage books is around 4 per cent. Fixed lending rates are now above 6 per cent and just under half of mortgages are set to refinance in the coming year. The pain of higher interest rates is only really starting to be felt.
Shrinking Household wealth shrunk by $56.8 billion (2.5 per cent) in the September 2022 quarter. Household wealth has fallen $179.4 billion in the first nine months of 2022, driven by an estimated $91.1 billion fall in owner-occupied property. Household net worth at September 2022 was estimated at $2,250 billion.
Where is the strain? Bank non-performing loans remain low at 0.4 per cent of total lending. For housing, 0.2 per cent of loans are characterised as non-performing. One reason bank non-performing loans are low is that people took advantage of falling interest rates to increase their principal repayment and kept payments unchanged despite falling interest rates. This has provided a bit of a cushion as rates rise with mortgage holders ahead of their payment schedule.
Welcome! Statistics New Zealand estimate a net migration gain of 5,700 for the year ended November. It was made up of a net loss of 15,600 NZ citizens, and a net gain of 21,300 non-NZ citizens. On an annual basis, the November 2022 year is the first net migration gain seen since the February 2021 year.
Despite rapidly rising interest rates and construction costs, huge numbers of residential building consents continue to be issued. There were 50,209 new homes consented in the year ended November 2022. This included 28,364 multi-unit homes, up 24 per cent compared with the year ended November 2021. The number of standalone houses fell 15 per cent to 21,845 over the same period. While Bagrie Economics uses all reasonable endeavours in producing reports to ensure the information is as accurate as practicable, Bagrie Economics shall not be liable for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage. Data and information have been gathered from sources Bagrie Economics believes to be reliable. The content does not constitute advice. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 1 7
Correct as at 30 January 2023.
A pipeline
F E AT U R E S
Portfolio /port·fo·lio/ (noun)
The securities held by an investor. – Merriam-Webster Dictionary
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QUOTE & DEFINITION
‘The best investment on Earth is earth.’ – Louis Glickman, real estate investor
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I NVESTM E NT
Tread Carefully Down that Property Ave Just because prices are down now gives no certainty of a major bounceback, warns Martin Hawes. Buy in gloom, sell in boom. This is my No.1 investment mantra and it calls for investors to think counter-cyclically as they shun what the masses may be doing. Residential investment property is a buyers’ market and well down in value and this would normally be a time when I would suggest buying. Buy in gloom: well, things are looking pretty gloomy at the moment. Many investors will have similar instincts to take advantage of the price fall and buy. That would usually be the best investment strategy. However, investors need to be careful. Although residential rental property has given quite good returns for some decades, that provides no guarantee they will remain good in the future. Just because prices are down now gives no certainty of a major bounce-back nor promises that “normal” transmission will be resumed. In fact, for my money future performance of rental property may be nothing like as good as it has been over recent decades. The current fall may not be just a routine part of the cycle but instead a major secular change. Economies of scale, pricing There are four changes and conditions that should give cause for investors to think hard before buying: AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 1
F E AT U R E S
‘There are four changes and conditions that should give cause for investors to think hard before buying.’ 1. Subdivision will probably become easier with probable changes to the RMA. At the same time, with more big builders in the market, economies of scale lead to more houses being built. More building with the prospect of more available land for development seems likely to restrain house prices. 2. Property in NZ is still quite expensive. Even if the ANZ Bank is right and the average value of property falls a total of 22 per cent, property remains no great bargain. This means that to provide decent investment returns property prices will still have to climb from a high level. 3. Expensive property means investment yields are low. The yield for quality residential property when all costs are counted is likely to be near 1-2 per cent. As an investment, residential property does not stack up. Better yields for residential property can only come from higher rents or falling house prices. It will be difficult to raise rents (many families simply cannot afford to pay more) and so there will be pressure on house prices to give investors better yields. 4. Housing has always been (and always will be) a public policy issue – housing is political. The change that we have seen is not so much that politicians are talking about high property prices but actually doing something about it. Legislative changes drive up costs for investors (Healthy Homes Act and changes to the Residential Tenancies Act). Changes to the tax system also make property investment less attractive (the extended bright-line test and interest no longer tax-deductible). Although National and ACT promise to repeal some of these things, repeal may or may not come about. In any event, there is increasing political consensus that property price booms are unwelcome and that steady property prices would be ideal – political parties of every hue want to put a lid on the very thing that investors want to rise (house prices). Investors buying property in the near future are effectively betting against the government. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 2
Government action may continue. Politically there is some agreement between parties to alleviate high house prices and the housing shortage (witness the deal between National and Labour which allows up to three houses of three storeys on one site). No political party wants to see a continuation of strongly rising house prices and ultimately government will get its way. Increased immigration There are a couple of things which may help house prices rise: the first is the likelihood of increased immigration. You tend to get a good correlation between immigration and house prices; they both go up together. Second, inflation is likely to increase the cost of new builds and, to keep the price gap between new houses and older ones fairly constant, it seems quite possible that over longer periods of time the price of existing houses may rise somewhat.
Nevertheless, I do think the weight of higher interest rates and the fact that house prices are already high will act to suppress prices – and then political action will keep the lid tightly bolted down whenever house prices start to get away again. It seems to me quite likely there have been some major changes wrought in the residential property market, and these changes may provide a circuit breaker for the cycle of steeply increasing house prices. That is not what property investors want and investors should be wary – past returns are not always a good guide to the future. Martin Hawes is a financial author and speaker. He is not a Financial Advice Provider nor a Financial Adviser. The information contained in this article is general in nature and is not intended to be financial advice. Before making any financial decisions you should consult a professional financial adviser. Nothing in this publication is, or should be taken as, an offer, invitation or recommendation to buy, sell or retain a regulated financial product.
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PERSONAL FINANCE
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INSIGHTS
It’s Time to Sort Out the Myths Investing in property can be risky and rewarding. Amy Hamilton Chadwick seeks clarity from the experts far away from the dinner table chatter. Property is always a hot topic of conversation in New Zealand – sometimes it seems that everyone who lives in a house thinks they’re an expert on the property market. You’ll hear people repeat all kinds of information, whether that’s doom and gloom, unfounded optimism, or unregulated financial advice. Add to that the panic-filled media reporting that lurches from crisis to crisis, and it’s no wonder myths about property are widespread. Investing in property can be risky and rewarding, and it’s important to go in with your eyes wide open. You don’t want to be misled by some of the common misconceptions that you’ll hear around the BBQ – so here are five big property myths, set straight by experts. Myth No.1: There’s no money to be made in property right now Prices are dropping, rents aren’t keeping up – surely this is a terrible time to buy property? Only if you have a very shortterm view of investing, points out Matthew Gilligan, managing director of GRA, property investor/developer, and author of Property 101. “In the past 40 years I’ve never seen a downturn that hasn’t recovered to peak value within five years,” Gilligan says. “Reduced values are temporary. The burden of interest rates will rein in inflation, and I think we’ll see a recessionary environment in 2024. Then, in 2025, we’ll start to see recovery of values as rates drop again and demand increases. Based on historical patterns, this could be your best opportunity to get something at a discount.” He’s certainly putting his money where his mouth is by actively investing in property.
For example, he’s leading a syndicate that is currently buying properties in Rotorua. Gilligan recently bought a property for $230,000 that had been on the market for $460,000; “the overseas vendors just wanted out”. It’s on a 400m2 section and needs renovation, after which he anticipates it will rent out for around $550 a week and have a value of $430,000. Because Rotorua has been earmarked for high-density development and it’s affordable, Gilligan owns 28 sites across the city and plans to develop them once conditions are right. “This slowdown is a bad thing if you’re on the wrong side of it, but there’s an opportunity to buy in a down market, add value, recycle your equity or sell, and keep doing it,” he says. “There are all these Doomsday stories, but if you understand the cycles, maximise your cash flow, and you have enough time in the market, you will get huge capital growth.” Gilligan says even the most intelligent advisers don’t always see the big picture when the headlines are so dire. Financial advisers, accountants and lawyers often have an extremely low tolerance for losses. “They’ll tell you that property is terrible and this is the worst time to invest, but they’re wrong. Smart people with high IQs don’t necessarily look at the long-term cycle.” One factor that makes Gilligan feel more confident about the prospects for property investors is the potential for a change of government. The National Party has pledged to remove the current phase-out of rental tax deductibility if it wins the election, as well as reducing the 10-year bright-line test. This would immediately improve the climate for most residential property investors.
‘I’ve never seen a downturn that hasn’t recovered to peak value within five years.’ – Matthew Gilligan AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 5
F E AT U R E S
‘Good investors are constantly maintaining their properties and looking to add value.’ – Victoria Heyes
Overall, Gilligan says even if you’ve just bought your first home, there’s no need to be alarmed: “Those who are sitting on houses right now who are stressed, don’t panic and sell. I think property will be worth 60 to 70 per cent more in eight years’ time – so if it’s down 30 per cent over the next two years should you sell? Not if you can afford to hold. Trust those long-term trends and understand that there’s a reversal of policy coming, those missing migrants are coming back, and this is when huge amounts of money get made.” Myth No.2: Rent is dead money Why pay rent? You’re just wasting your time paying off someone else’s mortgage, and you’ll struggle to keep up with your homeowning friends. But this is an idea that dates back to a time of lower house prices and a lack of access to the share market. “There’s a legacy perception that the only way to build wealth is through property, but that’s changed,” says Dean Anderson, CEO of Kernel. “An increasing number of people want to prioritise other experiences, even simultaneously building wealth through other means such as starting a business or simple regular investing. Renting gives them flexibility to focus on this; they don’t want to deal with maintenance, insurance, rates and so on.” Anderson also believes that KiwiSaver now provides the financial backstop that a home once represented: “Buying a home using KiwiSaver is a hit in long-term wealth – take out $50,000 today, and that could be the equivalent of a few hundred thousand in retirement. “A home used to provide the confidence of financial security in retirement, but KiwiSaver can do this now. Those who rent can have confidence that their KiwiSaver should grow to a large financial nest egg in retirement, so I think that’s changed mindsets about renting. In the past, you AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 6
knew you had a home no matter what. While home ownership will still be on the cards for most, you shouldn’t feel the same pressure to buy.” With interest rates rising fast, but rents not accelerating as quickly, homeowners are paying more on their loans while renters have relatively more spare cash to invest. It’s been proven that renters can keep up with homeowners, or even outperform them, with a dedicated investment strategy, and that’s certainly working for Anderson. He and his partner rent in Auckland city, and they love the lock-up-and-leave convenience and the “walk everywhere” lifestyle. “Renting is a strategic decision. I could afford to buy, but I would need to commute, and after living in Wellington for so long I’m addicted to the walking lifestyle. I’m growing my wealth in other ways, by investing in Kernel’s growth and in our funds. And, of course, buying isn’t a yes or no decision; you can always buy later. Don’t buy just for the sake of buying.” Myth No.3: Rental property is a passive investment Watch any young hustler on YouTube talk about how to get rich, and they’ll tell you all about why passive income allows you to live the dream – and rental property is almost always held up as a brilliant source of passive income. This gives you the impression that you buy a rental and do nothing as the money keeps flooding in, but that’s a highly misleading idea.
them happy. That can be a daily task, says Heyes, akin to running a small business. Even using a professional property manager won’t absolve you of all effort (and of course it comes at a cost).
“It’s a very emotive thing, the idea that you don’t have to do anything at all,” says Victoria Heyes, managing director at The Rental Bureau. “It’s true that you don’t go to work and exchange hours for a wage, but if you dig into the details, the most successful property investors are very active.”
“Good investors are constantly maintaining their properties and looking to add value to improve their return on investment,” Heyes says. “You need to be regularly renovating and always making sure the investment aligns with your goals, not just passively forgetting about it.”
Managing a property yourself is a significant job, because you’re looking after a customer and you need to keep
Myth No.4: Equity in your home isn’t useful until you sell Many investment experts will tell you that a
PERS ONALIF NISNI A GN HC TE S
home is not really an investment, because it generates no income. Similarly, when prices rise, you’ll hear people telling you that it’s no use until you sell, and even then you’re buying and selling in the same market, so your equity isn’t really much use.
equity by refinancing and pulling it out.”
However, if you know how to access it, your equity can give you a leg up into the rental property market, pay for renovations, support your kids into their first homes or even help with large expenses.
“A lot of investors have a fear of using their own home as security. I’ve done it for years, and it works, but you’ve got to be good at managing your money.”
“Nowadays I would say 90 per cent of property investors are using their home equity to get started,” says Angela Webb, head of residential investment at Bayleys Canterbury. “Homeowners can use their
There are several ways to do this. You can use your home as security for a second mortgage on an investment property, a strategy that Webb has used herself to help her build a strong rental portfolio.
Another option is withdrawing your equity to use as the deposit on an investment property that is mortgaged with a different bank. This prevents the same bank from holding both properties as security. Both of these options essentially
leave you with additional lending equal to the price of your rental, so it’s like having a 100 per cent loan on the rental – and you need to be prepared to service that high debt burden. You can also set up a revolving credit facility, which can sit unused (so you pay no interest) until you need it. The beauty of revolving credit is that once it is all set up you don’t need to fill out any paperwork to explain to the bank why you’re tapping into your money. It can provide a backstop in case of emergency spending, surprise tax bills for business owners, a renovation or whatever you need it for. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 7
F E AT U R E S
“Revolving credit gives you the flexibility of paying it back as fast as possible,” says Webb, “or if you use it as a deposit on a rental, you have the option to refinance and pay it back that way.” She also sees many people using their equity to fund their children into first homes. Your ability to use your equity this way will rely on the bank agreeing that you’re a good borrowing risk, which depends on your debt levels, age and other factors. “I recommend you talk to a mortgage broker,” Webb adds. “My experienced brokers are great at coming up with solutions and making sure I’m protected.” Myth No.5: Stick to what you know Buy what you know – it’s that kind of thinking that people use to justify buying rentals in their own suburb, city or even street. It’s not exactly bad investment advice, but it’s certainly not the way to get the best returns or build the optimal portfolio. No matter how familiar you are with your suburb, unless you’ve looked at plenty of options you can’t possibly know if it’s the right choice to help you reach your investment goals. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 8
“You need to understand your property investment goals,” says Heyes, who is a property investor herself. “If you’re after cash flow, you need to find those areas that have immediate cash flow, whereas if you’re looking for long-term capital growth you might want an area with high growth potential.” Knowledge of an area is essential, she notes, but it needs to be from an investor’s point of view, not just your own familiarity with the local parks and cafés. Experts look around New Zealand, or even further afield, to discover which areas will suit their needs, then run the numbers. Essentially, it’s not about investing in what you know, but getting to know what it is that you should invest in for the best results. Plus, investing beyond your backyard gives you greater diversity, which reduces your exposure to the specific risks of your local area. “Our clients include a lot of overseas investors who own properties in New Zealand, and some New Zealanders who own properties here and in Asia and the UK,” Heyes says.
“They cast their net wide, and they’ve done their research to find investments that align with their strategy. Serious investors use all the tricks of the trade. They start with software that gives you all the statistics and data about areas, then talk to local property managers, their lawyers and accountants, and they’ll use all that knowledge to make their decisions – not just whether or not there’s a good café up the road.” Property can be part of an outstanding portfolio Property has its advantages and disadvantages: historically, property returns are slightly lower than those from the share market, but because you can borrow to buy property, the leverage can magnify your gains. Owning a home or a rental can help you build wealth over time, but it’s not the only path to a secure financial future. By setting long-term financial goals, getting the right advice, and thinking carefully about the risks, you can decide whether property investment is the best choice to help you reach your targets.
WYNN WILLIAMS
Settlement Woes – Know Your Options For those buying and selling property during economic decline there are unexpected consequences to be aware of, writes Jenny Turner, partner at Wynn Williams. We’ve all seen the headlines: New Zealand is entering a recession likely to run into 2024; interest rates are up; cost of living crisis burgeons; unprecedented inflation with unemployment forecast to rise. And amongst this the property market has slowed and house prices have fallen since their peak two years ago. For those buying and selling property in a period of economic decline there are unexpected consequences to be aware of. We’re getting more inquiries from people who signed up to contracts to purchase property off the plans at an agreed price. Completion is nearing and those investors can no longer obtain the required finance to settle or the numbers for the property no longer stack up, and they want to get out of their contracts. So, what happens if I no longer want (or cannot afford) to purchase a property that I have already signed up for? The answer depends on several factors for the vendor and the purchaser. Each situation will be unique, so we encourage you to get your own legal advice tailored to your circumstances. There will be options to explore and there are consequences for default of contract. Consequences of default Where a purchaser has breached the contract, either by seeking to cancel it on a condition where they are not entitled to, or where they’ve failed to pay the purchase price on the settlement date, the vendor usually has two main options: 1. Sue for “specific performance”, whereby it’s claimed the purchaser is obliged to purchase the property and an order from the court requiring the purchaser to perform the contract (ie force them to purchase the property) is obtained. This can be problematic for vendors when purchasers simply cannot obtain the funding to settle. For that reason, a vendor is often willing to engage and work with a purchaser to have some certainty of cash flow after completion of their development, avoiding a period of uncertainty and further cost while they take the property
back to market and then pursue the original purchaser for losses suffered. 2. Cancel the agreement, retain the deposit and sue the purchaser for the losses incurred as a result of default. This isn’t a case of the vendor cancelling the agreement the following day, rather there are set steps a vendor must work through. Once settlement notice periods have been provided and a purchaser has had an opportunity to settle, a vendor would usually then place the property back on the market. Ultimately, once the property is sold and the vendor’s losses crystallised, they may seek to recover any reduction in price from the defaulting purchaser (as well as interest and the reasonable costs of re-sale). This option is much more attractive to vendors in a dwindling property market. Commonly, purchasers are looking to pass on their interest under the contract to another party who will then complete settlement. Not all options to transfer a party’s interest under a contract are equal. •
Assignment and novation An assignment between an original purchaser and a new purchaser will leave the original contracting party liable to perform the contract if the new party can’t. In contrast to assignment, a novation releases the original contracting purchaser from the contract’s terms. In the current market developers are moving away from offering this release as it is best to have two parties to call on to perform the contract if needed.
• On-sale option
With the developer’s consent to resale, some purchasers are electing to take their new build property to market before settlement in the hope of on-selling, with settlement of their sale to be settled simultaneously on the date of their purchase settlement using the new buyer’s funds. If the on-sale price is for a lesser amount than the original purchase contract, any shortfall will need to be funded by the original purchaser who at that point is topping up another party’s asset purchase.
• Funding horizons
A buyer should broaden their funding horizons from mainstream banks. Are there other lenders that may offer finance for the full amount required to settle? Could a family member or friend “buy in” to the investment whether by way of coownership or a loan? These options should be considered in the current market.
Power of negotiation Nothing prevents parties from agreeing on an alternative resolution, whether by way of direct negotiation or some form of alternate dispute resolution, where a purchaser is released from the contract on the basis that the vendor retains a payment. Other options could be to agree on a price reduction, to defer, or to stage settlement payment(s). This is often the case where the cost of bringing claims can outweigh the financial benefit. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 2 9
15 years of investing Mike Taylor started Pie Funds 15 years ago and he’s been investing personally for even longer. These days the company manages over $2 billion* of investments and has offices in Hawke’s Bay, Auckland, Sydney and London. Taylor looks back on the company’s success since it launched in 2007 and explains what more than 15 years of investing has taught the team.
Mike Taylor Founder and CIO
In the 15 years since Pie Funds launched, there have been plenty of challenges: bear markets, the Global Financial Crisis and the Covid pandemic. But new growth sectors, innovative companies and technology offerings have created some fantastic investment opportunities.
A great example of this is Netflix, which took the world by storm with its online streaming. By late 2021, you might have made 10 times your investment and it was time to cash out, Taylor says.
What has 15 years of investing taught the team?
“Buy into businesses you know are doing well. And pay attention to the road signs as you go along.”
Build your wealth over the long term
Prepare for highs and lows
“I am proud of the wealth we have created for our clients over 15 years,” Founder and Chief Investment Officer Mike Taylor says.
Try to stay relaxed about your portfolio, Taylor says.
He recommends building your wealth over 10 to 15 years at least, rather than 10 to 15 months. “Over your investing lifetime, you’ll see bear markets and stock market declines, plus plenty of unexpected world events that impact financial markets.”
Think differently from the crowd Pie Funds is committed to active fund management, aiming to provide above-average returns and generate long-term wealth. To outperform, you need to be thinking and acting differently to the crowd, Taylor says. “This should be obvious but, as humans, we can take comfort with safety in numbers. If everyone is saying and doing the same thing, how can you do better?”
Seize the obvious opportunity Taylor launched Pie Funds with an active management strategy of concentrated high-growth portfolios that was unique and still is today. This strategy remains at the core of what Pie Funds offers. The team invests in high-quality growth companies with strong balance sheets and great management teams. These companies are usually founder-led too, like Pie Funds.
“Even for someone like me, who is trained to think rationally and strip away emotions, some prices are at extreme levels that I wouldn’t have thought possible.” Taylor says having a relationship manager can help investors navigate periods of market volatility. “I’m really proud of the strong client relationships and passionate culture we have built with the team at Pie Funds.”
Where to from here? “We exist to make money for clients so performance matters more than growing our customer base,” he says. Taylor says investment markets and sectors will continue to evolve, and Pie Funds will too as a company. “Looking back 15 years ago, I underestimated where we could be today. When I think about the next 15 years, I don’t know where we will be,” he says. “But if we have good people, good processes, and good outcomes, then I know Pie Funds will continue to be successful.”
PIEFUNDS.CO.NZ
*As at 31 October 2022, including JUNO KiwiSaver Scheme. Pie Funds opened its first fund on 3 December 2007. Past performance is not a reliable indicator of future performance. Returns can be negative as well as positive and returns over different periods may vary. View the Product Disclosure Statement plus our duties and complaints process and how disputes are resolved at www.piefunds.co.nz. Information is current as at 22 November 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you.
PERSONAL FINANCE
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INSIGHTS
How to Turn a Profit in a Downturn Building an empire is much easier when money’s cheap and property values are skyrocketing, but now is still a good time to grow a portfolio, Ben Tutty discovers.
How this property investor turned one house into an empire.
ground-vapour barriers, extractor fans, new heat pumps, etc.”
Up to early 2021 you would have seen countless headlines like this on the pages of Stuff, The New Zealand Herald and even Informed Investor. And looking back it’s no surprise: the average house price in NZ increased by over 80 per cent from 2017 to 2021 and mortgage interest rates reached record lows of under 2 per cent.
What’s more, you need a 40 per cent deposit to buy an investment property in most cases today due to tightened LVR restrictions, which would be over $300,000 if you bought at NZ’s average price. Higher prices, higher costs and higher interest means holding property is more expensive, and growing a portfolio is harder.
Building an empire is much easier when money’s cheap and property values are skyrocketing. However, in late 2021 something changed and those headlines vanished. I haven’t seen one since, have you?
“At the time I bought 20 properties in a year I was finding properties with yields of 10 per cent and often more. Now it’s not that easy to find the same type of properties for much over a 6 per cent yield, and often a lot less.”
The reason these headlines have disappeared is no mystery. The average house price in NZ has decreased by over $100,000 since its peak, one-year fixed mortgage interest rates have almost tripled to around 6 per cent and inflation is rampant (meaning most people have less disposable income to invest and service debt).
Despite all those difficulties Fowler reckons building a property portfolio is still very much possible in 2023 and beyond (and if he says so, it probably is).
Graeme Fowler, a New Zealand property investment legend who famously bought 20 properties in 2014 with no money down, says things are much harder for investors now. “Prices then were about a quarter of what they are now and rents about half what they are now. Because rents haven’t kept up at the same pace as prices and interest rates are now similar [to 2014 levels], it makes it [investing] a lot more difficult with lower yields,” he says. “There have also been a lot of added compliance costs with extra insulation, often
Plenty of opportunities The main risks for property investors in an environment like this are obvious: a higher exposure to house price decreases and interest rate increases. Andrew Malcolm, author of The Three Property Formula and director of mortgage advisory firm mortgagehq, agrees that despite those risks there are plenty of opportunities. “Now is the best time to buy. Confidence in the market is really low and high inflation erodes the real value of your debt,” he says. When prices are falling, Malcolm explains that the three fundamentals of successful investing are still the same: buy property under value, focus on cash flow and add value wherever possible.
‘Now is the best time to buy. Confidence in the market is really low and high inflation erodes the real value of your debt.’ – Andrew Malcolm AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 3 3
F E AT U R E S
To buy undervalued property Malcolm says you need to spend a lot of time searching to identify opportunities.
its value decreases and you need to sell, you’ve broken the number one rule of investing: don’t lose money.
“Essentially you need to find someone who’s willing to sell at under market value. You want your purchase to be the statistical anomaly that brings the market average down.
“Investments with solid cash flow, on the other hand, can be held indefinitely and you’re always getting a return on your capital to pay your debt, fund improvements or buy more property.”
“They [the vendor] may be already committed to the next property, they could have too much debt and need to sell. Whatever it is, there are some circumstances that are forcing them to sell now and possibly accept a lower price.”
The last, and perhaps most important investment fundamental is to add value wherever possible. It’s one that may not suit many investors, according to Fowler.
Cash flow still king Next, Malcolm says that as corny as it sounds cash flow is still king. You need to buy something that will generate income from day one. “If your investment can’t generate income, AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 3 4
“This takes a very different set of skills to do this well … having done hundreds of these trades successfully I know it does work well but for someone with little experience doing this, it’s not easy.” There are two main options when it comes to adding value. To quickly build equity you could buy well, renovate and sell (as Fowler did). Or you buy and renovate to
either increase the property’s value so you can leverage it and buy more property, or improve the property in a way that increases its yield. Malcolm agrees, this bit isn’t easy. “You have to see the value where other people don’t, you need insider information or to know something that the market doesn’t. “Value add is what separates passive from active investors. If you’re really serious you should be thinking about this.” The trick of adding value Adding value could mean cosmetic renovations, but if you’re really trying to make an impact, adding a room, or a sleepout and improving the home’s layout will have a larger impact (and increase your yield, as rents generally increase with the number of rooms). How do you learn to identify opportunities where this could work? Malcolm says it’s all about listening to
INSIGHTS
those who’ve done it before you. “You’ve got to read, listen and learn from hundreds of other successful investors. Pore through case studies, read books, listen to podcasts. Make relationships in the industry with other investors, real estate agents and developers.” The property investment chat group that Fowler started on Facebook is a good place to look for specific advice and lived experience. You could also start with Fowler’s book, 20 Rental Properties in One Year, or Malcolm’s book The Three Property Formula (which was published in 2022 and includes lots of recent case studies). Learning the fundamentals is the first step in any successful investor’s journey, but it’s also good to understand the key drivers which influence the market. To that end, interest rates are high and they’re only going to get higher, according
to Jonathan Ball, property investor and director of Fortis Capital, a leading non-bank lender that specialises in the development finance market. “It’s increasingly difficult to guess, however my view is interest rates will continue to rise into the first two quarters of next year followed by a slow decline with shorter term fixed rates stabilising in the high 4s.” Since property prices are heavily influenced by interest rates that means prices could keep going down. “QV data shows that the rate of price softening is slowing though and we could reach the bottom of the curve around Q2 next year.”
‘Value add is what separates passive from active investors. If you’re really serious you should be thinking about this.’ – Andrew Malcolm
Forget bias, look at the numbers While it’s good to keep the numbers in mind, Malcolm says that ultimately the last thing anyone should try to do is time the market, or wait until interest rates pull back. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 3 5
F E AT U R E S
‘There’s a lot of opportunity right now to buy good development sites from overleveraged developers and homeowners at a competitive price.’ – Jonathan Ball “You need to be analytical, forget your biases and look at the numbers. People get stuck and high interest rates stop them from doing deals, but ultimately your interest rate is just a part of a bigger equation,” he says. “Don’t worry about your interest rate on its own. Look at it in relation to your investment’s purchase price and its rental income.” Ball agrees and says, “You have to be disciplined with your purchasing criteria. For existing properties strong cash flow is non-negotiable and ideally the property will have add value potential through development or substantial renovation. “Alternatively new builds are an attractive option because of tax advantages and lower bank funding deposits, however usually lack the ability to add significant value.” One opportunity that Ball sees as low hanging fruit in the current market is to target new builds from motivated developers. “For example, let’s say there’s a proposed development of 10 houses, the developer might need to pre-sell four off the plans to secure finance through a non-bank lender. The pre-sale market is going through a quiet phase which gives purchasers in that market significant leverage in situations like this. “If you find those developers it’s a winwin for both parties. You get a new build property for a good price, with all the associated tax deductions and usually 12-18 months to get your finance together while it’s being built.” The development route Ball adds that value add plays for existing residential properties that worked in the past are much harder now with stricter lending deposit requirements and tax changes. So, if you’re planning to add value to an existing property you need to find opportunities to add rooms, bathrooms, AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 3 6
minor dwelling/cabins or even undertake a multiple unit development if your site permits. He ventures that if you were to go down the development route there’s still money to be made. However, it’s important to find the right site and assemble a capable team around you. “There’s a lot of opportunity right now to buy good development sites from overleveraged developers and homeowners at a competitive price. If you were to do this the first step would be to engage with a town planner who specialises in medium-density housing,” he says. “They’d help you figure out what density you could achieve for each site while adhering to local planning rules and
identifying any potential risks in achieving the necessary consents. “Then, the key is preparing a development feasibility, understanding build costs/sale prices and stress testing all values as you go to ensure the project you wish to undertake provides a profit margin worthy of the risk.” Just like investing, it’s still possible, you just need to be strategic and analytical when you make decisions. Most importantly, Malcolm says you need to put in the hours and the work to gain rare insights, consistently beat the market and map out a strategy that works for you. “If your commitment is low you should lower your expectations. This is a lot of work.”
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I NVESTM E NT
All Eyes on Niue and the Rising Tide of Concern Further investment in resilient and renewable energy systems in the Blue Pacific is much needed. “Pacific islands’ reliance on fragile and costly carbon intensive supply chains is colossal. So too is the investment opportunity.” This is the view of Marcus Saul, Director of Island Power, a UK-based company which recently signed a commitment to introduce sustainable solutions to address the energy efficiency systems in Niue. Naturally, the great benefit of the proposed community-owned infrastructure project will be to reduce dependence and energy debt for the people of Niue. “Working with the government and communities of Niue, we will be able to deliver long-term benefits to the island nation – including education and economic development associated with the new natural grid,” says Saul. Niue is a small Pacific Island situated between Tonga, Samoa and the Cook Islands. The island is 259km² in size with an exclusive economic zone (EEZ) of 300,000km², which is mostly a marine protected area. Niue is one of the world’s largest elevated coral atolls. The average height above sea level is 23 metres and highest point less than 70 metres. Niue is vulnerable to climate risks such as tropical cyclones and droughts; geological risks such as earthquakes and tsunami; and human-caused risks such as disease outbreaks and contamination of its limited fresh water supply. Energy independence Niue’s risk profile is also inherently linked to its isolation and limited capacity to manage and respond to disasters and climate change impacts. The issue of energy independence is PacificAUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 3 8
wide, affecting all the countries of the Blue Pacific Continent. It is well documented that despite being amongst the lowest contributors to factors causing climate change, the region is considered vulnerable to the impacts of climate change, sea-level rise and extreme weather events.
emissions and global temperatures, to focus on the potential and logistics of investment in resilient energy solutions that will make a real and lasting impact on the lives of Pacific peoples. The technology and know-how exists to make this happen. The best thing to do is start – just as the Niue project is doing.
Further investment in resilient renewable energy infrastructure that will deliver transformative benefits to Blue Pacific families, workers, businesses and communities is much needed. But all of this is not possible without energy to power these nations, their communities and their economies. All of this points to – indeed expects – that the nations of the Blue Pacific Continent will come to rely on resilient and sustainable, preferably renewably-powered energy systems. That investment is sorely needed. And the polit of Island Power’s project in Niue is at the forefront of this requirement.
Under current trends global temperature rise will exceed 1.5 degrees before 2040 and 2 degrees between 2041 and 2060 unless there are rapid, deep and sustained reductions in global greenhouse gas emissions. To avert and manage the worst-case scenarios requires urgent, robust and transformative action globally, regionally and nationally. Climate change While collective greenhouse gas emissions from the Blue Pacific Continent are just over 1 per cent of global emissions, we are at the front line of the adverse impacts of climate change.
The generation of electric power is intimately connected to environmental issues, most notably climate change.
Harnessing untapped potential for policy interventions to enhance carbon sequestration of the ecosystems and exclusive economic zones of the Blue Pacific Continent could generate substantial climate benefits. The Blue Pacific Continent continues to experience damaging impacts of climate change and requires timely access to scaled-up, effective and sustainable climate finance.
In practical terms in the real world, this requires a change in focus from gas
“The challenge, up until now,” says Saul, “is how to break this dependency and create
Saul adds: “The sheer scale of Blue Pacific island reliance on costly, carbon intensive supply chains is a massive but neglected opportunity for smart, informed climate investment in fuel cost and CO2 reduction.”
B L U E PA C I F I C
‘Niue’s risk profile is also inherently linked to its isolation …’
independent, resilient renewable energy systems that ensure stable returns on investments. “Island Power’s blend of energy and financial technologies creates secure, sustainable, community energy systems from the ground up using natural resources to create ‘Natural Grids’. “An informed investor may mix and match accelerated Development Returns with LongTerm stable Energy Returns as a liabilitydriven pension investment. Providing the security and diversity that a modern investment portfolio needs, while uniquely being able to address the challenges of climate change at its root cause.” Development goals Projects like this encompass all of the 17 UN Sustainable Development Goals. The three main objectives for the new energy system in Niue are: 1. minimising cost of energy 2. reducing or mitigating energy supply risk 3. minimising or eliminating the use of carbon-emitting energy sources. The investment was facilitated by the team at Pacific Trade Invest New Zealand, including Trade Commissioner Glynis Miller, who visited Niue along with Marcus Saul on a trade and investment mission between January 6-13.
The Niue project is just a beginning.
forum leaders in 2022.”
The aim of the trade and investment mission was to foster and encourage entrepreneurial export-led businesses in the island; and to discuss investment in initiatives that benefit the entire nation, including government and private sector projects.
Head of Trade and Investment Frank Sioneholo, of the Treasury Department, added: “The initiative has been developed from extended consultations among the parties considering new modalities for renewable energy technology and potential investment opportunities aiming to achieve energy resilience and independence for Niue.”
Glynis Miller says: “Pacific Trade Invest NZ is committed to assisting Pacific Island countries expand their export markets and benefit from inbound investment. Lending our resources and connections to help bring resilient investment solutions to address the impacts of climate change and disasters towards energy efficiency and reliability responds in part to the 2050 Strategy for the Blue Pacific Continent, endorsed by
For more on investing in the Blue Pacific Continent, please contact Rohan Parekh, Investment Facilitation Manager at Pacific Trade Invest New Zealand. rohan.parekh@pacifictradeinvest.com
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R E N TA L S
Taking the Long View of Short-Term Rentals As New Zealand’s tourism industry gathers momentum is this the perfect time to invest in the short-term rental market?
There are some major advantages to offering Airbnb-style rental accommodation – you still get to stay in your house, you’re not bound by the rules of the Residential Tenancies Act, and you can make serious money in a busy time. But there’s also more work involved, with intensive customer service required to meet the needs of travellers, high demands on cleaning and the sometimes brutal process of being reviewed online for every stay. Your costs are higher and your tenants are demanding, yet if you can get it right the rewards can be well worth the effort. Demand high, supply down Covid had a major impact on the short-term rental market, explains Madeleine Parker of AirDNA: “When borders first closed in 2020, supply also dropped off as many properties were either rented out longterm, sold, or became primary residences. As demand has been slow to return to New Zealand, supply has still not returned to its pre-pandemic levels in these markets.” Since borders reopened, bookings have spiked, with demand up by 228 per cent in Auckland and 226 per cent in Queenstown, although Parker notes supply “remains cautious”. Property owners burned by pandemic lockdowns are not re-entering the market in the same numbers, which may present opportunities for others to cash in. Should you list the family holiday home? Many Kiwi families have a holiday home that dates back to the days when property was cheap. If your parents or grandparents have a bach or crib that doesn’t get a lot of use, could you turn it into a source of income?
Sue Hutchinson lives in Picton, but owns a house in Auckland so she can regularly visit her children. For some time it was uninhabited, until she listed it with The Stay Hub, and since then it’s available to rent whenever she’s not using it. When Hutchinson arrives to stay the house is clean and the beds have fresh linen, which she loves – and the bookings also provide a helpful source of income for her retirement. “I get just what a guest gets,” she says. “I love it – it feels so luxurious. It’s also a real thrill to see it earning money, which was more than I could have imagined. There’s all sorts of maintenance issues I don’t have to worry about because those are taken care of. I am very pleased with this efficient type of rental, I just wish I’d discovered it earlier.” The guest essentials: clean, good bed, fresh linen Although Hutchinson’s place is modern and well appointed, even a more dated property can perform well on the short-term market when managed well, says Rex Demanser, revenue and operations manager at The Stay Hub. “Those properties you might call ‘rustic’ can go very well if you sell them accurately. They won’t be for every customer, but if you resolve any big issues before you list it, that will help. A good bed is very important, and we insist on a linen package that protects all mattresses and pillows to guarantee hygiene. “You don’t want to muck around with the bedding; as you can imagine a good night’s sleep is important for any guest. So is cleaning – a house can be old, but it’s got to be clean. All our properties are deepcleaned before being deemed guest-ready,
with every surface checked and a steam clean of furniture.” You can manage your property yourself, but it’s labour intensive – far more than a traditional tenancy. You can expect calls or texts late at night asking where the TV remote is, or to tell you the shower handle has fallen off or the power is out. It’s effectively a part-time job. If you hand this over to a management company the standard fee is around 20 per cent of the nightly rate, plus GST. A good manager, though, should raise your occupancy rate and your nightly average price, which helps cover the extra cost. Rates of $200 to $400 a night Some markets are year-round, like Auckland, Taupō and Queenstown. Others are highly seasonal, like most beach hot spots and ski towns. The Stay Hub operates in Auckland and sees huge occupancy rates: around 80 per cent for three-bed houses with an average nightly rate of $348. A few standout properties really demand top dollar, with multimillion-dollar homes usually having lower occupancy rates but attracting rates of up to $5,000 a night. In comparison, tiny Ohakune is mainly busy in the ski season and at the height of summer as people stop on their way up or down the North Island. Occupancy is around 70 per cent, with nightly rates for three-bedroom homes typically around $300 in winter and $150 in summer, says Chayla Beaver, business manager at Ruapehu Chalet Rentals. Owners can expect “lumpy” income, with good results in the ski season and bookings scarce in spring and autumn. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 4 1
F E AT U R E S
‘Since borders reopened, bookings have spiked, with demand up by 228 per cent in Auckland.’ “Over the past three or four years we’ve seen a massive increase in guest numbers coming through the town,” she says. “We think part of that is Tourism NZ telling people to get out and try something new – this is quite a low-cost summer holiday option for families. Over that time we’ve had struggles in the winter with lockdowns, an avalanche and a few issues, but we’re quite resilient; we’re confident that with a good amount of snow we will have a successful season.” Beaver says the basics apply to all the houses she manages: they need to be spotlessly clean and meticulously managed to get the best rates and the most bookings. Spa pools and views are drawcards, along with lockable storage for mountain bikes and ski gear. Owners need to be ready to deal with problems that can crop up in the downtime when a house might be empty for a month or so – a water leak, for instance. “If you don’t check on your house regularly, if it’s vacant for a few months it might have issues that mean it’s unusable when the guest arrives,” she adds. “We’re only five minutes away, so we check in on houses and owners really appreciate that.” Could you achieve positive cash flow? You’ll get a lower income in a seasonal location, but prices will often be lower too. If you find the right balance it’s possible to be cash flow positive even with the management fees taken into consideration. Taupō, for instance, is more affordable than Auckland but maintains high occupancy, and a house there can potentially cover a 60 per cent mortgage and all its regular outgoings on short-term rental income. An older two-bedroom townhouse in the centre of Taupō, with a purchase price of $580,000, could bring in between $4,000 and $6,000 a month ($60,000 a year). The management cost will cut that to around $48,000 a year, plus you need to meet costs a long-term tenant might typically incur: power, water and broadband, plus any gardening or other maintenance. That might soak up another $1,000 a month. A 6 per cent 30-year P&I mortgage will cost around $25,000 a year, plus $3,000 a year in rates and perhaps another $2,500 for insurance. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 4 2
That would bring your profit to $5,500 for the year, which will drop into the negatives if there’s a lockdown or potentially see a surge in a boom year. If you can squeeze a couple of holidays out of the house, that will give you some extra value, but every time you take a holiday in the peak season you miss out on the income that you might otherwise generate, so you need to weigh that up. Buying for Airbnb? Could you buy an existing house specifically to rent out? There are some hurdles, particularly around lending and insurance. Banks do not have a clear policy on considering short-term rental income, and may dig their heels in over this issue. You’ll need to do your research on this before you buy – talk to your broker. Expect questions from your insurer, too. As for buying the right property, you’ll need to think about your target market. Airbnb and AirDNA are great sources of data on
local markets, and local managers will be able to give you some pointers. “You want a place that’s clean and tidy, multiple bedrooms and a couple of bathrooms – family orientated,” Demanser says. “Anything with a view or a spa pool will be a selling point. You must maintain and manage it very well. A property doesn’t have to be super-high class, but it does have to be well-maintained and clean. Most important of all, whoever manages it needs to be extremely responsive to any guest questions or queries, day or night.” If you do have a holiday house that’s underutilised this could be the perfect time to get it ready to go on the short-term rental market. For an investment property it’s also an appealing option if you can iron out the challenges and choose the right house. As usual, you’ll need to do your homework and get the right advice to maximise your chance of success.
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Five Key Focus Points Surface for 2023 2022 was a big adjustment for investors and traders, with headlines dominated by war, market correction, Covid-19, soaring inflation and interest rate hikes. CMC Markets’ Chris Smith looks ahead to a brighter year. Number one on the list of five key focus areas for 2023 investors is the inflation crisis. In my 20 years following markets, monthly inflation data overseas and quarterly in New Zealand has been a lower impact data point for markets, given less weight versus employment and GDP data readings. We are now in a new environment where every investor and trader should have inflation data on alert with market sentiment moving quite dramatically on each reading. Inflation has slowed in the United States for multiple months now from its June peak of 9.1 per cent to 6.5 per cent in the latest January reading, so this trend seems to be on track to move into the 4 per cent range by year end in my view. Moving from 4 per cent to 2 per cent will be a multi-year challenge as many parts of the inflation basket are stickier and will be the new norm for businesses holding pricing high. New Zealand and Australia still have readings in the 7 per cent range, but I expect we’ll see demand forcing spending and improved supply chain dynamics. Wage growth hasn’t caught up with inflation and a weaker employment market may be needed to slow inflation and keep a cap on wages. As we know when inflation of goods and services goes up, wages have to follow. This then further increases food and living costs and the cycle only breaks when demand destruction occurs and supply side forces balance out dynamics.
Watch the central banks Investors will be watching for the pause and hold in 2023 of interest rates from global central banks. We have seen rapid tightening but forward swap curves are starting to price a halt and central banks are signalling a slowdown in the pace of hikes. In my view we are closer than ever to seeing this end in tightening by mid-year and bond market pricing is ahead of the central banks. The bond market is usually known as the smartest in the room and has already moved well out of lockstep; Fed funds rate forecasts and our own swap curve pricing in New Zealand are predicting a slowdown, big inflation decline and recession to hit GDP. The RBNZ rounded out 2022 in hawkish fashion, increasing the OCR by 75bps to a 14-year high of 4.25 per cent, and forecasted hikes of 100bps on the horizon. Officials expect the OCR to peak at 5.50 per cent in September this year and remain at this level through to June 2024. This seems wishful thinking vs history in my view that we can stay at these levels to mid-2024. Strong job market, talent shortage Currently holding up the economy is a strong job market and talent shortage. The unemployment rate is at a record low in the 3 per cent range in New Zealand, but wage growth isn’t matching inflation. Staff shortages are creating a sub crisis in sectors and low inbound migration continues to create a unique dynamic for the employment market and the biggest chance of a soft landing for the economy if rates stay low.
‘When inflation of goods and services goes up, wages have to follow.’
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F E AT U R E S
NZ has approximately 170,000 people on the government Jobseeker payments and it’s reported that nearly 100,000 of them are work ready but still unable to find employment. Moving more people into employment is an upside positive for the economy and return of migration. Bigger markets like America continue to add net jobs despite kicking off this year with 56,000 technology staff being laid off at big firms like Google, Microsoft, Salesforce and Amazon, with no major layoffs in the largest employers and government hiring. Close look at earnings With 2022 behind us, Wall Street is now primarily focused on the profit outlook for the coming year, but also the last quarter of 2022 results. Earnings have been holding up better than expected but we have seen companies starting to lay off workers (especially in the technology sector) and growth/margin concerns. Earnings per share growth has consensus expectations of +3 per cent in 2023. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 4 6
Recent easing of China’s zero-Covid policy represents one upside risk to S&P 500 profits via stronger 2023 global growth. The biggest risk in 2023 is a potential recession, in which case S&P 500 EPS could fall 11 per cent to $200 and the index could trough at 3150 (-19 per cent). Goldman Sachs economists assign a 35 per cent probability that the US economy enters a recession during the next 12 months, significantly below the consensus forecast probability of 65 per cent. The economy The forthcoming recession is one of the most predicted, and debate over hard or soft is the focus of discussion in 2023 as slower GDP growth is inevitable at this point. With funding cost pressures the RBNZ will get the demand slowdown they want to bring inflation towards target and pull-back in spending. Consumer confidence has plummeted to record low readings in recent Westpac and BNZ surveys as businesses and consumers feel uncertain along with an election year ahead.
Although NZ did have stronger GDP in the September quarter with December likely a wild card now after seeing weaker retail spending data. The RBNZ expects four quarters of negative growth from the June quarter of this year onwards (-0.5 per cent, -0.3 per cent, -0.1 per cent and -0.1 per cent). Forecasts are one thing but reality can be vastly different in the uncertain environment we are in. The September quarter of 2022 was a good example, with the major banks forecasting GDP growth of 0.9 to 1.3 per cent and the actual reading coming in at 2 per cent better than expected. The year ahead Kicking off 2023, equity markets at the time of writing are positive +5 per cent and the so-called January effect provides some hope after the bear market drop of 20-30 per cent+ in major US indices during 2022. January effect shows when the first five trading days are up over 1.4 per cent after
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a negative prior year, the S&P 500 has been up an average of 26 per cent in the year. This is just one interesting data indicator but has worked seven out of seven prior instances with gains from 13 per cent to 38 per cent. Most Wall Street forecasts are divided, however, with forecasted lows of 3000 on S&P 500 to highs of 4800 from the most optimistic. Our local market will have a tougher battle vs rising term deposit rates being a yield driven equity market. Risk-free rates in the 5 per cent range will be very tempting for many investors in an uncertain environment both economically and politically.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The author does own shares in some of the securities mentioned.
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C RYP TO
Has FTX Killed Crypto? After a tumultuous 2022, Joanna Mathers explores what lies ahead for cryptocurrency. The demise of FTX (and the arrest of its founder Sam Bankman-Fried/SBF) was the last act in a year typified by crypto melodrama. 2022 was brutal on this most volatile of assets; Bitcoin dropped nearly 70 per cent; popular “stablecoin” Lunar imploded; and values spiralled downwards. But it was FTX’s collapse that led the news in the closing months of 2022, and for good reason. At its height it was one of the most popular crypto exchanges in the world. SBF, an ersatz techno folk hero and selfproclaimed “effective altruist”, drew supermodels (Gisele Bündchen) and sports stars (her ex-husband Tom Brady) into his sphere of influence. He appeared to be part of a “mainstreaming” of crypto; a dishevelled gamer with a shambolic style that (weirdly) endeared him to media and financial backers. It was, of course, all a big front. Evidence suggests SBF and his cohorts used customer funds to prop up sister company Alameda’s dodgy investments and bankroll a billionaire lifestyle. The former golden boy (Bankman-Fried made Time’s Top 100 last year) is currently living on bail at his parents’ place, with a court case due at the end of the year. FTX co-founder Gary Wang, and the former chief executive of Alameda Research, Caroline Ellison, have already pleaded guilty to fraud and will be helping prosecutors with their case against SBF. The downfall of FTX has shone a light on how much of the esoteric industry is smoke and mirrors: propped up by ideology and AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 4 8
blind faith. It’s also brought crypto into the sights of regulators, who overall have had a “hands off” approach to the sector. And the coming year will be pivotal for crypto. Will it become subject to the stringent regulation that controls the mainstream investment sector? Or will it continue to be an unregulated high-risk segment where investors can lose millions? Useful regulation At present crypto regulation is piecemeal, at best. Cryptocurrencies are not legal tender in most countries, and therefore aren’t considered financial products. In New Zealand crypto isn’t regulated, although NZ-based trading platforms must be registered and have membership with a scheme that offers dispute resolution. This lack of oversight is what made it possible for FTX to take so much customer money. When forwarding cash (or crypto assets) to an exchange to facilitate trading, there are few, if any, regulations governing where these are held. This means money sent wasn’t stored for safekeeping; it was used by those at the top of the chain for their own means.
investment or derivatives] is required to undergo an annual audit to see if the money they hold matches the money the customer has put in,” he says.
Bryan Ventura is the chair of BlockchainNZ; a membership-based group established to support and grow the crypto assets industry in this country. He says some form of regulation could be very useful for the sector.
Ventura feels that such custody regulation would help ensure those depositing their money into such crypto exchanges would have reassurance that it wasn’t being used for other nefarious means.
“In New Zealand, anyone who handles money [associated with the acquisition of recognised financial products – debt security, equity security, managed
This isn’t the case with crypto, as it’s not viewed as a financial product because it isn’t underpinned by legal tender. However, as FTX’s demise reveals, legal tender can be used to acquire it.
But the lack of regulation, for some, is what makes crypto compelling. If you believe the rhetoric, crypto provides an inflation and government-intervention free means by which to store value. As a recent Time
article ventured: “For anti-regulation crypto enthusiasts, the decentralised nature of digital currencies […] is a big draw. So in this view, any new regulation would pose a threat to the decentralisation that is a feature, rather than a bug.” But last year’s crypto failure proved such faith was misplaced. As inflation increased, crypto sales plummeted: it was, in fact, a key driver of the crypto winter. The ideologues are still on board, but the mainstream may have learned a hard lesson – crypto isn’t the key to instant millions. Blind faith For Dean Anderson this blind faith in crypto is one of great concern. “[Crypto crashes] have a disproportionate effect on disadvantaged communities, who may [due to their financial situation] be anti-system
already. It’s almost seen as a golden ticket, but it is incredibly high risk.”
“We are just in a bear market,” he says. “[The events of 2022] won’t kill crypto.”
He’s long been a crypto sceptic, and believes the shifting narrative of the nature of crypto doesn’t help attract new investors. Bitcoin, he argues, has been around for over a decade, yet is rarely accepted as a form of currency. Is it, then, an asset class? It moves the same way as other asset classes (which it is meant to be independent of) but it isn’t subject to the same rules. And if it is, surely it should adhere to the same rules as other asset classes.
He explains that, additionally, Bitcoin, the crypto bellwether, has a safeguard that makes it likely to survive. Firstly, there is limited supply: only 12 million Bitcoins will ever be created. And Bitcoin has a process built into the algorithm called “halving”. Every four years the supply of Bitcoin, and the reward for mining them, is cut: limiting inflation through the maintenance of scarcity.
Anderson may be sceptical, but Ventura hasn’t given up on the sector. He believes crypto will experience an upswing in due course, as it did after the collapse of exchange Mt Gox in 2014.
Whatever the future of crypto assets themselves, the platforms on which they are traded remain a digital “Wild West”. “Without regulation customers have no way of knowing if [someone running a platform] is legit. Regulation [of some form] would act like a backstop.” AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 4 9
I NVESTN OW
Kiwi Investors Latch on to Real Benefits of New Foundation Series Funds US 500 and Total World Funds, invested through pioneer Vanguard, have brought a popular flavour to the InvestNow house-brand product range. Launched late 2022, the two newest additions to the InvestNow Foundation Series Funds are a big hit with Kiwi investors, especially for those focused on long-term returns. The new Foundation Series US 500 and Total World Funds – both invested through index funds management pioneer, Vanguard – bring a popular flavour to the InvestNow house-brand product range that began in 2020 with a suite of diversified solutions. InvestNow created the Foundation Series Funds to help Kiwis achieve their investment goals more effectively by using the most cost and tax-efficient vehicles in the market. Unlike some offshore investments, the Foundation Series products are constructed to institutional-grade tax efficiency standards, meaning more money in the pockets of Kiwi investors and less “donated” to foreign governments. And in keeping with that tradition, the two new funds now offer the most compelling way for Kiwi investors to gain access to broadly diversified global share markets based on three key attributes: •
•
•
underlying investment manager, Vanguard, is one of the most highly respected investment firms in the world incredibly low management fees of 0.03 per cent and 0.07 per cent per annum for the Foundation Series US 500 and Total World Fund, respectively as Portfolio Investment Entity (PIE) funds both products are only taxed at the individual investor’s prescribed investor rate (PIR), meaning tax is capped at 28 per cent, which is favourable for those investors on
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resident withholding tax (RWT) rates of 39, 33 or 30 per cent.
three to six times higher, despite investing into the same underlying ETFs and stocks.
Vanguard, a leading global investment house The two new funds provide investors with direct exposure to two of the most popular exchange-traded funds (ETFs) offered by Vanguard – now the second-largest investment firm in the world with more than $US7 trillion under management.
The Foundation Series US 500 and Total World Funds do include one-off transaction fees of 0.50 per cent for each buy order (entry fee) and each sell order (exit fee), which enables InvestNow to keep the annual management costs so low for the benefit of long-term investors.
NZ investors have shown a real passion for investing in growth funds (or those weighted towards shares), particularly via the passive Vanguard vehicles that follow US and global markets, which the Foundation Series Funds invest into: •
The Foundation Series US 500 Fund aims to generate long-run returns by allocating to the Vanguard 500 Index Fund ETF (Ticker: VOO), which in turn invests in shares of the largest listed companies in the United States.
•
The Foundation Series Total World Fund targets long-term returns by investing in the Vanguard Total World Stock ETF (Ticker: VT), a broad listed global index fund that houses thousands of large, mid and small capitalisation stocks from developed and emerging share markets.
Incredibly low management fees Costing just 0.03 per cent and 0.07 per cent in annual management charges, respectively, the Foundation Series US 500 and Total World Funds feature some of the lowest management fees in the entire NZ PIE fund market. For example, other Vanguard funds on InvestNow have management fees set
Investors who stand to gain the most from this fee arrangement are those who adopt a longterm buy and hold strategy. Real-world tax benefits PIEs can increase investor returns by up to 0.55 per cent per annum by tax efficiencies alone. Multi-rate PIE funds like the Foundation Series Funds have a maximum tax rate of 28 per cent; by contrast, Kiwi investors who buy Vanguard Australian unit trust funds on InvestNow or in the same Vanguard ETFs via share brokers or other platforms will be taxed at their RWT rate, which can be as high as 39 per cent. This results in Foundation Series Fund investors on 39 per cent tax rates paying nearly a third less tax in any year where they are taxed using the fair dividend rate methodology. PIE tax is a final payment, so no more administration hassles such as filing an annual tax return – a situation that many investors face when they invest directly in global shares using broker platforms, or offshore domiciled funds like the Vanguard Australian unit trusts available on InvestNow. Do the maths We think the combination of low management fees, one-off transaction fees and the PIE tax
incentive make the new Vanguard-powered Foundation Series Funds a no-brainer for long-term investors, especially those investors on 39 or 33 per cent marginal tax rates. Let’s consider the example of one investor, Joe. Joe is on a 39 per cent RWT, a 28 per cent PIR and wants to invest a lump sum of $100,000 in the Foundation Series US 500 Fund. Assuming no additional investments or withdrawals over the period and an annual gross return from the underlying ETF of 9 per cent per annum, which includes 2 per cent in annual dividends, we can calculate what Joe’s portfolio can look like in 10 years’ time. The table below compares the different index funds that are available to Kiwi investors on the InvestNow platform and other similar platforms. S&P 500 Comparison Initial Lump Sum Investment Marginal Tax Rate
Based on the assumptions used in the table, the Foundation Series US 500 Fund provides Joe with clearly superior returns over the long term that are almost 14 per cent* greater in dollar terms compared to the worst performing option that – remember – invests in exactly the same underlying basket of shares. Of course, the Joe example is for illustrative purposes only: investors should take into consideration other individual factors when making investment decisions; guidance from a professional financial adviser is recommended. The InvestNow Foundation Series US 500 and Total World Funds represent two of the most competitive options for NZ long-term investors seeking a low-cost, tax-efficient exposure to global markets, especially for 10-Yr Portfolio Value $100,000.00 39%
Foundation Series US 500 Fund (via InvestNow)
$205,337.05
Kernel S&P 500 Fund
$202,142.75
Smartshares US 500 ETF (via InvestNow)
$200,921.90
Smartshares US 500 ETF (via Sharesies)
$200,497.52
Vanguard S&P 500 ETF (via Interactive Brokers)
$196,799.92
Vanguard S&P 500 ETF (via Hatch)
$194,650.01
Vanguard S&P 500 ETF (via Sharesies)
$194,579.53
Vanguard S&P 500 ETF (via Stake)
$192,673.50
those investors on higher marginal tax rates who have more than $50,000 invested in global shares. Key takeaways The Foundation Series US 500 and Total World Funds offer investors: •
exposure to popular underlying Vanguard ETFs, namely the Vanguard 500 Index Fund ETF (VOO) and the Vanguard Total World Stock ETF (VT)
•
super-low management fees
•
lower tax rates (capped at 28 per cent), reflecting these are PIE funds
•
no tax returns required, reflecting that PIE is a final tax
•
one-off transaction fees of 0.50 per cent on each buy and sell order.
To learn more please visit www.investnow.co.nz/dothemaths or contact InvestNow on 0800 499466 or at contact@investnow.co.nz
*Taking into account that Joe’s original investment of $100,000 does not form part of the “return”. Implemented Investment Solution Limited (IIS) is the issuer of the InvestNow Foundation Series Funds. For a Product Disclosure Statement please visit www.investnow.co.nz/fund-foundation-series Neither IIS nor any other party guarantees the return assumptions used in the table above.
Portfolio values are at the end of 10 year period net of all costs, including tax, foreign exchange fees, brokerage, spreads, and any account or transaction fees. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 5 1
PROFILE: MICHAEL BURGE
Meet the Investment Nomad Michael Burge bought 17 properties in just over four years, but he still chooses to live out of a suitcase, running his property investment consulting business off his iPhone, writes Laine Moger. Before becoming a property investor, Michael Burge says he was doing “fine”. He had no debt and earned good money as a self-employed fitness instructor … but he didn’t own anything, and that bothered him. “It always puzzled me why one person can have one house, while another person has 50,” he says. Burge set himself a challenge: to find out if there was a secret formula for property investing, and as it turned out, there was. The path to property Growing up, Burge and his twin brother were raised by their single mother. “We didn’t have a terrible upbringing financially, but it was a lot of stress,” he says. Fresh out of high school, Burge knew he didn’t want to still be just working at 30. He was eager to build a passive income and create financial freedom. His attempts to crack into the finance industry didn’t work – he’d tried and failed to start a business – so he started to think about property. But there was one problem; Burge knew nothing about investment. “There was no point learning from my mum or close friends,” he said. So, the now former fitness instructor headed to YouTube, studying the methods of people who did own 50 properties to see if there were similarities of success, and there was. Burge’s first property settled in 2018, shortly before he turned 30. Then, within the space of 18 months, he had bought five properties in Rotorua. Straight-up investing Following his investment successes, Burge began building a consulting business, called Real Estate Consulting NZ Ltd. “I’m not a financial adviser, but in the video I talk about what I did and
how I understand investing and how I learned investing,” he says. “I think of it as an A to Z for investing.” In four years he’s built up a very trusted following. Burge says he doesn’t sell anything, rather his business is all about education and helping people. When Covid hit in 2020, with everyone at home, the education aspect of the business took off. A new course, Straight Up Investing, is video-led, designed to educate people who may be starting on their own investment journey. “The videos detail my journey and focus on: ‘I did this’ and ‘this is how I think’. I don’t recommend property, I just teach the theory.” Financial freedom Burge doesn’t work off a laptop, or rent an office – his entire business is run off his iPhone. He doesn’t even have a permanent place to live, despite having nearly 20 properties in his portfolio. “I don’t live in any of the homes I own,” he said. “I solely dug my life on the premise I want complete freedom. Even when I travel I carry on [my business].” Burge spends his time between Auckland and Christchurch, as well as overseas holidays. “I look at investing like a small business and improve my life and help others and enjoy my life.” In terms of the market right now, who knows what will happen. But, regardless, Burge’s going to keep buying property … that he doesn’t live in. “If I can buy more property, I will, but it’s more about having a balanced life and not being stressed. I can’t see myself doing anything else. I love real estate, I love helping people. I genuinely feel good when I explain something and they understand it.”
‘I solely dug my life on the premise I want complete freedom.’
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M A R K E T U P D AT E
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 5 4
WORLD VIEW
Report Card for World Economy Post-Covid: Get Better Soon! China’s decision to scrap its zero Covid policy marks – hopefully – the final chapter in a pandemic that’s dominated the world economy for more than two years. That’s good news for households, businesses and investors, writes Andrew Kenningham. Since its first appearance in Wuhan in late 2019 the coronavirus, and efforts to contain it, have buffeted the world economy. As with the illness, recovery will take some time. But the economy should eventually get back to reasonable health now that the pandemic is on the way out. The pandemic economy Looking back, the impact of Covid-19 on the world economy had three main phases. In the first phase there was a huge slump in economic activity as lockdowns swept around the globe. Apart from the obvious human suffering, this caused equity and commodity prices to slump. In the second phase, which began soon after, governments and central banks provided massive financial support to businesses and households. With Covid restrictions still in place, households spent a lot on goods such as new computers and second-hand cars, and invested in property and equities. The third phase, which we are still in, has seen the economy gradually reopen.
However, the world is still living with the legacy of the pandemic itself and the policy medicine used to treat it. In some countries a lot of older workers and/or migrants have left the labour force, causing staff shortages. Inflation has rocketed everywhere, prompting policymakers to step on the brakes by raising interest rates. Covid ends where it began China’s government stuck stubbornly to its zero Covid strategy until the end of last year and was the last major economy to reopen. But in a sudden policy reversal, Beijing abandoned its zero Covid strategy at the end of last year and let the virus spread. Most observers expected China’s transition to “living with Covid” to take many months and involve occasional lockdowns and a lot of disruption to manufacturers. But in the event the virus has ripped through China’s population at lightning speed. By early January it was estimated 70 per cent of the population of large cities such as Shanghai had already had the illness. Information on the health impact is difficult to get, but hospitals seem to have been overwhelmed. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 5 5
M A R K E T U P D AT E
Re-opening is good for the Chinese economy … With the number of infections now declining fast, Chinese people have regained their confidence. Traffic on the Shanghai metro had slumped to a third of its pre-pandemic level in December, but has now fully recovered. This is good news for China’s economy. A rebound in shopping, travel and hospitality is well underway and if the reopening is achieved fairly smoothly, manufacturers should also thrive. … and good for the rest of the world This should also provide a shot in the arm, so to speak, for the rest of the world. Admittedly, there will be some negative side effects. Perhaps most importantly, strong growth in China risks pushing up global energy prices. Chinese imports of gas plunged last year because its economy was so weak; as activity rebounds demand for energy will surge and this may push up prices throughout the world. However, the benefits of China’s reopening for the world economy should be more important. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 5 6
Beijing’s U-turn has already led to a surge in Chinese visitors to Hong Kong, Japan and other Asian countries, and should lead to more Chinese tourism elsewhere. High demand for raw materials is bad news for some, but will help countries that produce metals and agricultural raw materials as well as energy. And countries such as Germany will see a boost in their exports of machinery and cars to China. Light at the end of the tunnel While many forecasters expect 2023 to be another very difficult year as the world convalesces, there are several reasons for optimism. Inflation should come down quite rapidly as the imbalances caused by the lockdowns and government policy support work themselves out of the system. Prices of assets such as equities and property have been on a roller coaster ride during the pandemic years, but are now getting back to more realistic levels. By the second half of this year, if not earlier, inflation should be on a clear downward path, interest rates should be stable or falling, and asset prices will, hopefully, be on the rise.
‘A rebound in shopping, travel and hospitality is well underway in China.’
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Snapshot: Innovations Innovations, news and events from around the world that grabbed our attention and are likely to impact the global economy going forward.
UNITED STATES
The demise of crypto exchange FTX has created a flurry of activity within the Senate Banking Committee, aiming to clarify whether regulation is the best option. While there were arguments on both sides, the crash of FTX has brought the crypto question to the forefront of a debate that has been dawdling for years.
UK
With oil, gas and food prices soaring due to shortages caused by the war in Ukraine, the United Kingdom’s inflation rate is higher than it has been for 40 years. The November 2022 consumer price index (CPI) was 10.7 per cent (down from 11.1 per cent in October). However, a recent Bank of England release states it expects inflation to start flattening in the middle of 2023.
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 5 8
ARGENTINA
Argentina’s football World Cup victory over France in December marked a brief shining moment for a country languishing in economic crisis. With inflation at nearly 100 per cent in 2022, many Argentinians have seen their savings destroyed in the past year; 40 per cent of people live below the poverty line.
CHINA
As Covid surged in China business confidence fell to its lowest in nine years in late December. From 51.8 in November, the index fell to 48.1 for the December survey, which was undertaken by analytics site World Economics. This is the lowest business confidence has been in China since 2013.
Correct at October 30, 2022.
SNAPSHOT
UKRAINE
Not generally known for acts of generosity, Amazon has been donating food, toys, and most recently solid-state hard drives (via Poland) to Ukraine. These hard drives (donated to the government) are being used to back up vital infrastructural and economic information about the country. The technological support of the Ukraine government represents an investment of around $US75 million.
CANADA
The United Nations Biodiversity Conference (COP 15) reached what is considered a historically significant deal to protect Earth’s lands and oceans in December. There was a commitment to protect 30 per cent of land and water by 2030 (an increase from 17 per cent of land and 10 per cent of water). There has also been a commitment to finance biodiversity in the developing world.
INDIA
GERMANY
A Fitch Rating of BBB- with a stable outlook has reinforced relative resilience in India. According to the Fitch Ratings’ website “India’s rating reflects strengths from a robust growth outlook compared to peers and still-resilient external finances, which have supported India in navigating the large external shocks during the past year.”
German Chancellor Olaf Scholz has indicated economic cooperation between his country and Russia could be possible again if the Kremlin ended its war in Ukraine, according to a Reuters report. “A Russia that ends the war [should be given a chance for renewed economic cooperation],” he said. “But that is not now.”
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 5 9
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Personal Finance
IN FO RM E D I NV E STOR
Building wealth without a house; investment sectors to watch in 2023; saving your house and your relationship; the next level of responsible investing.
PIE FUNDS
Hot Sectors to Watch This Year Market volatility is expected to continue through the start of this year. Pie Funds founder and chief investment officer Mike Taylor explains the hot sectors the investment team will be focusing on in 2023. 2022 was a big year for financial markets with the war in Eastern Europe, inflation, rising interest rates, energy security, plus the UK’s political changes. So what sectors do we think could bring opportunities in 2023? Factory automation Factory automation is using machines to replace humans or more efficient machines to replace less efficient machines, meaning higher quality, better speed and lower cost manufacturing. These machines or products can be anything from robots to sensors to software for making goods or processing food. All countries are investing in factory automation, but the main drivers are the United States, Europe and China. In a higher wage inflation environment, like now, increased automation becomes even more important to protect company margins. Energy efficiency The energy efficiency sector includes products that make buildings run more efficiently, with lower energy consumption and fewer emissions. Think heat pumps, new HVAC systems, insulation, solar panels and building management software. This could also include making the electricity grid more efficient and applies to data centres. This sector also covers electrification, meaning things like electric vehicles and batteries. The effort and capital cost to
shift to an electrified global economy is huge and so we see a lot of investment potential in 2023 and beyond. Driving growth is strong global demand for more sustainability, government policy changes in Europe, and the war in Eastern Europe bringing higher energy costs.
footwear, luxury items, entertainment and cars. Think of things you’d like to buy if you had some extra money. This might include the travel sector too, which had a lot of challenges in 2022. We think there is likely to be great opportunities for sizeable returns this year.
Medical devices and equipment Diagnostic and scientific equipment is a large growth area. We think these companies have a strong long-term outlook, despite the current gloomy economy, because patients still need to be diagnosed and new drugs still need to be discovered.
In New Zealand consumers are spending less and this will be the case for a while. But in the US and Europe, this started earlier than here, so spending is likely to pick up globally before things change in New Zealand. In addition, share prices of companies in this sector are likely to pick up well before demand starts to pick up, so we will want to deploy cash early.
The rapidly ageing populations in most Western and also some Asian countries means demand for diagnostic tests is growing as older people tend to get more ailments and need more treatment. Advances in technology mean that the latest machines for diagnosis and drug discovery are much faster and more efficient, causing a strong replacement cycle. New treatment techniques such as cell and gene therapy are also emerging, meaning new machines need to be purchased. These companies often have recurring revenues from consumables as well as selling the machines. In our view these elements all add up to a strong investment sector this year. Consumer discretionary Consumer discretionary means nonessential but still desired items. This could be appliances and electronics, apparel,
Retail as a whole is a sector that in the next six to 12 months could be looking attractive. We are spending some time on this sector at the moment to understand how end demand is tracking, and where there could still be excess inventory.
‘Diagnostic and scientific equipment is a large growth area.’ Correct as at January 2023. Mike Taylor is the Founder and Chief Investment Officer of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 6 3
O P E S PA R T N E R S
Are Too Many Townhouses Being Built? Ed McKnight dives into the stats around townhouse supply and separates fact from fiction.
If you’re living in one of New Zealand’s main cities, you will see many townhouses under construction. Some property investors ask: “Are too many townhouses being built? … and is there an oversupply?” Townhouses represent 40 per cent of new dwelling consents. That is up from only 6 per cent 10 years ago. Over half the consented properties in our larger cities like Auckland, Hamilton, Lower Hutt and Christchurch are townhouses. So is there an oversupply? Because townhouses tend to be built in the main cities we will focus our answer on the country’s two largest cities – Auckland and Christchurch. Is there an oversupply? It’s tough to model the demand for townhouses on their own. The number of people who choose to live in a townhouse depends on how expensive apartments and houses are. Instead, we can ask: “What would an oversupply look like?” That way, we can test for the symptoms of oversupply. If there were too many townhouses, we’d expect to see: 1. townhouses taking longer to sell
Test no. 1: Are townhouses taking longer to sell? Theory: If there is an oversupply of townhouses, we expect to see them taking longer to sell. If there’s a newly-created oversupply of townhouses you’d expect to see lots of sellers and not many buyers. Therefore the number of days to sell a townhouse should be increasing (especially relative to houses).
In fact, today townhouses are selling more quickly. It takes 29 days to sell a townhouse and 31 days to sell a house.
Test no. 2: Are townhouses falling in value more quickly? Theory: If too many townhouses exist, prices should fall more quickly than houses since buyers can better negotiate. New Zealand’s property prices peaked in November 2021. If there was a newly-created oversupply of townhouses, it would be reasonable to assume that townhouses would fall in value much faster than standalone houses.
Notably, the difference in the time to sell
Do we see that? Not really.
Do we see that? No. Before 2002, there were times when townhouses took longer to sell than houses in Christchurch. However, over the last 12 years they’ve been about the same.
Townhouses don't take significantly longer to sell Average days to sell a townhouse and house in Christchurch 60 Days 50 Days 40 Days
Townhouses and Units Jan '99 52.33 days
30 Days 20 Days
2. townhouses fall in value more quickly
10 Days
3. townhouses not going up in value as fast.
0 Days
So, do we see any of that happening?
a house and a townhouse has remained consistent through the last decade. If there was an oversupply, you’d expect these numbers to diverge. The trend is similar in Auckland. Since 2001, the days taken to sell a townhouse have been very similar to the time to sell a house.
After 2002, there is little difference between houses and townhouses Jan '95
Jan '00
Jan '05
Jan '10
Jan '15
Jan '20
12 month average Source: REINZ Market Insights Report AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 6 4
Since the peak in Auckland, the average house price is down 16 per cent, and the average townhouse price is down 10 per cent (according to median sales price data). In Christchurch, it’s a similar story: the average house price is down 10 per cent, and the average townhouse price is down 3.5 per cent. So, we don’t see strong evidence that townhouse prices are falling away at a much faster rate. Test no. 3: Are townhouse property values rising slower? Theory: If there is a newly-created oversupply, we’d expect townhouse prices to increase more slowly than houses. Historically, houses have grown in value about 0.1-0.6 per cent faster than townhouses per year.
When testing for an oversupply, the question is: “Has that gap grown wider in recent years as townhouse building ramped up?” In Christchurch there has been no significant difference in price growth between houses and townhouses for the last decade. In Auckland, there was a slight divergence over the last two years. At their peak, houses grew in value by 25 per cent a year, whereas townhouses grew 15 per cent. Today, they are back moving in lockstep.
tracks the average of the houses sold in that particular month. So, if a whole heap of cheaper townhouses happened to be sold in that year, the data would be biased down. Why isn’t there an oversupply? So, from three tests there isn’t enough data to convince me there is an oversupply of townhouses. Why are some commentators jumping up and down saying there is one? There are three main factors: •
Affordability. Auckland townhouses are 20 per cent cheaper than houses. As house prices escalate, people will buy what they can afford. For some, this will be a townhouse rather than a house
•
Smaller households. Kiwis are having fewer kids and are getting married later. So, the average number of people who live in a house is decreasing. That means each household doesn’t need as much space or as many bedrooms, so we can live in smaller homes.
•
Townhouses being built are already sold. Most banks won’t lend a developer money unless they’ve pre-sold 80-100 per cent of them. If you see new townhouses going up, there’s a good chance they won’t flood the market. They’ve already been sold.
This one-year period is the only evidence that all this extra supply is making any difference. And it’s worth pointing out that the data used to crunch this (while the best I have access to) has its flaws because it only
Townhouse values don't go up significantly slower than houses Annual change in median sale price for townhouses and houses in Christchurch 30% 25% 20%
Townhouses and Units Jul '05 18.28%
15% 10% 5% 0% -5% Jan '95
Jan '00
Jan '05
Jan '10
Jan '15
Jan '20
Just because you see a lot of townhouses being built … that doesn’t mean there is an oversupply. That’s because the data suggests this supply is being met by demand.
12 month rolling average Source: REINZ Market Insights Report AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 6 5
K E R N E L W E A LT H
You Don’t Need a House to Build Wealth Despite what your grandparents might think, owning a house is not the only way to securely grow your wealth and set yourself up for a comfortable retirement, writes Kernel Wealth chief executive Dean Anderson. For decades home ownership has been the traditional way to build a lump sum for retirement, and it’s become ingrained as a milestone in Kiwi lives. But now it’s harder to buy a house than it’s ever been, and if you can’t afford to get on the housing ladder, watching your friends move into their first homes can be pretty disheartening. It can feel as though they’ve immediately taken a huge leap ahead of you, in terms of life milestones and finances. But home ownership is not the only way to grow your wealth, and it may not even be the best way. By investing regularly and with discipline, you can keep up with your home-owning friends and potentially outperform them. One factor on your side is that the 20-year average return for the New Zealand stock market has been 9 per cent, compared with 5 per cent for average house price appreciation over the same period. House ownership vs renting plus investing: we’ve run the numbers The table below shows two potential scenarios: You buy a $737,000 house at age 22 and live in it until retirement, paying off your mortgage at a 6 per cent interest rate, plus extra costs of 1.4 per cent a year You rent for $550 a week, which rises each year, and invest the difference between your rent and a mortgage into diversified index funds. In both scenarios you’re still putting in 3 per cent to KiwiSaver, matched by your employer (for the full assumptions get in touch). Here’s how it pans out, with the conditions where the renter is better off in blue, and the average market performance in orange:
The point is not that you shouldn’t buy a house, but that there are different ways to grow your wealth. There are so many paths you can take: buying a house, buying one much later, or never buying one at all.
automatic and painless. And you have one more advantage: if you lose your job, you can cut your investing instantly, which is not an option when you have a mortgage.
Make a choice about housing based on your life, not because it feels like you need to own a home to have a comfortable retirement, because that’s just not true.
Index funds passively track the market As a lot of people learned in 2022, picking individual stocks is risky; even darling stocks can crash, and predicting the future is impossible. In the year to June 2022, 98 per cent of large and mid-cap active fund managers in the UK under-performed the market. The same success rate also applies over the longer term: the first S&P 500 ETF is now 30 years old, and since its inception only 2 per cent of large-cap active funds have outperformed it.
Treat your investing like it’s a mortgage The main criticism you’ll hear about these numbers is that they require renters to be too disciplined. A mortgage enforces discipline – you worry about it, you prioritise it, and you’ll cut your spending so you don’t miss a payment. There’s no reason you can’t be equally disciplined without owning a home.
You don’t need to be an expert stock picker to invest successfully. Index funds passively track the market, removing some of the risk that comes with trying to choose shares, and keeping your fees low.
To give you the best chance of building as much wealth as a homeowner, allocate your investments automatically, before you get a chance to spend the money. It’s the old “pay yourself first” advice that you’ll often hear from personal finance advisers. Then you need to live off what’s available.
In uncertain times the fundamental principles of investing are even more important: diversification, low fees and regular contributions. Index funds provide the first two. Ticking that third box is up to you.
You’re probably already doing this with KiwiSaver, which for most of us is
Average annual mortgage rate based on the floating and 2yr fixed rates 2000-2020
6% p.a
Homeowner's net wealth less Renter's net wealth (blue means renter better off) (Net) Investment growth rate 6%
7%
8%
9%
10%
-$2,313,650
-$3,809,464
Average annual house price appreciation rate 3%
$417,768
-$272,191
-$1,161,988
4%
$1,235,114
$510,220
-$420,175
-$1,619,141
-$3,170,207
5%
$2,380,861
$1,616,242
$639,875
-$612,433
-$2,225,555
6%
$3,970,620
$3,160,687
$2,132,104
$819,456
-$863,576
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PERSONAL FINANCE
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 6 8
PERSONAL FINANCE
The Struggle of Saving the House and Your Relationship If the stress of money worries is already niggling, what is going to happen when your mortgage interest rate jumps, asks Lynda Moore.
In March 2017 I published a blog called Could your relationship survive a 2 per cent mortgage increase? Back then the rates were around 4.59 per cent and an Auckland mortgage was heading towards $800,000. Who would have known then that rates would continue to fall to as low as 2.5 per cent for some, and now in 2023 many homeowners are facing mortgage increases of 4-5 per cent (maybe more) when the fixed term rolls over. Let’s crunch the numbers. An $800,000 30year mortgage at 2.5 per cent has monthly repayments of $3,161.00. If that jumps up to say 7 per cent the repayments increase $2,161.00 per month to $5,322.00. Is it any wonder there are a lot of stressed couples worried about how they are going to find another $2,000 a month to service their existing mortgage. On top of the mortgage there are all the other expenses that go along with home ownership like rates, insurance, maintenance. Plus, additional transport costs if you moved further away from where you work to get onto the property ladder. These are all increasing as well as the general cost of living. It’s beginning to feel like a perfect storm for many homeowners. What looked like a great idea when you purchased your home and took advantage of the “cheap money” may not be looking quite so rosy now. I am sure there are some days when you wish you hadn’t. Maybe that happens on the days when you have to say “no” to activities you want to do. Date nights have gone out the window, and weekends away with friends … don’t even think about it! How does this make you feel? What is the conversation with your partner? Philosophical: “We knew we would have to
make sacrifices when we bought the house, it will be worth it in the end.” Or a little more resentful: “Why did you talk me into this? This house feels like a noose around our necks. We have no life and too much stress.” If you have a surplus you are in a better position to cope with a rate increase. But let’s face it, unless you are a really good money manager you may well have been spending the surplus on lifestyle. Short-term solutions If the stress of money worries is already playing on your mind and niggling at your relationship, what is going to happen when the interest rate on your mortgage increases? Could your finances handle it? Could your relationship? Where is this additional money going to come from? If you have already cut your lifestyle just to get into the property you may already be feeling a little trapped. Now you must find significantly more money each month to make ends meet. There are a couple of short-term solutions you could look at. How about taking in a flatmate or two or switch to interest-only for a year or so. Both these options will give you a bit of breathing space, but may not be that palatable in the long term. But what if you already have flatmates and are on interest-only? How much stress are you under now? And how much of that stress is affecting your relationship? Money stress is the main contributor to relationship breakdown. If you struggle to talk about money, then this scenario could break you.
The dos and don’ts Here are a few dos and don’ts that you can talk about. Be aware of which ones impact you so you can work through them together. Don’t bury your head in the sand and hope it all just goes away and will magically sort itself out, it won’t! Do the calculations. When are the interest rate increases going to impact you? How long have you got to plan before the rate goes up? What is the increase likely to be? Do the hard yards and look at your numbers, what is coming in and what is going out? How can you increase what is coming in? How can you reduce what is going out? In other words, build a money plan. Once you have your money plan start to increase your mortgage payments in small steps; it might be $100 extra in month one, then $250 in month two. Whatever gains you make in income, and reduction you make in expenses, apply that immediately to your mortgage payments. Do keep the lines of communication open between you. It is likely one of you will be more stressed than the other. This is the time to pull together as a team, not pull apart. Acknowledge if you are stressed, frustrated, upset or angry. It’s important you still do “fun” stuff together and with friends. Swap dinners out for picnics at the beach, or potluck dinners with friends. Do acknowledge that you aren’t in this boat alone. You will have friends in a similar situation, so brainstorm together; what are they doing to make changes? Support each other, make it OK to talk about money. Do explore all the options available to you, even if you think they sound crazy; it’s called a tabletop discussion and nothing is a bad or dumb idea. Then get good advice (not your mate at the pub or Mr Google); you want personalised advice that looks at your situation, not comparing you to everyone else. Don’t get caught short either financially or lose your relationship just to keep the house. Home ownership is supposed to be a pleasurable experience, not a millstone round your neck. There is no shame if at the end of a number-crunching exercise you decide that the best decision is to sell the home and invest the capital (not in stuff, but with the advice of a financial adviser) and go back to renting for a time. If you want to get really clear about your money and need some help with the decisionmaking process, head to moneymentalist.com and come and talk to me. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 6 9
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SYN D E X
Agrisector Investing – Money Really Can Grow on Trees Money doesn’t grow on trees, right? But it might if you invest in the forestry or horticultural business. If you invest in forestry, your money might be the trees themselves (or carbon), and in the meat or dairy industry your money might be on the hoof.
by Green Street. Demand for land will keep rising as our population and farming requirements grow, which will put upward pressure on land values.
New Zealand’s primary sectors are jam-packed with investment opportunities. Our nation has an outstanding reputation for excellence in agriculture through the value chain, from our natural environment all the way through to agritech innovations.
The supply and demand dynamics of both the products and the land they’re grown on give us real confidence in the future of agrisector investing.
Demand for food is high even in a downturn Farmland has historically provided healthy longterm returns for investors, and it’s often acted as a hedge against inflation. During economic downturns households can stop their spending in lots of areas, but food is an essential for all of us. As a result, investing in farms and farmland doesn’t expose the investor to falls as extreme as other asset classes in a downturn, and doesn’t boom as aggressively when the market roars back. Because farmland has a low correlation to the share market, it’s popular with investors looking to build a recession-resistant portfolio. Bill Gates might have made his money in technology, but he’s also one of the largest private farmland owners in the United States. He has been investing in agriculture since 2013, reportedly because he likes its steady returns and low volatility. The demand for food and fibre is steady and growing. Although we see ups and downs in the commodities market, and rising interest rates will impact landowners, the long-term outlook is positive. The population keeps growing, and so does the demand for food and fibre. Forbes estimates we’ll need to scale up current production by 70 per cent to meet a projected population of 9.7 billion by 2050. Farmland, too, is increasing in value over time as the population rises. In the 25 years to March 2021, US farmland had an average annual return of 11.2 per cent, compared to 9.6 per cent for the S&P 500 index over the same period, according to analysis
Fruit, wine, tech: the choice is yours We see some fantastic investment opportunities come onto our platform, for everyday individual investors and wholesale investors. Alternative assets like these are not designed to make up a huge chunk of your portfolio, although investors are trending towards a higher allocation than the traditional historical 5-10 per cent. With the improving investibility in private assets they are becoming increasingly popular among investors looking to diversify. Syndex makes interesting assets investible, so you can browse through opportunities in all kinds of primary sector businesses. Each opportunity is different, and has its own risks and reward, so investors can find something to fit their individual appetite for risk. You could invest in farmland, wine-making, forestry, commercial property, R&D, agritech and more. For example, EastPack is a kiwifruit and avocado packhouse that recently sought funding for new technology that will make their packing more efficient. And the returns are more than just financial. Clients told us they enjoyed being able to invest in growing New Zealand’s productivity – and getting behind businesses that were improving sustainability and fighting climate change.
‘Farmland has historically Our platform gives everyday Kiwis access to these provided assets in a way that wasn’t possible in the past. New Zealand is full of farming success stories, and you healthy longdon’t have to be a farmer yourself to get involved. Agrisector investing can be part of any diversified term returns investment portfolio, so a portion of your money really could grow on trees. for investors.’ AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 7 1
PERSONAL FINANCE
Be Active in Protecting Your Assets for When the Worst Does Happen Checking you’re insured for the appropriate amount can mean the difference between a positive or negative return in the fallout when disaster strikes. There’s no better time than now to check your sum insured and build a regular review into your business insurance practises, writes Sacha Cowlrick. For property investors and owneroccupiers alike, the extreme weather that hit the northern parts of New Zealand in the past few weeks was unexpected and shocking. The impact of the torrential rain and resulting floods and landslips will be felt for months, possibly years to come. Vero Insurance is supporting customers through more than 5,000 claims with new claims coming steadily through. We’re doing our utmost to put all the response and recovery resource we can pull in towards helping people recover their lives and livelihoods. It is what we do. We’re here to help. Now, in the clean up and recovery stage post the extreme weather to hit parts of the North Island, 2023 may look to offer even less certainty than 2022. Damage from the weather event is adding to pressures caused by constraints from Covid-19, acute labour shortages and property price fluctuations, an economic downturn not seen for 40 years and the added uncertainty of a predicted global recession. One way to gain more certainty is to take steps now to check your home insurance cover is current and personalised to you and your home or investment property. To do this you should be building a sum insured check with your broker into your annual review processes. Under-insurance a serious national issue Recent CoreLogic research* suggests a large number of New Zealand home AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 7 2
insurance policy holders are unaware of how much insurance they will need to rebuild in the event of total loss. According to the research, more than half (56 per cent)of homeowners haven’t reviewed their home insurance cover in the past year and, with building costs increasing 41 per cent in the past 12 months (according to the same CoreLogic report released in October), this suggests many are at risk of inadequate cover and may struggle to rebuild in the event of a total loss to their asset. Then again you could be over-insured and be paying too much premium, so our advice is to talk to your broker about your home insurance cover early this year. Sacha Cowlrick, Vero EGM Business, suggests there’s no better time than now to check your sum insured and build a regular review into your business insurance practises. An easy way to kick this off for investors is to use the tools offered through Vero partner CoreLogic, such as the Cordell calculator on www.vero.co.nz to ensure your sum insured is as accurate as possible and talk any changes through with your broker. “CoreLogic’s research team have their finger on the pulse when it comes to the cost of building products in New Zealand. A complex algorithm uses publicly available information, considering the size, standard of construction, specific features and location of your home – and provides homeowners a rebuild estimate as close as possible based on the specifications of the home at the time.”
The Cordell calculator Only you will know what feels right in terms of your sum insured. So, if using the CoreLogic’s Sum Sure calculator, you should review the property features put into the calculator for your property. Ensuring these features are accurate will help provide a more reliable rebuild estimate. The calculator also accounts for professional fees and demolition costs. “What the Cordell calculator does is take into account those things that are difficult to estimate yourself; demolition costs for example can be quite substantial, council consents and professional fees as well as labour. The calculator keeps track of movements in those spaces.” Cowlrick says homeowners may also choose
VERO INSURANCE
to bring in a qualified professional such as a registered valuer or quantity surveyor to help them estimate their sum insured. If when taking out the policy you originally used a qualified professional to set the sum insured, it may be more reliable to have a professional provide an updated estimate. “Either way, the most important thing is it’s reviewed at least every three years and the sum insured is updated to match it. It should be based on a complete and correct description of the home, and a copy of the estimate should be kept safe to use at claim time.” Because the cost to rebuild is constantly changing, it’s not about finding an answer but about checking you’re in the right vicinity as no-one knows when a total loss
is going to occur. Putting it off can mean you’re exposed to risk that could mean loss of your hard-earned profits. Extra cover for no cost Investors wanting that extra layer of certainty in uncertain times should talk to their broker about SumExtra insurance cover. For customers with eligible full replacement home insurance policies, SumExtra offers additional insurance cover of up to 10 per cent of the sum insured to those affected by a natural disaster and provides total replacement cover to customers who experience any other insured loss. To qualify, customers must establish an accurate and personalised sum insured based on a cost estimate from either the industry recognised Cordell Residential
Valuer or a suitably qualified professional. Looking back at the past two years, what we can be sure of as investors and property owners, is that we can’t predict whether we’ll need to bear the impact of major property damage or loss. Vero has experienced record claims for the past two years with record costs paid to customers. Climate change-related weather events, natural disasters, tornadoes, storms and floods are unpredictable. We recommend talking to your broker about building a regular review into your insurance processes to ensure you’re fully covered. The start of the financial year could be a good time to do this. *CoreLogic Solving the Home Insurance Problem Oct 22
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PERSONAL FINANCE
KiwiSaver for First Home Buyers: What you Need to Know
Your KiwiSaver funds can be a vital piece of the first home deposit puzzle, says David Copson, head of growth at Booster. It sounds counter-intuitive, but one of the most satisfying parts of our work at Booster is helping clients take their money out of our KiwiSaver funds to buy their first home. Over the last five years in excess of 100,000 New Zealanders have withdrawn their KiwiSaver funds to buy their first home, according to MBIE data. We know most Kiwis understand this money is available to them, so let’s take a look at some of the less well-known aspects of KiwiSaver for first home buyers.
HOW DOES KIWISAVER WORK FOR LIVING OR BUYING OVERSEAS? If you move overseas permanently you can withdraw your KiwiSaver savings, excluding the government contributions. You will then have the money available to spend or invest as you wish. You cannot make a first home withdrawal from your KiwiSaver account to buy a property outside New Zealand, but there are different rules for Australia. If you move across the ditch you can transfer your KiwiSaver funds to an Australian superannuation scheme or leave it in NZ. If you transfer it, you can use the funds for the Australian First Home Super Saver scheme if you meet certain requirements. Visit the Australian Tax Office website for more information.
CAN YOU USE KIWISAVER IF YOU’VE OWNED A PROPERTY IN THE PAST? If you have previously owned a home, here or overseas, you are not usually eligible to use your KiwiSaver to buy another property. But in some cases you may have a second chance. To qualify you must not currently own any property, you must not have previously drawn down your KiwiSaver for a house deposit, and you must be in a financial position that’s comparable to a typical first home buyer. That last requirement can be the trickiest; the threshold being what you can own yourself, which is quite low. If you own assets that could cover the 20 per cent deposit – which might be a business, shares or any other investments – you may also not qualify. Talk to your provider and they’ll be able to give you advice based on your situation. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 7 4
CAN YOU USE KIWISAVER TO BUY AN INVESTMENT PROPERTY? Don’t listen to the good old Kiwi BBQ talk where someone says, “I used my KiwiSaver to buy a rental.” Your KiwiSaver funds are only available for purchasing a first home, and you must have the intention to live in the house. If you use the HomeStart Grant you must live in the house for at least six months. This is monitored by Housing New Zealand.
BO O STE R
‘Don’t forget about retirement once you’ve bought your first home.’ CAN YOU USE KIWISAVER TO BUY A SECTION? You can use your KiwiSaver funds to buy land, but you must have the intention to build a first home on it. That means you’ll usually need a plan to show that you’re going to build, but there’s no time limit on the project. You can’t buy land and simply hold it, and you can't use your KiwiSaver funds to fund a first-home build on a piece of land you already own.
CAN I USE MY KIWISAVER FUNDS TO BUY A HOUSE WITH MY PARTNER? Each person’s eligibility is separate – being able to withdraw your own KiwiSaver funds to buy a first home is not impacted by your partner’s situation. If both you and your partner haven’t used your KiwiSaver funds before and you're both eligible, you can pool your funds and help boost your buying power. If only one of you is eligible, only that person can withdraw their funds. If you have both already used KiwiSaver to buy a first house, neither of you can withdraw funds a second time, unless special circumstances apply.
WHAT ABOUT KIWISAVER AFTER YOU’VE BOUGHT A HOUSE? Don’t forget about your retirement once you’ve bought your first home. When you are saving for a house you’ll often allocate your money to a conservative fund, but it’s not a set-and-forget scenario. Have a meeting with your adviser as soon as possible after you withdraw your funds so you can get it in the right fund for your retirement plans and get the balance building up again. This article provides general commentary only and is not, and is not intended to be, financial advice as defined in the Financial Markets Conduct Act 2013. It does not fully consider your personal financial situation or goals, does not recommend a particular investment product, and is not a substitute for obtaining financial advice from a Financial Advice Provider. Booster Investment Management Limited is the issuer of the Booster KiwiSaver Scheme. Product Disclosure Statements are available at www.booster.co.nz AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 7 5
BO O STE R
Taking Responsible Investing to the Next Level Booster’s Socially Responsible Investment funds assess industries and apply a much wider range of exclusions than most, guided by feedback from customers. When it comes to responsible investing, you can take the easy path. You can do the basics, exclude some companies, assess the fund with third-party data, and pat yourself on the back for ticking the boxes.
how companies are run, monitoring their behaviour and checking on their operations. Although they could buy this data from external providers, de Souza says it’s common to see inconsistencies in reporting.
That is the cheapest and easiest option, and it’s certainly an improvement on doing nothing. But you can do so much better, according to Ian de Souza, Equity Analyst at Booster.
“For example, one data provider will give Tesla a high ESG score and another provider gives them a low ESG score because they are using different methodologies. We did not like that, so we developed an in-house model to assess our companies, which looks at 40 factors including climate change, gender diversity, and business ethics controversies.”
“Excluding or limiting investments in problematic industries like controversial weapons and tobacco production is easy to understand. Many funds do it, and as a starting point, so do we,” he says. “But we go much further. We’ve asked our clients what they want to invest in, what they want to exclude, and we do our research. But we also favour positive outcomes by investing in Kiwi start-ups driving sustainable solutions and by actively engaging with companies that we own that have areas of concern.” Clients weigh in on how they want to invest Booster’s Socially Responsible Investment funds apply a much wider range of exclusions than most, guided by feedback from customers. “We’ve done round table focus groups with investors and ask them what they want from a responsible fund,” says de Souza. “They said they didn’t want to invest in non-medical animal testing, or recreational cannabis. We talked to them about certified sustainable palm oil, and when GMOs were acceptable, and set out some clearly defined thresholds, which are now embedded in our policies.” Turning non-financial data into action Responsible investing is also about assessing a company’s non-financial factors: environmental, governance and social (ESG). Booster does its own research into
Some companies perform well on certain factors, but fall down on others – either overall or when compared to their peers. Chemical company Dupont, for instance, could set better carbon emission reduction targets and improve their governance, so it’s excluded. Financial company Allianz SE, though, did well on some measures with room for improvement on others; the Booster team thinks that the company is on the right track, so it gets down-weighted rather than excluded. So, overall portfolio outcomes get tilted towards companies that have better ESG practises. Engaging at every opportunity – with some wins It’s not just about choosing responsible investments, it’s also about driving improvements whenever possible, says de Souza. By working with initiatives like Climate Action 100+ and the Carbon Disclosure Project, Booster is amplifying its voice. “In some cases, we also engage directly with company management and talk to them about sustainability issues.” The Booster team also votes at every opportunity, “you can outsource voting, but we do it all in-house. We’ve voted on issues at more than 200 companies in 2022.”
There have been a couple of recent memorable wins. At Intel and ServiceNow, a payment package was proposed that would pay the CEOs more than $150 million. Booster voted against that, and the proposal failed to get enough support to pass. US retailer Dollar Tree had no emission reduction goal to help it reach net zero, so shareholders asked them to share how they were going to get there and that passed with 52 per cent support, “So it is really good to see that we’re making a difference.” Look for proof when you want to invest responsibly If you’re looking for a responsible investment, de Souza says it’s important to check the fund is keeping its promises. Look for accreditation from the Responsible Investment Association Australasia for instance. And should you be worried sustainable funds won’t perform as well as traditional investments? “If you invest in SRI funds, the returns over the long run have not been materially different from the overall equity market,” de Souza says. “By being an active investor in these funds, you can help to promote better outcomes. You don’t need to give up on your financial goals to meet your ethical ones.”
Booster Investment Management Limited is the issuer of the Booster KiwiSaver Scheme, Booster SuperScheme, Booster Investment Scheme, Booster Investment Scheme 2 and the Booster Innovation Scheme. Product Disclosure Statements are available at www.booster.co.nz
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 7 7
Graham
REAL PEOPLE, REAL HOMES Unlocking the value of your land could be easier than you think. When Chris and Andrea’s children left home, they discovered subdividing their section and building a second home was an ideal way to unlock the value of their land and get what they wanted in a new home.
“When the kids left home, we decided we should do something with our extra land. We got a real estate agent, weighed up our options, and decided it was by far best to build a second home on the site rather than sell the section. It had to be a nice house, that would complement our old home to keep the value of both of them. GJ’s helped us with all our boundaries, plans and daylight angles, and dealt with all of the contractors and services. It was a complex job made simple with GJ’s. In the end it’s going to be a really good investment. We’ve got two really nice homes.”
– Watch Chris & Andrea’s full story gjgardner.co.nz
Property
IN FOR ME D I N V ESTO R
Importance of the next six months; shining a light on commercial property funds; we explore the difference between advisors and brokers.
PMG FUNDS
Why the Next Six Months Could be Crucial to Your Investing Success The first half of 2023 will be fascinating and crucial, whether you’re a seasoned professional or just getting started, Scott McKenzie, CEO PMG Funds.
If you’re one of life’s optimists, there’s certainly good reason to feel positive about 2023. Perhaps most encouragingly, there are signs that global inflation is easing, with many predicting that it may have already peaked in major international markets. Thanks to that positive sentiment we saw a bond market rebound in January, with markets seemingly betting that central bank interest rate rises are likely to peak some time around the middle of the year. The next six months will not only be fascinating but also crucial for investors, whether you’re a seasoned professional or you’re just getting started. You never know when the market will rebound Why are the next six months so important? Because these months could lead to some fantastic opportunities and the potential for serious wealth-building. Although it might be human nature to sell when prices fall and wait for them to rise again before you buy, it’s important to be investing throughout the cycles. Downturns are a natural part of the economic cycle – New Zealand has had seven recessions over the past 50 years. During those recessions property and share prices have fallen, but they’ve rebounded every time. Often the fastest gains come
during that rebound, but it’s almost impossible to predict exactly when it will happen. That’s why financial advisers are so insistent that you stay invested, across a diversified range of asset classes, over the long run. Then, when the market turns, which can happen suddenly, you’re positioned to make the most of a buoyant recovery. Commercial property can recover rapidly During the global financial crisis the value of directly held commercial property fell by around 40 per cent but recovered within three years; it took the share market six years to regain its pre-GFC value. Although buying a property yourself is challenging right now, thanks to bank loan rationing and high interest rates, property funds remain accessible for most investors. Owning units in a property fund allows you to buy into the property market at an affordable price. You’re then positioned to benefit from the recovery without having to worry about high interest rates or parting with a massive deposit. You can invest a relatively small amount of capital in unlisted direct property funds which provide diversified exposure to high quality real estate valued at hundreds of millions of dollars, and all the benefits the
sector provides. That’s a world away from the hundreds of thousands you’ll need to find to concentrate into one property, even with fallen prices. Cutting debt means you’re ready to grab opportunities It’s tough to know what to do with your money in uncertain times. Preparing your balance sheet ahead of economic headwinds is part of a good conservative strategy. Here at PMG Funds, proactively lowering bank loan gearing levels is an important part of our strategy across all our funds. That cuts our interest costs and improves our balance sheet strength – and it does exactly the same for individual investors. One of the major upsides of reducing gearing is that our funds are now in a stronger position to invest in property at great value, particularly should asset prices adjust downwards. For us that might mean brilliant commercial buildings with highquality tenants being sold at better value than we could achieve in recent years. For individual investors, this value is typically reflected in overall returns within our funds over time. Being ready to move when you see opportunities can help set you up for many years to come – just ask anyone who bought their house, or invested, during the GFC. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 8 1
We’ve been using our property and investment nous to help Kiwis get ahead for over 30 years. Providing four successive generations of investors with cashflow through regular returns and a pathway to financial freedom through long-term capital growth. Better still, we’ve done this by providing New Zealand businesses and their staff with quality, sustainable premises from which to make their mark on the world.
Our first investment offer of 2023 will be available soon.*
Talk to us today about how we can help you get more from your investment dollar.
07 578 3494 | pmgfunds.co.nz
*No money is being sought and no securities can be applied for or acquired yet. Any offer that is made will be in accordance with the Financial Markets Conduct Act 2013.
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Subscribe & Win Subscribe to Informed Investor this month and go into the draw to win the Ultimate Ears BOOM 3 speaker, the easiest way to bring good tunes wherever you go. Water, dust and drop proof, this speaker is your long-lasting sidekick through it all. Available at Noel Leeming, for $279.90. To be in the draw, head to www.informedinvestor.co.nz/subscribe and sign up for a two-year subscription before March 31, 2023. Your subscription will commence with the Winter edition of the magazine, due out May 29, 2023. Terms & Conditions: 1. All prices for magazine subscriptions include free New Zealand delivery. 2. Please allow up to 10-13 weeks for your first delivery. 3. Your subscription will begin with the next available issue, and in most cases your magazine will be in your hands before it goes on sale in the shops. 4. Informed Investor magazine| is published by Opes Media Limited, SUMMER 2022 I N F O R M E D I NVESTO R 8 3 which handles delivery and stipulates the lead time shown above. 5. Offer available to New Zealand postal addresses only.
PROPERTY
Quiet Market Driven by Credit Crunch High house prices and strict credit conditions are dampening spending in the property market, as Kelvin Davidson from CoreLogic explains. It won’t come as much surprise to anybody that the stats are still showing a very quiet property market. Indeed, sales activity in the 2022 calendar year was the lowest since 1983, with property values continuing to decline – albeit at a steady pace rather than a precipitous collapse. Even so, conditions are likely to remain testing for at least the next 3-6 months. The market in numbers Sales volumes last year totalled only about 64,000 across real estate agents and the private market – close to a 40-year low, and even more striking when you consider that the housing stock was much smaller in 1983 than it is now. In such a subdued market, with buyers in the ascendency (or at least those that can jump the not inconsiderable lending hurdles that currently exist), the pressure on property values has remained downwards, especially in some of our largest markets. On the CoreLogic House Price Index, Auckland has fallen by 11 per cent from the peak, with “wider Wellington” (City, Lower Hutt, Upper Hutt, Porirua) dropping by a touch more than 18 per cent. Other notable fallers include Palmerston North and Hastings (13 per cent each), and Napier at 12 per cent. By contrast, falls in AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 8 4
Christchurch, Gisborne, Invercargill, New Plymouth, and Queenstown have been 5 per cent or less.
rates – not to mention keeping actual lowdeposit lending flows quite a bit below the allowable maximum/speed limit.
In terms of stock on the market, it’s currently higher than it’s been for at least 3-4 years (at this time of year), but it’s mostly due to the lack of agreed sales, rather than a surge in new listings. In fact, the flow of property coming onto the market has been pretty subdued, which seems rational – why would borderline sellers want to press ahead when there’s so much uncertainty about the length of time to strike a deal, and of course what price might be achieved.
The CoreLogic Buyer Classification figures show that in this environment, first home buyers are actually managing to hold on pretty well, with a 25 per cent share of activity lately. Cash investors are also a decent presence, but mortgaged investors are struggling (relative to their normal market share). That said, it must also be noted that while it’s tricky to get the sums to stack up for some first or additional investment property purchases, existing landlords aren’t selling-off either.
Credit conditions are still paramount Net migration has recently improved, which will be adding to property demand, but the cost and supply of credit is currently the (negative) trump card. Even if mortgage rates have generally now reached a peak, it’s still expensive to be a new borrower and 50 per cent of existing mortgages are due to reprice this year, facing up to typical increases in interest rates of perhaps 2-3 per cent.
A year of two halves? It seems likely that the property market will continue to face these headwinds for at least the next 3-6 months, especially if a recession and rising unemployment now overtakes inflation as the key issue. But given a near-term peak for mortgage rates, there’s also a reasonable case for thinking that the second half of 2023 could start to see property sales activity perk up a bit, and property values finally find a floor. Of course, with housing affordability still low, 2024 is unlikely to see the property market boom again either.
Meanwhile, the banks are also still looking closely at income and expenses, and applying tough serviceability test interest
C ORELO GIC
Average Property Value
Northland
$761,834 0.5%
CoreLogic House Price Index Percentage change last three months
Bay Of Plenty
$905,737 -2.3%
Auckland
$1,360,626 -2.2%
Gisborne
Waikato
$642,216 2.4%
$849,704 -0.4% Taranaki
$651,721 -1.6% Mananawatu/Whanganui
Hawke’s Bay
$567,298 -3.8%
Tasman
$761,644 -0.1%
$821,466 -0.3%
Wellington
$922,771 -4.6% Nelson
$812,828 0.0%
Marlborough
$726,754 0.5%
West Coast
$342,612 -2.5%
Canterbury
$694,878 -4.6% Southland
$463,907 1.4%
Otago
$859,791 0.9%
New Zealand Average
$956,383 -2.1% AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 8 5
Your Your future future is our our priority. priority. Most Mostpeople peoplehave havedreams. dreams. They dream about building a better life, a future that’s going to be They dream about building a better life, a future that’s going to be substantially different from today’s reality. But, most people wait. substantially different from today’s reality. But, most people wait. They wait for something to happen – someone to tap them on They wait for something to happen – someone to tap them on the shoulder. Something to change. They need something to spark the shoulder. Something to change. They need something to spark them into action, an idea, a meeting, a new insight to cause that them into action, an idea, a meeting, a new insight to cause that change and drive us all forward. In short, they need a catalyst. change and drive us all forward. In short, they need a catalyst. Our mortgage and insurance advisers work with you to ensure Ourare mortgage and insurance advisers work with youwhat to ensure you set up for success, if you are interested to see is you are set up for success, if you are interested to see what is possible reach out we’d love to work with you. possible reach out we’d love to work with you. Call us on 0800 888 617, email advisers@catalystfinancial.co.nz Call on 0800 888 617, advisers@catalystfinancial.co.nz or forus more information go email to www.catalystfinancial.co.nz or for more information go to www.catalystfinancial.co.nz
O P E S PA R T N E R S
Building Your Life Through Property Almost anyone can achieve a comfortable retirement through property investment as Andrew Nicol proves in a case study. In modern New Zealand some people think that it’s too hard to become an investor … or that investing in property is “just for rich people”. If that’s you, this case study is going to shock you. I met Tanya when I was setting up Opes Partners back in 2013. At the time she already had two investment properties, which she’d owned for a decade each. She was 57 at the time, and like most parents had one eye on her two teenage sons. They were both almost ready to graduate high school, and she wanted to help them get into their first homes when the time came. But she also had the other eye on herself. She wanted to use property to build a passive income. In other words, she wanted to grow a property portfolio so she could then live off the rental income the properties produced. That would mean she could look after herself in retirement, without needing to rely on her kids or the government superannuation. Here’s what her portfolio looked like when we first met. As well as her own home, she’d purchased an Auckland-based property for $300,000. That was in 2002. The year after, she’d purchased another in Hamilton for $180,000. (Yes, those were the days!)
Need to grow wealth So Tanya had already done some of the heavy lifting, since she’d been investing for over a decade. She was already partway through her investment journey. But if she’d tried to turn her properties into a passive income at that point, she would have made only $23,750 a year from her properties. Not bad, but not enough for her to retire on either. She needed to continue holding those properties, waiting for them to go up in value. What was the issue? She didn’t have enough assets. Yet. Her race wasn’t over. She needed to grow her wealth so that by the time she hit retirement she could have a
half-decent passive income. She set a goal to retire by the time she was 65, in 2021, which gave her eight years to increase her assets. To do this through my company, Opes Partners, I helped her buy a standalone house in Christchurch for $400,000. That was in 2013. Then, four years later (in 2017), she bought an apartment in Wellington for $525,000. At the same time she held on to her previous two investments. So over 15 years Tanya had bought four investment properties – about one every four years. And she spent a touch over $1.4 million in total. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 8 7
PROPERTY
‘Over those 19 years Tanya made $2.1 million by her properties increasing in value.’ Setting a plan By the time she hit retirement her portfolio was valued at a whopping $3.5 million. Over those 19 years Tanya made $2.1 million by her properties increasing in value. (Though bear in mind she had a significant amount of debt held against these properties.) What did she then do? She set a plan to sell her three standalone houses and use the money to pay off the debt on her apartment. She then bought another apartment, which had a high rental income. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 8 8
She didn’t need a mortgage for this, since she still had money left over from the sale of her other properties.
the deposit for her sons’ first homes. One now lives in Foxton, and the other lives in North Auckland.
Today, she’s retired. She owns two apartments, which she keeps as rental properties. She doesn’t have a mortgage on them, nor does she have a mortgage on her own home.
What does she do now? She lives life to the full. There’s no mortgage to pay. She spends the income from her rental properties without worry, knowing that there will be more next week.
Together, these rental properties earn her $79,000 a year. That’s after paying all her costs, like rates, maintenance and insurance. This $79,000 is her passive income.
She doesn’t have to worry about whether the money will run out, or whether her electricity bill will be too high during winter. She’s got choices. And while she’s not a “gazillionaire”, she lives comfortably.
Without getting out of bed in the morning, Tanya can live off $1,500 a week (pre-tax), before even factoring in her New Zealand Superannuation. If you add that in, too, Tanya earns just shy of $106,000 a year. This will continue for the rest of her life, whether she lives to 82, 92 or 102. Life to the full But that’s not all. During this time she’s used the equity in her properties as part of
She travels with her friends when she wants to. But she’s planning to stay in Auckland more, since she’s now got a grandchild on the way. That’s the power of property. This case study is an excerpt of Andrew’s new book, Wealth Plan, which is now available in all good bookstores.
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S U M M E R 2 0 2 2 | I N F O R M E D I NVESTO R 8 9
PROPERTY
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 0
C ATA LY S T F I N A N C I A L
In Search of the Best Mortgage Deal The difference between a broker and an adviser can be key to your portfolio’s success, writes Peter Norris. There’s plenty of people out there saying you should use a mortgage broker and that going direct to the bank isn’t the way to go. But how come? Isn’t the bank you’ve been with your whole life going to look after you because you’re a loyal customer? Surely that counts for something? What I’ll say straight off is that you should be looking for a mortgage adviser, rather than a mortgage broker. A broker is transactional. They’ll look after your immediate need only whereas an adviser will do exactly that: they’ll understand your personal situation and tailor their advice to what suits you now, and help you achieve your long-term goals. Your mortgage adviser is your link to the bank. They act on your behalf and their ultimate purpose is to simplify the borrowing process for you and ensure you get the best possible outcome. Whether you’re buying your first home, an investment property, or looking to restructure/refinance your existing lending, having a mortgage adviser who is on your team makes all the difference. They are the person who is going to take all your documents (eg pay slips, bank statements) and present your mortgage application in the best possible light to give you the greatest chance of obtaining a loan. Borrowing more The better your application is presented, the more chance of getting the approval. And for them to present things properly, they need to understand everything. Could you submit your application to the bank yourself? Sure, you could. But often you might be able to borrow more if you use a mortgage broker. Why? Because by understanding your situation in detail, a mortgage adviser will pick up any holes in your application before it gets sent off to the bank.
They also might be able to offer a few insider secrets for you to capitalise on or take advantage of. Essentially, what this means is they understand how the banks work, and how each bank’s policies (which are all unique) can work for, or against you.
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3 months worth of pay slips
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3 months worth of bank statements
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6 months worth of credit card statements (for each credit card)
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a copy of your passport
For instance, a mortgage broker might take one look at your application and ...
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rough budget of what you spend each month
•
potentially extend your mortgage terms, so your committed expenses are lower
•
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consolidate debt, again to reduce committed payments so you can borrow more
full assessment of who you are, what you do, and what you own, how many kids you have, are you self-employed, and do you have personal loans?
•
restructure lending to free up equity you may not have thought you had
•
cancel your unused credit cards, so banks are more likely to lend
•
review your bank accounts to make sure you aren’t missing automatic payments or going into unarranged overdraft. If that’s happening they can get ahead of this and explain it to the bank.
Experienced eye All of these tactics require an experienced eye to figure out whether they will actually make a difference to your mortgage application and ability to get credit. Basically, a mortgage adviser will show you how to get a “yes”. In addition, when applying for a mortgage, speed is of the essence. Often firsttime mortgage applicants will send in incomplete details. This means time wasted going backwards and forwards to the bank. Sounds simple, but it often happens. This can mean missing out on a property if you don’t get your finance approved on time. A mortgage adviser pre-empts this by requiring all your documents up front. For instance, they’ll often require:
Multiple lenders This seems like a lot, right? And the bank you’ve been with for years already has all that information so why would you go through the pain of collating it all? Well, your current bank might have all that info, but what about if going to another bank is what you need in your situation? A mortgage adviser will collect the information from you once, and use that to go to multiple lenders to obtain the best outcome for you. In addition, collecting this all up front means the adviser and then the bank can make their assessment earlier in the process, rather than having to chase you up later on. Finally, a mortgage adviser can help you make decisions on how to structure your mortgage based on your personal situation. They won’t simply give you the off-the-shelf offering that’s available right now. What I mean by that is that the mortgage adviser will advise. That fundamental difference between going direct to the bank or dealing with a mortgage adviser could change your financial future. Is it worth using a mortgage broker? Yes, provided, of course, you have a good one. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 1
OYSTE R P R O P E RT Y G R O U P
Shining a Light on Commercial Property Funds Unlisted commercial property funds provide bricks and mortar investment, minus the admin and high barriers to entry. Kiwis have long favoured residential property investment as a means of securing their financial future, believing it’s “as safe as houses”. But for some owning a property, whether to live in or as an investment, can come with a higher entry point, or hands-on maintenance. That doesn’t mean you have to rule out property as an investment option, however. While not as widely understood as residential investment, unlisted commercial property funds also provide investors with a similar bricks and mortar, tangible investment, minus the admin and high barriers to entry. In a nutshell, investing into an unlisted fund allows investors to purchase commercial property in “bite-sized” amounts alongside other investors. Long-term play As far as investment strategies go, it’s a longterm play that has the potential to deliver attractive long-term returns over time while also providing the opportunity to earn monthly cash distributions across some funds. Oyster Property Group is one of New Zealand’s leading unlisted fund managers and has been providing retail and wholesale investors with access to quality commercial property investment options, and consistent returns, for more than 20 years. “We’re proud to be helping thousands of New Zealanders access the benefits of commercial property and the resilience of the commercial property asset class which supports many strong investment fundamentals,” said Rich Lyons, retail investment manager for Oyster. Stability big drawcard With more than $2 billion in assets under management, the experienced Oyster team AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 2
of property veterans purchase quality properties of significant scale in the office, industrial, retail and large format retail sectors, which are managed in-house by a team of dedicated property managers with deep knowledge of the sector. Working to a robust acquisition strategy and strict criteria, Oyster looks for commercial properties in sought-after locations, close to key transport links and amenity, where appropriately zoned land is in tight supply. “Our overall investment philosophy is to target quality commercial property that has enduring occupier demand, is well located and close to amenities, and has reputable tenants,” said Lyons. The Oyster Direct Property Fund Oyster Property Group’s Direct Property Fund provides diversified exposure to a portfolio of commercial property investments, and is a great example of why commercial property is an attractive option for investors starting out in commercial property investment. With entry opportunities starting from $10,000 and the potential for monthly cash distributions and long-term capital gains, the benefits speak for themselves. Satisfied customers Auckland investor Allan Faull said the Oyster Direct Property Fund was the perfect solution for his needs. “We couldn’t afford to invest in commercial property by ourselves, but Oyster provided a path into investing in a share of its portfolio,” he said. “The expertise the Oyster team applies to purchasing quality commercial property has given us a chance to realise future value.
We’re reinvesting our returns to grow our wealth and as it’s a PIE fund, there are tax advantages too.” Faull said transparent monthly reports and personal service are other key benefits. “We are not just a number, but a real member of their investment team.” Investor Nikki Sutton, also from Auckland, said she wanted higher returns than a bank deposit, but was relatively risk averse and wanted security. She said diversification – spreading the risk over multiple properties, tenants and funds in the Oyster Direct Property Fund – felt safer. She also describes the experience of investing with Oyster as excellent. “Nothing is too much trouble, and they take the time to make sure things are explained in plain English,” she said.
INVEST TODAY The Oyster Direct Property Fund is currently open with a minimum investment of $10,000. To obtain the Product Disclosure Statement, please register your interest at oystergroup.co.nz/dpf About Oyster Property Group Oyster makes it easier for New Zealanders to experience the benefits of investing in commercial property.
To learn more about Oyster, visit oystergroup.co.nz
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T H E R E N TA L B U R E A U
Putting Customers First a Winning Formula A unique system of renting faster and more efficiently has paid dividends for an Auckland company.
The Rental Bureau in Auckland is thriving by putting their customers first.
that it was possible is what really had to change.
Founder and managing director Victoria Heyes and her team reviewed the tenantfinding process from the perspective of the property owner, the prospective tenants and the current tenants to see how they could improve it for everyone involved.
• makes sure everyone is on board with Moving the goal posts the process, with owners and prospective Most of the work for finding the perfect tenants all available and ready to sign on tenants is now done prior to viewing, viewing day. essentially moving the goal posts and doing Chopping down the tree: all the prep up front so there aren’t long wait times at the other end. As Abraham • means real time comms from the viewing Lincoln famously said: “If I only had an to the property owner and to the support hour to chop down a tree, I would spend team in the office, who are ready to the first 45 minutes sharpening my axe.” process applications immediately Sharpening the axe: • agreements are signed after only one
Owners want great tenants secured quickly; prospective tenants want to be approved for a tenancy quickly; and current tenants would prefer not to have multiple property viewings while they are trying to get organised for a big move. The answer for everyone was clearly to rent faster – but how? The solution came during the Covid lockdowns when companies across the country – and the world – were finding innovative ways to carry on their business remotely. The Rental Bureau team invested in video technology to enable “virtual viewings”. The tenant finding process for the team now has a very clear directive in mind: get great tenants to the first viewing and rent first time. Although it seems logical, the change is not just the technology. The processes, the perceptions, and the belief AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 4
•
includes an amazing virtual advert so
tenants can “virtually view” the property in advance
viewing, often on the same day.
“Everything is strategically planned,” says Heyes. “We take props to the property when we meet our photographer to make sure it looks great. We reach out to everyone booked for the viewing and let them know we will be moving fast on their application. Viewing times are set to enable the highest number of prospective tenants to attend, and early enough for our office to simultaneously complete the tenant references. “Owners have a strategy meeting with us to advise when the viewings will take place and what to expect. The team stays until late every viewing day
to complete applications and tenancy agreements. 60-minute turnround “We have capability to get a tenancy agreement electronically signed within 60 minutes of the start of the viewing, with great, vetted tenants,” Heyes says. “Although it doesn’t always happen within the hour, it is often completed by the next working day, and our goal to rent 50 per cent of our properties in the first viewing is currently on track. “The downside it that we don’t have many
listings on Trade Me at any one time,” she laughs. “Having only two or three properties used to indicate that we weren’t very busy – now it just shows that we are super efficient!” The Rental Bureau made the finals in two categories in the Westpac Business Awards 2022: Excellence in Customer Service Delivery, and Excellence in Innovation, which they won for the process described above. The Rental Bureau was also a finalist (top 3) in the REINZ Awards 2022 for Property Management Company of the Year (Small Office) – an award they took home in 2021. Heyes says: “Winning this award and gaining recognition for the hard work we do is a win for everyone in our industry. It’s nice to have some positive light shining on all the work we property managers do.”
For more information contact: Victoria Heyes victoria@therentalbureau.co.nz 09 887 7420
www.therentalbureau.co.nz
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 5
TRANSBUILD
Plug and Play with a Fixed Price Take the hassle out of housing with a company that has redefined the building world, writes Shamil Gujarati. Transbuild is a proud New Zealand-owned and operated business that redefines the way homes and buildings are built – and it’s been doing it since 2012. We specialise in the construction of architecturally designed, affordable, transportable buildings for residential and commercial applications throughout the North Island. On offer are affordable architecturally designed two to six-bedroom homes, office blocks and staff accommodation. We manufacture large homes and buildings at scale in our purpose-built factory. Traditionally, prefabricated buildings have been small and poorly spec’d, but we’re doing things differently – our buildings are finished to a high-quality standard, ranging in size from 65m² to 160m². You can have your building transported to your site anywhere in the North Island within months, not years, and delivered, operationally ready to plug into onsite utilities and services with the assurance of a fixed price, a guaranteed delivery date and code of compliance. Fast approach If you don’t have land a fast approach to achieving an investment property is by purchasing a Transbuild House and Land package. As our buildings are built within a controlled environment it allows you to get a property generating a rental income sooner. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 6
While traditional onsite builds are susceptible to weather delays, labour and material shortages, we are unaffected. These issues have a very real financial cost which we can help you avoid. As a result, we can build faster and get the property operating sooner and generating an income for you. Most lucrative option If you’re in the privileged position of having land then it will come as no surprise to you that when buying an investment property, the most expensive part is the land component. So, if you’ve got under-utilised land the most lucrative option is to place a
Transbuild home on it – it’s the lowest investment option to getting a high return. For example, if you were to purchase an $800,000 investment property hypothetically 50:50 ratio land to house value, with 80 per cent lending rented out at $580 a week, it would generate a negative return after all costs. In the same instance if you were to invest the same $400,000 into a Transbuild home and place it on your under-utilised land, the property would generate a positive return and a gross income of $16,510 per year. This doesn’t just apply to inner city suburban communities; the same principle
applies to a lifestyle, rural or bach property. People are commercialising on the opportunity by providing holiday accommodation, bed and breakfast options, or staff accommodation. As land becomes scarce other options include subdividing your lifestyle, rural or bach subject to council regulations, adding a Transbuild home and selling it off as a brand new ready to live in property. This maximises the land value with a finished home on it, not to mention the peace of mind dealing with one company to provide the end-to-end solution backed by a 10-year Master Build Guarantee.
Lending, taxes and expenses There are a myriad of benefits to purchasing a new build. Firstly, we’ve partnered with Westpac that provides a specialist Prebuilt Home Loan. For as little as 10 per cent deposit, funding can be provided while the house is being built at our factory. Furthermore, purchasing an existing property as an investment, most banks and lenders will require a 40 per cent deposit. Secondly, new build investment properties can get a tax deduction on loan interest costs for 20 years, whereas this is not possible on existing rental properties as per the October 2021 changes.
Thirdly, expenses can be claimed on the rental property as well, and the bright-line test period for new builds is only five years versus the 10 years for existing properties. With so many benefits it’s time to re-think how property investing is done.
Disclaimer: While every effort has been made by Transbuild Limited to keep the information accurate, the above is for reference only. Neither Transbuild or its employees accept any liability for inaccuracies or losses suffered as a result. Transbuild recommends you directly contact a suitable professional, such as an accountant, to discuss your personal circumstances. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 7
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ILSE WOLFE
DIRECTOR AND PROPERTY CASHFLOW HACKER Follow Opes Accelerate Instagram where I post interesting insights about the property market. @opesaccelerate
AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 9 9
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IN FO RM E D I NV E STOR
Autumn fashion essentials; the all electric Polestar 2 and the Tesla Model Y reviewed.
I NVE ST I N YO U R S E L F
Fashion Update
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The colours and styles of autumn.
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6. 1. Moscot Zolman Sunglasses – www.parkerandco.nz, 2. COS Cupley Turtle Neck – at COS stores nationwide, 3. Aēsop Shaving Brush – www.aesop.com/nz, 4. COS Grey Trousers – at COS stores nationwide, 5. COS Laskin Chelsea Boots – at COS stores nationwide, 6. COS Cairns Jumper – at COS stores nationwide, 7. Marrakech Intense Eau de Parfum – www.aesop.com/nz, 8. COS Mulder Vest – at COS stores nationwide, 9. Moscot Tinif Glasses – www.eyestyle.co.nz AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 1 0 2
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1. Kowtow Ribbon Gathered Dress – www.kowtowclothing.com, 2. Garett Leight Lady Eckhart Sunglasses – www.parkerandco.nz, 3. Twenty-Seven Names Lila Blazer – www.twentysevennames.co.nz, 4. Kowtow Autumn Check Jumper – www.kowtowclothing.com, 5. Twenty-Seven Names Medici Mini – www.twentysevennames.co.nz, 7. Kowtow Cleo Trench Coat – www.kowtowclothing.com, 8. Kowtow Marlowe Blouse – www.kowtowclothing.com AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 1 0 3
WORLD’S MOST ADMIRED WINE BRANDS Craggy Range - Number 30
THE PEAK OF LUXURY Under the spectacular escarpment of Te Mata Peak, Craggy Range Winery presents a second-to-none visitor experience. A short stroll through the vines from our luxury accommodation, enjoy a seated tasting in Cellar Door or Head Chef Casey McDonald’s Hawke’s Bay menu in an intimate, comfortable & relaxed space. 253 Waimarama Road, Havelock North, Hawke’s Bay, New Zealand | +64 6 873 7126 | www.craggyrange.com
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I NVE ST I N YO U R S E L F
Meet Polestar 2, a Volvo in an Electric Suit Liz Dobson finds there is much to like as Geely swaps things up for the Swedish brand. Kiwis are charging ahead with buying electric vehicles thanks to greater options for buyers and the government’s clean car rebate, so with many great choices it takes a lot for one model to stand out. Meet Polestar 2, an all-electric vehicle from a car brand you may not have heard of before. Polestar is an offshoot of Volvo and along with the famous Swedish brand is based in Gothenburg, Sweden. Both brands are owned by one of China’s largest vehicle manufacturers, Geely. The first vehicle from Polestar was a hybrid coupe, but Geely decided to swap things up and make it a fully electric brand, with its first product being the Polestar 2, to be followed by the Polestar 3. Polestar uses technology and safety features from Volvo but its exterior design is dynamically different from its parent brand thanks to futuristic aspects. Like Volvo cars aimed at the Asia and Australasia market, Polestars are built in China at Geely’s factories. The Polestar 2 arrived in New Zealand last year with three variants; the standardrange single motor, long-range single motor, and long-range dual motor. The standard model is priced from $76,900 (at the time of print). Add $3,000 and you get the Pilot Lite Pack, which is an array of safety features such as a 360-degree camera and adaptive cruise control (that lets you set speed and distance between you and the vehicle in front on motorways). Clean car rebate Both these models are eligible for the clean car rebate of $7,500, which is for any new fully electric vehicle priced under $80,000. The two standard models have an electric AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 1 0 6
range of 470km and have a 69kWh lithiumion battery. It produces 170kW of power and 330Nm of torque. Next up is the long-range single-motor version priced from $86,900, with an electric range of 540km. It gets the same battery as the standard Polestar 2 but has electric motors on the front and rear axles. If you want features such as heated seats, a panoramic sunroof, and wireless charging for your smart phone, add $8,000 for the Plus pack. The top model long-range dual motor costs from $104,900 and has a range of 480km, but has a more powerful energy output of 300kW of power and 600Nm of torque. That sees it go from 0-100kph in just 4.7 seconds – 2.7 seconds faster than the two other models. This extra power from the 78kWh battery really comes to the fore when you’re on the motorway, taking off from traffic lights, or on-ramps. If you want added appeal, then add the performance pack for an extra $10,000, and with that you have such features as updated alloys and the Polestar Engineered Performance software upgrade. All charge from 20 per cent to 80 per cent in 40 minutes at a standard public charger, or seven hours overnight via a home wallbox.
The five-door electric vehicle is categorised as a fastback, which is an SUV with a roof sloping to the rear, and this gives the Polestar 2 a more commanding look. But the car’s rear lights make it more sci-fi than its direct competitors, the Tesla Model Y and Model 3. The front lights are similar to Volvo with the “Thor’s hammer” design, while the rear lights run the length of the vehicle and then curve into a U shape. It’s an impactful design statement, especially at night. Navigation system The cabin is a lesson in Swedish minimalism that I loved and is similar to the Volvo XC40 and C40 electric models. There is a middle vertical information screen that has all the functions you need such as radio stations, navigation and apps. You also have controls on the steering wheel that change radio stations or set advanced cruise control. But what makes it stand apart from its competition is that the Polestar 2 was the first car in the world to feature an infotainment system powered by Android Automotive OS, with Google built in. This means you can use voice-activated instructions, but better still a constantly updated navigation system that alerts you to traffic jams ahead.
MOTORING
‘The cabin is a lesson in Swedish minimalism that I loved.’
Another point in its favour is that it has a vegan interior as standard that addresses “plasticisers”. The Polestar 2 easily seats four adults comfortably with plenty of room in the boot. I tested the base standard model for a day at the New Zealand launch, and I had the longrange dual motor Polestar 2 for a week. If you haven’t driven an electric car before then the first aspect is one-pedal driving, which means you don’t need to brake for the car to stop as it halts when you take your foot off the accelerator. Initially it can be disconcerting, but you get used to it very quickly. Despite it having “just” 480km of range, I didn’t need to charge it during my test period despite gnarly commutes in Auckland. What I loved about it was the instant power which is great when you are heading onto a motorway on-ramp, and gives assurance when you want to overtake. Safety features ‘niggle’ The Polestar 2 drives confidently although a little stiff, but one of the niggles for me was some of the oversensitive safety features it inherits from Volvo. For example, lane keep assist can be too reactive while emergency stop takes its job too seriously. If you are
steering around a corner, and it sees a parked car in your line of vision, it will brake. But once you know these quirks you can change your driving style to deal with them. And hey, better to be safe than sorry. The Polestar 2’s competition price-wise is the aforementioned Teslas, plus Kia’s EV6 (another futuristic-looking vehicle), and Hyundai’s award-winning Ioniq 5. There’s also good news if you are still contemplating buying a Polestar 2 as it has just been announced there is an upgrade to
the premium compact EV. The 2023 model will feature a new high-tech front similar to the Polestar 3, more powerful batteries and, for the first time in a Polestar, rearwheel drive. The first deliveries here are expected in the third quarter of this year. Liz Dobson is the former motoring editor for The New Zealand Herald’s Driven magazine. In early 2020 she launched AutoMuse.co.nz, a lifestyle motoring website. She’s a member of the NZ Motoring Writers’ Guild and also a judge for Women’s World Car of the Year. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 1 0 7
15 years of investing Mike Taylor started Pie Funds 15 years ago and he’s been investing personally for even longer. These days the company manages over $2 billion* of investments and has offices in Hawke’s Bay, Auckland, Sydney and London. Taylor looks back on the company’s success since it launched in 2007 and explains what more than 15 years of investing has taught the team.
Mike Taylor Founder and CIO
In the 15 years since Pie Funds launched, there have been plenty of challenges: bear markets, the Global Financial Crisis and the Covid pandemic. But new growth sectors, innovative companies and technology offerings have created some fantastic investment opportunities.
A great example of this is Netflix, which took the world by storm with its online streaming. By late 2021, you might have made 10 times your investment and it was time to cash out, Taylor says.
What has 15 years of investing taught the team?
“Buy into businesses you know are doing well. And pay attention to the road signs as you go along.”
Build your wealth over the long term
Prepare for highs and lows
“I am proud of the wealth we have created for our clients over 15 years,” Founder and Chief Investment Officer Mike Taylor says.
Try to stay relaxed about your portfolio, Taylor says.
He recommends building your wealth over 10 to 15 years at least, rather than 10 to 15 months. “Over your investing lifetime, you’ll see bear markets and stock market declines, plus plenty of unexpected world events that impact financial markets.”
Think differently from the crowd Pie Funds is committed to active fund management, aiming to provide above-average returns and generate long-term wealth. To outperform, you need to be thinking and acting differently to the crowd, Taylor says. “This should be obvious but, as humans, we can take comfort with safety in numbers. If everyone is saying and doing the same thing, how can you do better?”
Seize the obvious opportunity Taylor launched Pie Funds with an active management strategy of concentrated high-growth portfolios that was unique and still is today. This strategy remains at the core of what Pie Funds offers. The team invests in high-quality growth companies with strong balance sheets and great management teams. These companies are usually founder-led too, like Pie Funds.
“Even for someone like me, who is trained to think rationally and strip away emotions, some prices are at extreme levels that I wouldn’t have thought possible.” Taylor says having a relationship manager can help investors navigate periods of market volatility. “I’m really proud of the strong client relationships and passionate culture we have built with the team at Pie Funds.”
Where to from here? “We exist to make money for clients so performance matters more than growing our customer base,” he says. Taylor says investment markets and sectors will continue to evolve, and Pie Funds will too as a company. “Looking back 15 years ago, I underestimated where we could be today. When I think about the next 15 years, I don’t know where we will be,” he says. “But if we have good people, good processes, and good outcomes, then I know Pie Funds will continue to be successful.”
PIEFUNDS.CO.NZ
*As at 31 October 2022, including JUNO KiwiSaver Scheme. Pie Funds opened its first fund on 3 December 2007. Past performance is not a reliable indicator of future performance. Returns can be negative as well as positive and returns over different periods may vary. View the Product Disclosure Statement plus our duties and complaints process and how disputes are resolved at www.piefunds.co.nz. Information is current as at 22 November 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you.
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R EOGTUOLRAI N M RS G
Electric Dream Comes True With capacity for five passengers, the new Tesla Model Y shares many of the same components of its predecessor, the hugely popular Model 3. An SUV designed to appeal to the eco-minded and affluent family market, this EV has a lot going for it. Getting behind the wheel of a Tesla for the first time can be disconcerting. There’s no key (you get a key card and a phone app instead); the car is turned on via a foot on the brake and drive shaft; and the car stops when your foot’s off the accelerator. But it’s highly intuitive, and once you get used to it, deeply satisfying to drive. The Model Y’s slightly cumbersome exterior is made up for by the roominess of the interior. The sleek wood-look dashboard is a nice counterpoint to the futurism of the large touchscreen; the seats are super-comfy, and there’s plenty of legroom. Driving in the standard white Tesla feels akin to floating on a cloud; a surreal silky silence. The touchscreen can be used for changing temperature, opening and closing the boot and bonnet, or (when the power’s off) watching YouTube, Netflix or listening to Spotify. The battery range is 455km and it can reach 100kph in 6.9 seconds. Like its earlier incarnations it’s likely to bolt out the door; and rightfully so. It’s an EV that marries luxe with practicality, and has enough nice surprises to keep any car lover happy. See www.tesla.com/en_nz/modely for more details. AUTU M N 2 0 2 3 | I N F O R M E D I NVESTO R 1 1 2
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