Buying & selling property in NZ - and the currency decision

Share |

What is the outlook for the AUD:NZD? A pertinent question don't you think since so many Kiwis are looking to go to Australia? The press are of course trying really hard to convince New Zealanders to stay at home. Just like the churches they are presenting a lot of SCARY!! stories about Kiwis living on the poverty line in Australia.

Just in case anyone has forgotten. Australia is taking NZ's best workers, not its worst. Those on the poverty line are clearly people who didn't have a realistic sense of their own worth. This is not surprising of course. Australia is a competitive market, and NZ's are inclined to lack a good work ethic if they are not accustomed to living in a competitive market. i.e. A person coming from a country town, accustomed to spending 20 minutes talking to others at the local post-office will have an adjustment.

No, if you have useful skills, then you will find a place in Australia. The following chart suggests however that your chance to move your wealth over to Aussieland is quickly disappearing. The NZD seems destined to fall back to 0.68AUD in the next 6 months as the Australian economy regains strength.

NZD doldrums is of course good news for Aussies looking to buy property in NZ. NZ are eager sellers, whether to move to Australia, or because of the rural drift to the cities, or simply because the 'batch' is quickly turning into an investment nightmare. What is the rationale for living in NZ, or having a house here? Well, depending on where you buy, it could be easy an investment or lifestyle property. Land rates are padded with welfare here, i.e. $1800, so its best to factor that in. Retirement probably makes the most sense. There are many motels for sale or lease. My favourite locations are Rotorua, Wanganui and Nelson, and of course Queenstown if money is no issue.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

John Key's speech to Australia moving but fallacious

Share |

John Key, PM of NZ believed a very moving speech to the Australian Parliament. It was this first such address by a NZ prime minister, and follows the speech by George Bush, as the visiting US President. With respect to its content however I must say:

1. Having lived in NZ that the values of NZ people are quite different. Not that its a problem; but it betrays the sentiments of the speech. Everyone likes to mention what we share. This of course betrays the facts, which also include differences. We actually have quite different histories. Shared aspirations? I don't think so. The only Australians going to NZ are those trying to escape a repressive government, and tourists wanting to check out what a real mountain and earthquake looks like. Most of the 560,000 NZ'ers in Australia came over for the money, even if they learned to live there.

2. The CER represents a 'global standard in free trade agreements'. Really? What about the apples Mr Key. NZ apples were restricted for trumped up scientific reasons...you know...the type used to justify climate/carbon taxes.

There are many positives about this speech. The sentiments are warm and welcoming; but sadly they are quite a stray from the facts and from principle. Most concerning is the sentiments expressed - that both countries are committed to freedom:

"That democracy, freedom and the rule of law should be cherished and fostered".

In the policies of both the Australian and NZ, trade aside, I see no evidence of freedom, and would argue that democracy is but a legitimatised form of fascism. Great speech lest we forget the facts.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Australian PM delivers a cliche

Share |

Julia Gilliard has turned a commonplace activity like generosity and turned it into a cliche. It was always an Australian beat-up, this notion of 'mateship', but she wants to labour the point because we have to be close for economic reasons. Sadly these people waste our time, and they are only obstacles to the real 'business' of creating wealth. Consider for instance the fact that the Australian Liberal and Labor governments alike have for the last 20 years obstructed NZ apple exports to Australia, and concocted a scientific reason to lock out NZ apples which taste far better than the Australian apple....by miles.

The trade relationship with NZ is more important to NZ than it is to Australia...if only because NZ'ers have no money, no jobs, and a competitive advantage because their currency is so low.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

NZ relativism needs to end

Share |

New Zealand is lagging the world in terms of economic prosperity. Being an Australian living in NZ, I am surprised at the extent to which NZ is clinging to the prospects of catching up to Australia. Notwithstanding the importance of the Closer Economic Relationship (CER) and the proximity of the countries, and their similarities, it seems a bit myopic to focus on this one particularly small country, particularly from the point of view of public policy formulation.
In NZ constant comparisons are made with Australia - the latest one being the fact that national income per capita in NZ trails Australia by 34%. Whilst I can understand the appeal of Australia from the perspective of being a 'close market', I would suggest it might be a little too close in some respects. i.e. NZ is like Australia a producer of low value commodities. Why enter a competitive market for the same products where you might differentiate yourself overseas. Certainly I can understand the attraction of exports to Australia for NZ Small-Medium Sized Businesses (SMEs). They need to keep costs down and familiarity makes sense.
I am more concerned with NZ public policy makers trying to emulate the Australian 'success' because its not what it seems. Australia is enjoying a lot of economic prosperity simply because it has huge, world-class resources of minerals, which NZ does not. Australia is experiencing huge capital inflows by Chinese, European and US companies to finance mining projects, which will generate sizeable revenues for 50+ years.
Australia is making use of its competitive advantage. These large resources are close to the coast, Australia is close to Asia, and it already has established infrastructure to service these mines, including deepwater ports and rail linkages. There is the possibility NZ will find some large gas fields in future, but at the moment that is a 'pipe dream', and anyway Australian projects will likely seize the lions share of gas developments in the next few years because of resource security issues in NZ.
The right strategy for NZ is not to copy Australia because we can see there are some important differences between the two countries. NZ needs to get clever at developing its intellectual capital. Hopefully it will entice some of its expats to return home to develop businesses, or use those links to make connections in foreign cities. The reliance on low-value farm products has to end. Just $5 billion of NZ's $38 billion of exports comes from more sophisticated technological goods. NZ needs a Nokia-type enterprise. That is where the future of NZ lies, and here is one company making a great impression in accounting (business) services. The company is Xero , and its listed on the NZ Stock Exchange. It offers online accounting services to companies around the world. This is exactly the area which makes sense for NZ. I wanted to recommend this company because there are too few great stocks in NZ, and this is one which could make a great impression. I like Windflow Technologies as well, however this one has more leverage because of internet scalability.

NZ taxation under scrutiny

Share |

New Zealand is considering changes to its taxation policy in order to make the country more competitive for foreign investment. In this task they are destined to fail. Let me suggest why. There are several failures the NZ government will make.
1. It will fail to consider efficiency measures - it will focus on raising money rather than improving efficiency/productivity or cutting expenditure. e.g. From hospitals
2. It will fail to recognise where the prospects for economic growth come from. It will focus on cutting the corporate tax rates in order to attract large companies. The scope for expanding business in NZ does not rest on big business, it rests on small business. The reason I say this is because NZ is a very small market, and any decision to align with Australia is only going to reinforce the belief that any regional office in Australia (Syd/Melb/Bris) can service the NZ market. For most countries, NZ does not even justify a presence. This could actually be a strategic advantage for NZ small business.

There are likely to be two serious contenders for tax increases:
1. Capital gains tax on investment property - this would be consistent with the tax regime in Australia, and there is considerable appeal in aligning the tax systems.
2. Stamp duty on property transactions - expect a tax of up to 3%
3. An increase in the GST - I don't expect this tax increase to succeed, least of all at at time of recession. Frankly the suggestion that it is a serious prospect I believe is intended to make people feel like they actual 'won' a concession, when in fact the government will look at the other taxation options.

These tax increases will be used to fund tax reductions for business. The question is - do these tax cuts make sense? Given my arguments above, I believe any revenue increases should be used to invest in NZ small business rather than big business who really only invest in primary resources. Resource producers stand the best chance of passing through costs in this recession, so they are not the group of investors I would be looking to support.

Some time ago NZ joined the chorus of governments which adopted libertarian policies. I consider myself libertarian, but one has to maintain a sense of reality. It I was a taxpayer with any voting power I would not sell an asset based on prices of $0.12/kWh, only to allow the new owner to raise prices to the marginal cost required to commission new generating capacity, which is $0.24/kWh. The reason is because the power companies can generate ample profits at $0.12/kWh, given the cost of generation capacity is zero for most hydro plant (which is 70% of total capacity). Privatisation was a bad deal for NZ'ers. That does not mean it always is; just in this case. This is hardly an incentive for business investment. Of course big business can negotiate harder by 'threatening' to build their own generating capacity.

Another case of bad policy was the decision by the NZ government some years ago NOT to support 'winners'. I understand the sentiments of not providing subsidies to business, but there other choices. Small business in most countries have difficulty raising capital. Its even harder in small markets like NZ. This country needs strategic industries. Students need an assurance of jobs if they are going to study such subjects. This country needs to support niche industries, whether its manufacturing of niche sporting equipment, whether its subsidising a cargo vessels to make regular low-cost shipments to certain markets, whether its a trade shared vision for trade. I see that 10 wine growers in Australia are gathering to promote their wines. NZ needs the same shared vision. The challenges are:
1. Ensuring accountability so the money is not wasted
2. Ensuring that its not a tax scheme but an investment scheme because I hate the idea of trampling on people's rights.

It is all to often forgotten that taxation is a breach of the taxpayers rights to determine their own destiny. I can understand the counter-argument that there needs to be shared expenses like road funding, say with a road petrol tax, rather than tolls everywhere. Such taxes should be user pays as much as possible, and I think people should be able to sue the government for relief from such taxes. People should not not funding schemes they have no benefit from. We don't want bad schemes funded. There needs to be a pay-off. We need schemes to have objective standards of value, so that people and judges can establish their value. This is the vision of this report.

I am reminded of the book 'Bad Samaritans' by Ha-Joon Chang. It looks at history and discovers that the industrial giants, whether Britain in the 17th century, the USA in the 19th century, Germany and Japan in the 20th century, all existed as a result of protectionism. Only when these industries had established themselves did the governments wind back the subsidies. This is not to suggest the model of these countries is desirable. In fact there are many better ideas to boost investment. One option might be a family-based subsidy for business. It needs more thought by myself.

I think there are many successful business people in the world who succeeded because of help from family and friends. The reason that some form of incentive is needed is because people have a tragic sense of live. They are inclined to be cynical about others, and thus people end up with no savings, no customers, no feedback and no service. Ultimately a more prosperous economy today tends to arise only because of government stimulus, though such stimulus arises for the wrong reasons, in order to maintain demand, to keep governments elected; even if it hurts the economy.

Upon completion of this book I will demonstrate a scheme which will provide for the most efficient use of funds. Give me time...so many other books to write. :)

Australia-NZ Closer Economic Relationship (CER)

Share |

One of the most important policy changes in coming years might well be the Closer Economic Relationship (CER) between Australia & NZ. Having moved to NZ to escape the stupidity of the Australian tax system, I would like to warn NZ'ers they might be moving inextricably towards fascism faster than they already are, if PM John Keys keeps forging ahead with his CER agreement. NZ'ers might be thinking that Australia is the stronger economy, so how bad could the tax system be? Well its a nightmare. The reason the Australian economy has out-performed the NZ economy lies in factors such as:
1. The larger size of its economy
2. The huge stimulus provided by Australia's commodity resources
3. Less generous welfare policies - no entrenched welfare system
4. Stronger savings culture
5. Greater commercial acumen

The negatives of NZ joining Australia as one country have already been provided for in the Australian Constitution. The Founding Fathers saw the prospect of NZ being part of Australia. Perhaps they considered the possibility of economic failure. But NZ is far from a failure. Its just that the country would benefit from greater market integration. Certainly foreign investors are less inclined to invest in a different country with 'another' tax regime. If NZ could market itself as Australia 'plus' lower taxes, that would certainly be a great benefit for the country. Of course it has to be good for NZ business as well. I would think that the NZ economy is equal in size to Queensland. Its no 'Sunshine Coast', but rest assured with greater integration, you will see more Australians moving to NZ for the sake of lower property prices, as well as to buy holiday houses.

So when is the property boom going to start? Well given the tight property market in both countries, we might ask what will the focus be? I have no doubt that the greatest attraction for Australians is likely to be the tourist centres of South Island. In order of priority I would think:
1. Queenstown-Wanaka: Lower (domestic) travel costs between Sydney, Melb, Brisbane and Queenstown will result in far greater investment in these areas. We must remember that Wanaka and Queenstown have panoramic views of lakes and mountains, and they occupy confined valleys, so the value of those views is going to skyrocket, and I dare say these places will be destroyed if not properly managed.
2. Blenheim-Picton: The problem for this area is that there is no airport servicing this area for Australians, though I am guessing this will change with greater market deregulation.
3. Christchurch: This city has a lot of appeal too because it is a larger commercial hub, and its at least in the proximity of the North Island attractions, particularly Mt Cook.
4. Auckland: Auckland is NZ's largest commercial centre. No great value in itself, though people might appreciate it as a transport and North Island hub.

How are NZ'ers likely to respond to the thought of being part of Australia? Well there is always proud people who want to keep their own identity. Certainly being a state gives them that, but with some loss of independence? Does it matter if you are controlled by a government in Canberra or Wellington? Yes, clearly it does if federal policy is different. But isn't Keys indicating a desire to shift us towards Australian policy, or is NZ going to be a state with a difference?

Keys is signalling that travel could be as much as 20% cheaper, and that taxation systems will be alligned. He said that travel will be streamlined by Xmas, which is the far more important issue for property investors. Allignment of tax systems will take longer of course. So what will NZ'ers think? Are we the same?

Having lived in NZ, I find NZ'ers more outgoing, more reliant on the State, more easy-going. They are more lifestyle-orientated, less money-orientated. Of course this analysis is skewed by the fact that I've shifted from an Australian city to a rural NZ town, so herein lies the problem. City-siders in NZ are likely to welcome the integration, but rural NZ'ers might regret it. Of course it comes down to values. But towns which were slow, friendly places might resent the invasion of Aussies during the holiday season. Not because they are Aussies, but because they have changed the town's culture. It would be no different than the Wellington school excursion to New Plymouth, which resulted in the students trashing a motel. It upsets local communities. Australia is something bigger. People will have to adjust, and they don't want to. They will not make the connection between these issues and increased business activity and jobs.

Clearly the biggest benefit will be in property prices, which is why we recommend buying property here. The appeal is particularly attractive for Australians given the fact that:
1. The Australian dollar is even stronger than the NZD
2. There is a lot of property already in foreclosure, mostly city apartments in Auckland and Christchurch. People have lost jobs.

One does need to watch the exchange rates. High end properties are still too expensive. Apartment yields are good, and rural property in towns are often still very cheap, even if you are close to the beach. Want to know more about buying property in NZ - see our $20 study.