Long term interest rates outlook - NZ

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NZ - read this and learn - inflation rates will be down for 30-40 years so go out and buy a home, or float your interest rate. There is going to be a rise in rental yields, so you may as well do it now. We are not going to see inflation because China, India and others are resulting in a global oversupply of labour. Unions will probably disappear; but we will need to see land reform to avoid hardship in future. Hopefully the anti-intellectuals will not drive up into civil war.

NZ is of course strongly reliant on overseas savings, however the international rate will remain low.

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

Is NZ an attractive investment for millionaires?

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According to David Shearer, the new NZ Labour Party leader, foreign investment is a threat to NZ. Think again. So why are they buying? Is NZ really such a great investment opportunity. Land values are growing 9% per annum on average. Others have other motives besides diversification. Some mega-millionaires are also escaping pernicious overseas tax regimes. NZ is considered a safe haven. The US govt has recently tightened its tax laws to pursue the stash of millions held abroad by American citizens. Some of those millionaires are rushing to leave the USA; to become non-citizens before they have to declare their assets to the US government. NZ offers 5 years tax holiday on offshore passive income - that is an added motivation.

Others are just spreading their investment risks. Irrespective, NZ is lucky to have these investments. Let's not persecute foreigners, who are more likely than not to invest here, for a land ownership framework which is wrong, and not for the fact that any person with a lot of land has the capacity to hold smaller buyers to ransom because of Western zoning restrictions. i.e. I'm currently trying to buy land in Queenstown. I could buy 10x more if I had 2x more money. That's the extortion racket perpetuated by our zoning system. The politicians are too cowardly to address it.

Shearer and others are populist reactionaries. Do they realise that when foreigners buy land, they actually raise the asset holdings of NZ'ers? Do they realise that this is a local basis for underwriting investment? Do they realise for every foreigner who buys, NZ money is potentially released for 'tangible' productive investment like factories. If these investments are not occurring, then its because there is no domestic demand. How can you grow local productive capacity when there is no population growth? Why would you develop an export centre in the far South Pacific when you can do it in Australia. The only plausible value proposition for NZ is:

1. Cheap labour - sorry, but NZ work ethic is not so appealing, Malaysia or the Philippines look better

2. Education - yes, NZ has potential as a source of educated labour, but broadly the values are so stinking collectivist/Christian dogma that they have effectively renounced their minds, and taken themselves out of the market

3. Software - yes, but without a consumer base, why would you do it here?

4. Content - yes, NZ is appealing for developing intellectual content, i.e. Books, movies, at least the Harry Potter fantasy style surely fits local values.

5. Resource - NZ is quickly closing its options off here. Don Brash would tell you that NZ has resource potential, but its only offshore, and it is substantial, but with Rena, maybe such projects will never get off the ground. Oil looks like NZ's only hope in this climate.

Personally NZ is the only place I'd buy in NZ at this time. It should be annexed by Australia. The problem of course is that its not light until 9am in winter. But it is just 3 hours to Sydney.

My advice is - leave the millionaires alone - they are not the problem. Its your political system which makes millionaires the scapegoats for Labour/Democratic Party reactionaries around the globe. Its the modern version of witch hunt. The media loves a tragedy; so they will willingly jump on such stories, scarcely knowing what the real story is. But then they were raised or nurtured by liberal academics detached from the real world.

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

Buying & selling property in NZ - and the currency decision

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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.

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

Wanganui - the best property value in NZ

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The latest property affordability survey results place Wanganui first in NZ as the most affordable for living. I have lived in Wanganui for the last 3 years. We bought when the NZD was 0.53-0.55 to the USA, and that rate is now $0.80. We expect it will be fairly stable at these rates for the foreseeable future. NZ has healthy exposure to food exports, albeit premium product. We expect some trade off in volumes and prices, and otherwise a soft economic outlook. Not as bad as offshore, and we see monetary policy (i.e. yields) as a weak influence on exchange rates.

If you'd like to know more about Wanganui, take a look at this article in the local newspaper.

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

Buying property in NZ - the short and long term

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This is not the time to buy property in NZ for international buyers. The public deficit is at a high point, and the government is targeting conspicuous consumption or largess as the basis for future tax receipts. So its really an addendum to the GST, which has just increased; except this tax will apply to the wealthy. This is mostly going to entail luxury sales taxes, extra property taxes on holiday houses, etc. The family home I suspect will not be touched, however there many well be an attempt to target high-value homes. i.e. Tax-free sales below $250K.

The implication of these decisions of course is that anyone sitting on luxury items like houses or yachts looks like facing a tax. The implication is that '2nd properties' are going to be entering the market. You would tend to expect most of these properties to be in the rural areas, as well as places like Wanaka, Queenstown, Wanganui, Nelson, Blenheim and the various fishing and ski resort areas. The 'bach' has long been a simply of NZ's affinity with lifestyle. It just got that little bit harder to 'live the life' in a country with a stilted domestic economy.

Queenstown

The best buying opportunities is likely to be in those slower demand centres like Wanganui, and even places like Napier. Tourist locations more than residential growth zones like the cities. The best opportunity is likely to be in 1-2 years, as this will correspond to:

1. A slight rise in global interest rates - given the high levels of consumer indebtedness I don't see governments willing to allow foreclosures to blow out, and NZ will benefit from high commodity prices.

2. A short term problem of high deficit placing pressure on the AUD

3. The offloading of all these properties.

4. The population decline in some rural areas means that they are likely to feature more strongly as sales opportunities. We must remember that rural areas will benefit from strong commodity prices, so the effect will be short-lived. Already there is a lot of rural 'bachs' on the market in anticipation of such taxes. Of course not everyone will sell. Some can afford the lifestyle, some use their city home as superannuation money, and their bach is the 'retirement home'; and others might rent the bach out in the off-season as a trade off.

I would be looking for the rural residential market to fall over the next year years; I'd expect the NZD to fall to a low against the AUD in 2 years given stronger outlook for food prices rather than metals; and by then NZ will have taken some steps to resolve its deficit. In 10 years, NZ will probably have a few more oil discoveries, and it will then become the land of milk and honey.

The problem of course is that John Key is doing very little to curtail the drain on the economy by taxing those who actually earn their way in the economy. There is too much parasitism in NZ, and governments are always reluctant to target them. Why? It requires an education policy, and they cannot think. Taxation requires the creativity of squirrel which collects nuts, and the roar of a lion which threatens to steal your nuts when you do something wrong. At least I know how to talk to the parasites. But I want to also tell them that its not their fault. The rich has enabled the poor and government to perpetrate this crime against humanity by not developing their critical thinking capacities. We will be driven towards fascism - not by the collectivist looking to plunder the wealth of the rich - but by the wealthy who thinks they can escape the powers of government. They will catch up with you eventually - and they will do it by paying off consultants to track you down. That's rich the private sector is being used to undermine the private sector. So your message - either develop some intellectual integrity or OBEY!

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

NZ - a nation of rorters?

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There are few countries in the world where one feels like one is in a free society. I have lived in a number of countries, and among them I would have to say that in terms of 'freedom from some form of extortion', I probably most felt extorted in New Zealand and the Philippines. NZ is probably worse, but then I feel richer in the Philippines because things are generally cheaper. In Australia or Japan, I did not feel so much of a problem, at least not at a commercial level.

I have been living in a short term rental lease in Queenstown, NZ, and I must say that the property managers in this place are abysmal for the following reasons:

1. Their contract was wrong from day one - they could not even calculate the right some. I can't remember if it was in our favour or theirs.

2. The property condition report was very adverse to us - in as much as they had not picked up a lot of the property damage. This is a potential rort. I complained about this. The problem is that when the agent 'misses' so many items, you are destined to miss some as well.

3. The property manager did not provide me with a copy of the property report. This is strange. I have never leased in NZ before, but it strikes me as strange that the tenant does not get a copy of the report. I asked for acknowledgement that they have received my copy. It was a struggle to get even that.

4. I was required to clean the apartment when I left the property. This might have been appropriate if I had in fact been in there more than 3 months, and the carpet needed cleaning. This strikes me as another rort. What I will do is that when I leave, I will require that they produce evidence that the carpets had been cleaned prior to my entering the premises, because I remember otherwise.

Australia has a rather good regulatory system for managing the relationship between tenants and landlords. In fairness to landlords, they are probably not making much money. At least not the owners of apartments like these. You are buying a depreciating asset, you have high property management fees. The property manager can be viewed standing around talking to people. Property managers are making easy money probably, when the asset owners get a raw deal. It is of course the owners of land who get the sweet deal.

I don't like living in a police state. Neither do I like living in a country where you are inclined to feel everyone is our to squeeze you for a buck. Nor do I like living in a society where you accept the requirement to pay tax, you live in fear of the system, but you deceive everyone around you by rorting the system. i.e. You set up a business, you rort the system with all these false or dubious business expenses, in order to keep your taxes down. People with a respect for reality, or honest people are penalised. Pretty soon there are no honest people left.

Welcome to the real world. Its not so pleasant. Everyone is a con, but only because they have to be in order to survive. No one questions the system because no one can change the system. You suck it up, then one day there is riots. We are witnessing them today in the Middle East. Its like a domino effect. Repressed individuals seemingly become incensed overnight and protest. We saw the same in the 1990s with the Rodney King riots in Los Angeles.

One day consumers, taxpayers, maybe everyone is going to say they have had enough. I just hope that they don't turn to government for solutions, because they are middlemen; they are the problem.

If you are thinking my contempt for the practice of a Queenstown property manager is enough. I am accustomed to being rorted. I have dealt with the building trades. Same in Australia mind you. The building trade in Japan I believe is pretty clean...at least in the cities. I think when you are dealing with businesses reliant on their reputation, you get better service. There will come a time when people will go online looking for services, and for people with a good reputation. We are not there yet, but it will come. Accreditation. People will start to care about their reputation, just as they did in the old days. I love the internet. It will give me the freedom I ultimately deserve.

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

High priced houses and slavery in NZ

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It is indeed a brave or silly person who takes on a 30-year mortgage in this environment. I would however suggest that these people will be fine. I actually don't expect the commodity producing countries like Australia and NZ to experience inflation...at least not at least whilst they allow their currencies to appreciate. The particular problem for NZ'ers though is that it is reliant on foreign savings. Maybe that makes them more vulnerable to the foreign cost of capital...but if bankers realise that NZ is offsetting foreign currency debasement with rising currency, then I see no reason for there to be such an imposition.

Having said that, I do think that it makes less and less sense to live in the city these days, or at least to pay a premium for it when increasingly people are living in rural areas because they have workplace and lifestyle flexibility. Why pay $300K for a crappy place in Auckland, when you can have a crappy place in Wanganui? The reality is that Wanganui cannot match the facilities of Auckland, but it has other benefits:

1. Access to outdoor activities

2. Proximity to everything

3. Easy living

Eventually those concerns will balance out....and there are bigger centres, or even the opportunity to live in more tourist i.e. growth-orientated places like Queenstown, which is already very expensive. The sad reality is that any 'growth story' is destined to be a basis for extorting higher prices by landowners with the sanction of government. Why? Smart landowners recognise that their land is more valuable if they can stop people subdividing theirs. So they campaign on the basis of 'anti-development', and in the process they get governments to sanction locking up the region from developers....under 'catch cries' like, we don't want the city people. i.e. Lifestylers. It does not even have to be about money...but usually it is. Their money, not yours. They think that because they were their first...they ought to have the right to control how things are. That is democracy people. It sux for everyone, but no one has the broader perspective to see it. They think that their is some redeemable feature to democracy. I will take all feedback. If you think democracy is good, let me know why, and I will repudiate it on my 'Democracy Sux' blog.

What the government is doing is locking people into mortgages for a lifetime. At the end of it, technology will have passed you buy, and you will be wondering why you were ever a slave to a mortgage? Why did you ever place yourself in such a place of vulnerability. We have lobbyists arguing that people cannot afford to buy a home. Lucky people! Its a prison sentence. Get the cheapest house you can buy and have the life you wanted to have. If that is a 'lifestyle' spend it, or save it, if you want to invest, better still, or set up a business. That is life. It gives you a sense of pride or efficacy. Being a slave to a house will lock you into a location you will probably not want to be, into a wife you no longer like, into a job you are scared to leave because of recession, and it will lock you into all manner of follies. The government loves it because:

1. You are always working and contributing to their spending power. The Tax Office loves women's rights, as it registered them as tax slaves as well.

2. You are supporting the welfare umbrella

3. You are establishing an asset base which they and the bank control.. They can always get you. You cannot funnel your assets offshore. That is getting harder anyway.

Read this story about a NZ family living the life of unhappy people. In 20 years, they will wonder why they ever bought the house...or maybe they will not wonder at all. 'Not thinking is the strongest form of sedative'.

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

Investment in NZ farming assets

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There was an article in the NZ Herald today highlighting the appeal of NZ farming properties as an investment opportunity. The author questioned why NZ'ers, instead even foreigners, are so interested in NZ rural property when the income is so bad. I makes the case that:

1. Rural properties are capital gains tax free

2. Rural properties have offered an average capital appreciation of 10.5%

There are another two further reasons to think there is even more upside in property:

1. Hedge: Property offers some appeal as protection from currency debasement. Commodities are priced in USDs. Thus if the NZD was debased because of poor government policy, there is a hedge in the sense that your US-denominated income will cover your capital loss.

2. Market access: There is scope for the USA-Japan-EU to eventually drop their agricultural tariffs and subsidies which have penalised NZ, as well as the third world. There is of course a trend towards free trade/trade liberalisation. The question is - how long will this take to occur?

3. Demand: There is a shift in Asian developing countries to meat-rich diets, so that demands more meat and dairy imports from places like NZ. Chinese, Filipinos, Koreans, Japanese, etc want bigger breasts, and to get those they need to drink milk. Of course they are also eating more protein like McDonalds, etc.

4. Investment: There is the opportunity to subdivide rural properties into lifestyle blocks.

A lot of property is no longer appealing for wool growing. There is some interest in these properties for timber-based industries, which are of course low-maintenance industries, and easily contracted out to third parties. There is even the prospect of tax, carbon credits and ancillary opportunities like using the waste products for renewable power generation.

Read more in this article or check out our NZ Property Guide. NZ has the obvious advantage over Australia in several respects:

1. Rainfall in NZ is more reliable

2. The currency is more directly tightened to the agricultural commodities, as opposed to metals and energy. This will not change for the next 10-15 years. NZ will eventually discover oil/gas I suspect.

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

Kiwibank tells people to buy a home

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The CEO of Kiwibank is encouraging NZ'ers to buy a house if they can afford it. The logic I guess is:

1. The property market is NOT going to fall significantly

2. The opportunity cost of buying vs renting favours buying

3. If you can afford it - you may as well buy

This is not a bad argument, but I would suggest that there are a few factors to consider:

1. Whether you are sure a certain area suits you

2. If you are going to have a job in a year

3. If there is a chance you might be going overseas in future, i.e. Going to Australia for 30% higher wages

The outlook for NZ is not bad, so there are no compelling reasons for a collapse in property prices. There is unlikely to be a significant rise in interest rates because the Chinese are not buying US treasuries in order to make profits; they are doing it to finance investment and US imports. I would however raise a cautionary note. The US and Germany are currently complaining about China's currency management. They argue that China's currency is up to 40% undervalued. The problem for the US is that China is using demand for its exports to finance the US deficit. You might think that the US will be more competitive China raises its currency (yuan). The reality however is that the US does not compete with China so much as Japan, Korea, Taiwan and Germany. The implication of their threatened trade war could have implications for global interest rates....so that is one threat....however it might be a decade before anyone acts on these threats. China is likely to budge a little if matters heat up...though not by much. The Kiwi house buyer might therefore want to keep some buffer in their interest rate outlook, and they ought to pay off their home as quick as possible. Chinese demand for NZ imports will bear some relationship to how much they can export, and their currency competitiveness. Though I would argue this factor might be less significant than Western governments assert because China is very much a processing centre. The raw materials it imports are cheaply converted into exports. So if the currency rises, its raw material purchases get cheaper. In truth, the larger the Chinese market grows, the more competitive it will become, so this will also have a beneficial impact. In truth, the US and Germany are just impatient for the day when China will be able to afford its products.

There is no reason that will change because the Chinese economy is growing faster than the USA. Of course at some point the strategy will make less sense. i.e. When Chinese demand for US 'sophisticated' products is higher than Chinese exports to the USA. At that point, we can expect the US to claw back market share. That will be another 15-20 years off yet.

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

Important news for Australian & NZ investors

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If you are a foreigner interested in investing in NZ, you should read this, particularly if you are an Australian or a NZ planning to go to Australia. Most people will not have the breadth of knowledge to generate these insights. It encompasses a mix of finance, economics, mining engineering, metallurgy, geology, politics, and a touch of critical thinking....and its all sugar coated. Anyway, what type of analyst looks 20 years into the future. Yep, there are not too many futurists around.

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

A prosperous outlook for NZ - an energy boom?

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There are of course numerous factors you look at when you decide a place to invest, a place to live, or a place to holiday. For these activities NZ has a great deal of appeal because its low-income per capita has decimated the currency. It has often lagged between 0.5-0.75 USD for the last few decades. This collapse occurred after the 1960s commodities boom. In days gone, countries like Australia and NZ were among the richest countries in the world.

I can see a time in about 10-15 years when the NZ currency will be stronger. It is possible that NZ will capture some of that long-lost glory. That is a long time off. I am expecting NZ to have an energy boom. i.e. Methane hydrates mined from the sea floor, lignite pellets, and perhaps even conventional gas. With offshore oceanix areas the size of the EU, and a stagnant population of just 4.2 million, there is economic potential in those 1000-metre deep southern seas. It will take time to find, delineate and develop these resources, however one good discovery will compel a great many other explorers because China and India need energy. That is a lot of wealth for such a small country. Expect it to have its own 'Norwegian-style' economic miracle.

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

Researching property online in NZ

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Need help buying property in NZ?
If you are researching property in NZ here is a useful tool for reviewing population, income, education and other particulars for the households in each district. Its old data but it provides a useful guide. Refer to this blog entry. These are particular useful tools for foreigners with little knowledge of NZ.

Australians retiring or moving to NZ

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I have been living in NZ now for a year. In the process of being here we have bought a home in a rural regional town with a complete range of services. I am 40yo, and have a Filipino partner with me, and we find the place rather idyllic. I am a writer, my partner does online product marketing. There is no question in my mind that if you are an income-earner, the best place to live is Australia; at least if you are earning money from the usual form of salaried employment. Those people earning foreign exchange (say USD abroad), then NZ makes a lot of sense because of the weak NZD, and the 4-year tax concession the NZ tax office gives to new immigrants with offshore income. I have written all about this in my NZ Property Guide. You can learn more by reading my property blogs, however the book offers a more comprehensive and detailed guide.

The biggest factors for retirees is finding the right climate. The big factors compared to Australia is the climate. The rainfall here is generally far greater than Australia so its mostly green, except where there is rain shadow effects. The biggest concern for some I think will be the hours of sunshine each year and the wind factor. If it is sunny it can still be miserably cold in NZ if it is windy. For this reason avoid places with too much wind unless you like being indoors. I also suggest buying a house with a sunroom for this reason. There are a lot of wind farms in NZ for a reason - and its not because they get huge tax concessions. In fact there are none. The wind here is reliably constant in places. So make sure you chose your retirement destination wisely.

It is not simply a place to retire. You can invest here of course. Just make sure you buy wisely and transfer money at the most opportune time. I am telling you this because you are about to get the best opportunity to buy property in NZ. People will rightly be concerned about the high prices for property in NZ. The fundamentals which have driven up property prices in Australia are the same for NZ. The difference is that NZ has less population growth and less growth in national income. For this reason, you need to target certain areas until property prices bottom. Another solution is to transfer money to NZ at the opportunity time. You can hedge your bets by buying certain stocks in NZ with favourable exchange rate exposure, e.g. Pike River Coal (PRC.ASX or PRC.NZX) exports premium metallurgical coal to Asia. It benefits from a weak NZD, so even if you move your money here, you can still hedge your bets by profiting from an increase in a non-NZD revenue stream. This stock happens to be at lows after start-up issues. see my discussion of this stock, but I suggest looking at other commodities related stocks in NZ.

NZ property still makes sense for some

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For Americans the price of property in NZ is looking rather expensive. For most others, the price is still cheap since most currencies have rallied strongly against the USD. Consider that the USD is at a 10-year low to the Yen, and a post-recession low for most other currencies. The implication is that NZ still makes a lot of sense for foreigners. The great tax concessions for property in NZ are still in place, and current expectations suggest a tax on property is only likely to apply to investment property. NZ has one of the most generous taxation policies on property in the world. (see previous posts).
NZ property is of course still expensive. There are those looking at current rises in prices and suggesting prices have bottomed. I would caution that we have yet to see any significant increases in inflation (i.e. interest rates), so highly indebted NZ households have yet to feel the full weight of home affordability pressures.
The implication is that there will be good buying ahead for NZ investors, so come patience is required. There is still low-priced properties you can buy if you are looking at lifestyle properties in rural towns. You can still buy houses for as little as $NZ60K in some areas of NZ.

Having just toured some people around NZ I can assure you the place is as beautiful as ever. There has been a lot of rural development over the last 10 years. The new places I'd be looking at are:
1. Wanganui
2. Oamaru-Palmerston
3. North coastline of Christchurch
4. Te Anau
5. Whakatane

Americans of course do not need to weight too much longer. I think you can expect a strong USD policy in future in order to build savings, just as Clinton did after Reagan. I would expect some shift to energy taxes as well. This makes a lot of sense in a country which is primarily a service economy, or a high value-add. It is a big country though, so expect an impact to non-discretionary spending as well. There should also be some dilution of the currency as well. This is so-called 'balanced monetary policy'. Other countries will be doing similar. Though I would expect a strong USD policy in future.

The implication is that Americans can still look at buying in NZ, but they should get a loan if they qualify and transfer their wealth later when the USD recovers. I would expect the AUD to pull away from the NZD in coming years due to the strong energy & mineral sectors there. The flipside is that inflation should keep personal spending at bay in Australia, as household debt payments rise. So I'm expecting the AUD (which currently is 20% stronger than the NZD) to increase the premium over the NZD in coming years.

Factors which may change this prospect would be the discovery of large oil & gas reserves in NZ, or strong economic reform. NZ really needs to stimulate higher value (non-food) exports. Historically it has done a bad job of that, and its savings rate is hopeless.