March 2010

Tax Reforms Still Likely

This seems to have settled down now, with most of the proposed tax changes eliminated. As far as depreciation is concerned, I feel that the proposed changes will be very fair. Let's face it, depreciation is merely a cash flow benefit, and not the real reason one invests in any investment.

The changes will most likely be across the board, rather than target property investors specifically. Most changes now will not affect much anyway as the time to put these changes into place is well and truly past. 5 to 8 years ago would have been very opportunity.

Interest Rates

It appears as though my comments last month were correct. Most banks seemed to have put their medium term rates up too high, and over the past couple of weeks we have seen those rates drop again. I still expect a gradual increase in interest rates over the next year, but slow, not swift changes.

Banks are still short on funds and this makes borrowing from them very difficult!

Looking Ahead

Australia & China seem to be very well positioned to benefit from the current world situation. Australia has increased their Official Cash Rate and yet out banks (the Aussie owned ones) have dropped their medium term rates.

Investment opportunities

We have a couple of opportunities presented to us by clients.

We are not interested in promoting properties nor the conflict of interest that brings us. The below are merely opportunities we have had presented to us, and where we have decided that they are appropriate for us after consideration to present them to you. We receive NO commission relating to the sale or purchase of these opportunities.

Forestry investment - land ownership in Northland. We are not offering any advice regarding this, however if this is something that interests you, please contact us so we can put you in touch with the current owner.

Albany Apartments - we have a client who has owned four of these apartments since new. They are well built & well appointed and could even be considered large! They are in a semi gated community, which includes Pool & Gym complex. Each has a carport & storage locker. I have known these properties for the past 4 years and they have been excellent as investments, however would equally suit a first home buyer or couple for their own occupation. , 2 & 3 bedroom units available. Sizes from 55m2 to 77m2. These units are offered exclusively to Moneyscience clients. Their current owner has other investment properties and is selling these to purchase a farm to retire to. Investment returns on these properties are between 6.5% to 6.9% and each is currently tenanted. Funding is available to approved purchasers to 80% as standard lending applies to these properties (They are not the type of property that the banks don't like). Finance up to 95% could be available to some purchasers if required.

Market comment

It is still a great time for first home buyers. I expect that the market will stay this way for the next 2 to 3 years.

I also expect that rates will stay relatively low for that time. (say around 7% for 2-3 years).

Personal Loans

We have access to several personal loans suppliers. However, like banks, they are only interested in lending to people who can prove that they can afford to make the repayments. I would recommend always trying to increase your mortgage rather than taking a personal loan (and making the repayments at the same rate as a personal loan) as mortgage interest rates are considerably lower than personal loan rates. Should you feel the need for a mortgage top-up or a personal loan, please contact us.

Refinancing

Now is a fantastic time to consider refinancing, and why not consider a "Non-Bank" who doesn't keep an eye on your financial information every month? A lender who provides business and personal banking with NO FEES. Internet NO FEES, refixes & split loans, Interest Only & Principal & Interest. Make the change to a lender who will provide you with long term funding and facilities which are flexible (which YOU control). Don't be fooled by people telling you they have better interest rates. That is like buying the cheapest golf club, fishing rod or the cheapest pair of shoes! You want long term flexibility in your mortgage. If you want to change houses - you want LOW Costs in transferring from one property to the next; You need flexibility. You don't know what the future brings, so you NEED control & flexibility.

Don't ask your bank what they think is the best interest rate option. That is like asking the shoe salesperson which look the most attractive shoes, or which shoes they would buy! What will they tell you? The truth? Or the shoes they get the best commission from? Talk to us about your finance needs - we will tell you WHY you are better off in the long run, and Answer your questions until you are satisfied. We will probably also tell you things you hadn't already thought of.

Banks

Most banks now have much less money to lend than they did 1 or 2 years ago. This has resulted in them making changes. I set out below some changes which appear to have been (general) made by some banks:

Approval authorities removed from local staff;
* Reduced lending on "non-prime" security; * Many loan applications treated with "Yes, sure we can help" with clients providing all current financial information, only to be told "sorry, we can't help!" * Banking is now much less personal. Staff are changing to remove the threat of "friendly Managers"; * They are trying to cross sell all their products. So much that staff appear to be on commission or bonuses, or targets.

Insurance Reviews

Insurance is again in the media spotlight as costs must rise again. There are still ways we can avoid these cost rises if you put your policy in place now.

Some people have put off reviews or even delayed taking the insurance that they had determined they needed, only to find that while delaying, they have had a condition arise which means that they cannot ever be covered for it.

Income protection insurance & redundancy cover is getting taken much more frequently now. As is Mortgage Repayment Insurance.

Please email us if you would like to find out more about these, and also in some situations we are able to provide FREE life insurance with Income Protection cover. There is also a cover especially for farmers and also other "riskier" professions.

Kiwisaver

We have been very slow to enter the Kiwisaver market. I have felt that it is a very dangerous thing to invest your hard earned funds through a company that has little or no controls over it by the authorities. My old saying, "Never let someone else invest your hard earned money" keeps ringing in my ears. It has been interesting watching the fighting and accusations in the market over the last 6 months. There seems to have been a lot of "avoidance in reporting", misdirection and finger pointing. Not really the way we want people to act when we place our money with them! There is a lot to be said regarding the benefit of investing through Kiwisaver; and also some potential risks which shouldn't be forgotten.

1. Your money has no guarantees. No return is a possibility.

2. The funds are not government guaranteed.

Basically, If you invest $1,000 in a year, the government matches that & then you get the returns (or losses) on the $2,000 investment that year. Some funds are showing profits.

Some funds take fees on fees and charge the fund each trade as well as annual charges.

You will get a lovely glossy book of about 20 pages, but the main sentence is "not your capital; not the government subsidy; nor any returns are guaranteed".

Despite this, the Kiwisaver opportunity is available to most, and we recommend you consider this in your investments. I am happy to state that with the Government subsidy, this is the best investment you can make where you totally trust your money to an unknown person to invest on your behalf." I don't expect massive returns from most of the funds as they are merely custodians of your funds, however I believe that this is much safer than all other investments where you trust someone else with your funds.

If you want to know more about Kiwisaver investments, please contact us