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W & K

Investment Performance

Currency – to hedge or not to hedge

New Zealand is a small export orientated country. Most of our exports are not sold in New Zealand dollars. The dairy industry typically sells in US dollars. The New Zealand dollar tends to fluctuate considerably often on the back of the regular dairy product auctions. We only need to look at the events of the past few weeks or so, and the negative impact that there has been on the strength of the New Zealand dollar.

Residential Property Defies Normal Investment Principals

The residential housing market defies normal investment principals. This is not surprising as one’s primary residential property is a lifestyle asset, not an investment asset.

The key determinants of investment returns are normally growth in income and price earnings (PE) ratios. For property, the PE ratio is the property value divided by net rents. Using that measure, prices have typically been in the range of 20 to 35 times earnings for years. This is well above the norm, for publicly listed companies.

Taxing Short Term Property Investments

The recent pre-budget announcement that property transactions, in which properties bought and sold within two years would be taxed at the investor’s marginal tax rate appears to have struck some accord. It does not seem to be a concern to the Auckland Property Investors Association, as their members typically buy property as a long term investment strategy. The budget will be presented by the Minister of Finance on Thursday 21 May.

Investor Emotions

Investing can be emotional. Should I do it? What is a better investment? What if it turns nasty? Can I get my money out or at least some if my personal circumstances change dramatically?

The traditional New Zealand investor most likely started off by buying a second house, usually using some of the equity from their primary residence. This worked well, primarily because the taxation system was so advantageous to them.

Reserve Bank wants to Protect Reverse Mortgage Lenders

Over the years we have cautioned about people taking out reverse mortgages. We believe it is usually more prudent to consider alternative options rather than taking out a reverse mortgage for those who are cash poor and asset rich. They were a traditionally expensive way of obtaining money for funding one’s lifestyle. Even now, borrowing costs are significantly higher than traditional mortgage costs.

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