·  Site Map
SoundFinance Blog
Listing all posts with label Property. Show all posts.
  1. When it comes to retirement planning, don’t bet the house on it.
    gingerbread house

    “You can’t eat your house” sums up an all too common quandary for a number of retired people in New Zealand.
     
    These folk have paid off their mortgages but at the same time are finding it tough to get by without the regular income that sustained them through their working lives. They discover they’re cash poor, though quite well off in a property owning sense. But edible dwellings, like the gingerbread house discovered by Hansel and Gretel, are indeed the foodstuff of storybooks.
     
    Owning one’s home is an important and worthy goal, and yes, for many of us our residence usually does end up being our largest asset. But the point here is that there are dangers in building a savings strategy solely around the family home.
     
    A New Zealand Treasury study, released back in 2007 prior to the launch of KiwiSaver, highlighted this situation.
     
    It found that the family home accounted for about 70 percent of the wealth of the average New Zealand household. Many families viewed this as a substitute for saving. Once retired, they planned to downsize their home, which they hoped would give them a lump sum they could then invest to generate extra income.
     
    But the study reported that the effect of doing this is “modest; it is only noticeable when households halve the size of their home." So… if this is your strategy and you live in a house worth $700,000 now, be prepared to move to a dwelling valued at $350,000 in order to free up the necessary capital.
     
    In fact, the study prompted the architect of KiwiSaver, former Finance Minister Michael Cullen to say: “This is a timely reminder for many New Zealanders to think beyond their investment in the family home if they are to secure their retirement dreams.” (Refer)
     
    Another pitfall is the lack of diversification that results in a ‘home alone’ investment approach. The first rule of Investment 101 is always: spread your risk.
     
    Remember, the real estate market is just another type of market. It has been subject to downturns in the past and it will be again. Have you really spread your risk if as much as 70 percent of your wealth is tied up in a single asset within a single market?
     
    It’s also worth remembering the costs of investing in a home. Many homeowners look at the price they get when they sell a house, subtract what they paid for it and think… “Haven’t I done well!” They forget the interest costs of a long-term mortgage, rates, insurance, maintenance, renovations… the amount paid to live in a house can sometimes outstrip the so-called profit made when the house is sold. 
    So what’s the best path to take?
     
    By all means, invest in your own home, but don’t let it become the only string to your retirement savings bow. Being involved in a retirement savings scheme such as KiwiSaver is an effective way to diversify your investments.



  2. BuildingThose New Zealanders who have long held property investment near and dear to their hearts (and there are many of them) will be interested to know that property has been behind a stellar showing over recent times.
     
    But before you start thinking it might be time to buy that house for sale across the street and play landlord, you need to read on. We’re not talking about ‘direct’ property investment here, but the listed property sector – a cluster of entities known as listed property trusts (LPTs) that are listed on the New Zealand Stock Exchange.

    By way of quick explanation: an LPT is a company that buys, owns and manages real estate properties and loans. As they are listed on the share market, investing in them is achieved by buying their shares.

    Over the past year, the LPT sector has delivered impressive performance. The sector generated a gross return with imputation credits of 17.3% for the year to the end of April 2012; not half bad, considering the broader share market (as measured by the NZX index) clocked in at just 2.6% over the same period.

    “That performance has been driven by retail investors looking for safe yields,” explains OnePath Investment Manager Craig Tyson. “The broader equity market has struggled, finance companies are no longer in the picture of course, and bank deposit rates are at low levels. For people wanting a return on capital, it has been a sound option.”

    Tyson points to building occupancy rates hovering around 97% and weighted average lease terms of just over five years as underlying strengths of the sector. “Those fundamentals are strong – they deliver security of cash flow.”

    What many investors like about LPTs is that they can have a piece of a tangible asset they know and understand, without the hassle of direct ownership. Because, for all their potential to offer steady returns and solid capital growth, properties can be unwieldy things to acquire, manage and when the time comes, unload. Through LPTs, investors can enjoy the benefits and leave those tricky bits to the experts. What’s more, the investment can be made for a very small outlay with the exposure spread over a broad range of properties.

    There are a number of LPTs on the NZX. They all differ slightly in approach, although none of them invests in residential property. Their portfolios are typically made up of retail, industrial, healthcare or office buildings – sometimes diversified across those sectors, sometimes specialising in one of them.

    OnePath investors have benefitted from this LPT surge. All their balanced funds (including KiwiSaver funds) have an allocation to property. And there are a range of 
    single sector funds that invest predominantly in the sector.

    “While the recent results have been very strong, the sector has performed steadily over the past decade,” adds Tyson. “The 10-year return for the NZX Property Index (gross with imputation credits) to 31 March 2012 is 9.4% per year. It’s very encouraging that in these volatile times, one sector has performed in line with people’s expectations.”

AFA

As an Authorised Financial Adviser in Christchurch Lyn Bell has passed the requirements of the Financial Markets Authority and is legally qualified to provide financial services to her clients throughout New Zealand.  

Lyn’s registration can be viewed at www.fspr.govt.nz. Lyn can also be found at the Financial Markets Authority website.

A disclosure statement is available free on request

Image

Image

Footer Text

While every care has been taken to supply accurate information, errors and omissions may occur. Accordingly, Lyn Bell & Associates accepts no responsibility for any loss caused as a result of any person relying on the information supplied.