In this edition:
- Christchurch mosque attacks
- Population growth rate high, strong demand for housing
- Investing a lump sum fund in New Zealand
- NZ is a country that welcomes all people
Christchurch mosque attacks
The events which occurred on 15 March 2019 in Christchurch were nothing less than a complete tragedy. For New Zealanders to hear the news that 50 people had lost their lives in such tragic circumstances was devastating. At this time, we express our sincere condolences to the victims and their family members. We also express our best wishes to the injured who are still in hospital.
At such a devastating time like this, it has been comforting to see how New Zealand has responded to show love, kindness, and compassion to not only the victims and their families, the Muslim community but also all New Zealanders. It has also been comforting to see people reaching out in different ways to provide any assistance they can at this time.
The Immigration Team at Lane Neave has offered to provide free immigration advice and assistance to people who wish to have family travel to New Zealand to be with them at this time, or to others who are on temporary visas who have lost a family member and are concerned about their future immigration status. If any employers have employees who have been affected, please advise them that they are welcome to contact us.
Kia Kaha New Zealand.
For further information or assistance with emigration please contact Lane Neave Lawyers on + 64 3 379 3720 or email liveinnewzealand@laneneave.co.nz.
Population growth rate high, strong demand for housing
New Zealand’s economy grew by a firm 2.8% over 2018 after growing 3.1% in 2017 and 3.9% in 2016. In fact growth over the past four years adds up to about 15% which is the same percentage growth in job numbers. New Zealand’s economic growth has been job-rich and it is a very long time since we heard the term “jobless recovery”.
Throughout the country and across a massive number of sectors labour is in short supply. But as is the case overseas, outside of the construction sector and legislated increases in minimum wages there is no solid evidence of any decent acceleration in the pace of wages growth.
The bad consequence of this is low nominal income growth for many families, though after allowing for inflation also being very low real wages have still grown 17% in the past decade. The good result however is a continuation of the low interest rate environment we have seen in place since central banks slashed interest rates over 2008-09. But this of course has itself produced some effects which are negative for certain people.
Conservative investors are suffering very low returns from funds invested in bank term deposits and there is virtually no hope that these deposit interest rates will rise to any appreciable degree – if at all – over the next five years. Low interest rates have also been factored into higher house prices and this has made purchasing a house including simply raising a deposit very difficult for young people.
Because borrowing costs are going to remain low house prices are going to remain high and over time the vulnerability of house prices to a shock scenario such as a global recession will decline. This declining vulnerability will come about from people slowing paying down their debt and investors in particular slowly exiting the market.
This is something already underway in New Zealand. Two or three years ago over 30% of funds lent by banks for house purchases went to property investors. Now that proportion is 18%. Currently in NZ we are seeing some older investors selling properties they may have bought quite a few years ago. This reflects not just some folk getting older and looking to spend their savings.
Some investors are also simply unwilling to adjust to tighter rules regarding heating and ventilation, rent review and termination periods. Plus the ability to offset cash losses against other sources of income in order to reduce tax payments will soon end. And there is a chance that a capital gains tax system may be introduced.
Some migrants might be hoping that as some investors leave the sector housing will become much cheaper in NZ. It won’t. Many investors are offsetting rising regulatory requirements by boosting rents, the shortage of accommodation in our biggest cities continues to grow, and population growth prospects which ultimately underpin demand remain strong.
In fact just recently we learnt from Statistics NZ that whereas they had earlier estimated that net migration inflows to New Zealand were falling, now they estimate that they have been rising since the middle of last year.
We think they have got some problems with their data so perhaps it is best to assume that net flows are steady at something just over 50,000 per annum or about 1% of the current population. But it pays to note something very, very important. The big cause of changes in NZ net migration flows is the relative strength of the NZ and Australian economies and labour markets in particular.
Across the Tasman Sea (the “ditch”) Australia’s residential construction sector is falling away. Projects are being cancelled as prices fall in the main state capitals, consumer sentiment has soured, and there are worries that things might get so bad that the central bank will need to cut their 1.5% official cash rate to 1.0% this year.
This is likely to manifest itself as fewer Kiwis going to Australia and more coming back. That will act to keep our population growth rate high and demand for housing strong as ever. .
Article provided by Tony Alexander – Chief Economist, Strategy & Business Performance, BNZ.
Investing a lump sum fund in New Zealand
Suppose you have sold a business, inherited a lump of money, got out of the rental property game, transferred funds from overseas or simply downsized and moved into a smaller house. One way or another you have received a windfall and plan to invest in the NZ market. The advantage of NZ shares is that they provide a lucrative dividend yield compared to peers, as the New Zealand market is structured differently to most other overseas markets. The cash dividend yield of the S&P/NZX 50 index is ~5% p.a. compared to the US S&P 500 index dividend yield of ~2%p.a. In addition, NZ has an imputation tax credit system, companies can attach imputation tax credits on top of cash dividends to NZ tax residents, which makes returns of dividend paying stocks more attractive.
NZ is a small country, a number of listed companies are among top players in their sectors locally, often management are not looking to expanding to another market for growth, and their business is relatively stable and able to pay regular dividends. It’s been over five years since the National Government completed floating the three largest state-owned electricity companies, now Utilities and Real Estate sectors make up over 25% of NZ market compared to over just over 6% in the S&P500.
After a decade of bull market, a sensible question is how long this could last? While we do not forecast a recession in 2019, we do expect a volatile share market.
To invest your lump sum fund, there are three primary options:
- To go all in at once at your target asset allocation.
- To go in all at your target equity allocation, but overweight relatively stable, high dividend paying companies (yield stocks) and underweight high P/E, lower or no dividend paying, higher volatility companies (growth stocks). You can look to transfer out of yield stocks towards the target weighting of growth stocks over time, as the market dips or after major company announcements.
- To have a liquid corporate bond portfolio and tranche in funds in multiple times with simple tactics: to swap bonds for equities at market dips; or to buy on or after ex-dividend date, you can avoid paying for the tax on dividends.
Each choice has its pros and cons. Option 1 would perform well in an upward trending market, such as 2017. Option 2& 3 would perform well in a volatile market, such as we saw in 2018, especially, when the market price is high. Choice 2 can maintain the equities portion as a target portion, suitable for those in a compulsory investor migrant programme.
An additional point to note on NZ bonds is that the NZ government bond market is liquid (easy to buy and sell), but the yields are currently similar to bank cash rates for retail investors. The NZ corporate bond market liquidity is varied depending on the issue. There is a secondary market traded outside the NZDX, which is hard for retail investors to observe. It’s worthwhile obtaining advice before entering in the corporate bond markets, especially regarding market liquidity.
Article provided by Ally Cui – Director, Private Wealth Adviser, JBWere
Ally Cui can be contacted on Ally.Cui@jbwere.co.nz or +64 (9) 365 0888.
NZ is a country that welcomes all people
New Zealand changed forever on Friday 15 March, when we were rudely reminded of our vulnerability to terrorism.
Foreigners of all ethnicities and religions have always been welcomed into New Zealand and we have foolishly thought we would never be prone to terrorism threats. We grew up very quickly last week and I wish to apologise to all New Zealand residents and tourists, for our naivety and oversight in this regard. Everyone has the right to be safe in our country, even more so when in their place of worship.
New Zealand has matured in a the space of a week and become an even more inclusive country, with huge outpourings of love and respect afforded toward all ethnic groups and religious beliefs. Our Prime Minister has been a revelation and grown in stature with her forthright approach toward all issues in this regard.
New Zealand needs foreigners and will continue to welcome them; be them; tourists or resident seekers. This event has galvanised New Zealand’s spirit to ensure LOVE is the key ingredient in “our NZ way of life”. Enterprise Recruitment, as a New Zealand owned and operated company wishes to extend a warm and cordial invitation to overseas candidates interested in New Zealand to contact us for an obligation free assessment / appraisal of their career opportunities.
Finally our heartfelt condolences and apologies for allowing this to occur, to ALL our Muslim Brothers and Sisters around the world and in NZ.
Article provided by Steve Baker – Enterprise Recruitment and People.
Enterprise Recruitment and People has a national presence. We remain interested in providing obligation free advice to offshore candidate’s about their chances of securing employment in New Zealand. Steve can be contacted on steve.baker@enterprise.co.nz or 00 64 3 3530680.
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