The December quarter Consumer Price Index (CPI) rose 2.3%, the biggest increase since a 3.5% rise in the September quarter of 1989, but bang in line with Reserve Bank expectations.
Statistics New Zealand also said the CPI increased 4% for the year to the December quarter, in line with economists' expectations. A major factor in both the quarterly and annual rises was the increase in Goods and Services Tax (GST) to 15% from 12.5% from October 1.
Higher petrol prices also contributed to the December quarter rise with a 6.8% rise over the three months contributing more than 0.3% to the 2.3% rise.
ASB economist Christina Leung said given the Reserve Bank's Policy Targets Agreement allows it to look through the direct effects of major Government policy changes such as GST increases, its key concern is how households and businesses will react to the spike in headline CPI.
"The Reserve Bank has assumed that the effects on price and wage setting behaviour will be muted going forward," Leung said.
"Recent inflation indicators, including cost expectations and pricing intentions, suggesting inflation pressures are contained for now. Combined with recent soft activity data and low appetites for credit, there is little urgency for the Reserve Bank to resume the reduction of monetary policy stimulus. We expect the Reserve Bank will wait until the September meeting to lift the Official Cash Rate (OCR)," Leung added.
The OCR is currently at 3%. The Reserve Bank's next OCR announcement is due next Thursday, January 27.
Read Statistics New Zealand's release below:
The consumers price index (CPI) rose 2.3 percent for the December 2010 quarter, Statistics New Zealand said today.
Prices were affected by a rise in goods and services tax (GST) on 1 October 2010. "This is the largest quarterly increase in the CPI since a 3.5 percent rise in the September 1989 quarter, when GST also rose," Statistics NZ's prices manager Chris Pike said.
In the December 2010 quarter, the transport group rose 4.3 percent, with petrol prices up 6.8 percent and a seasonal increase of 5.5 percent for international air fares. Food prices rose 2.1 percent, and housing and household utility prices rose 1.6 percent (prices for the purchase of new housing were up 2.0 percent, property maintenance services up 4.4 percent, and electricity up 1.7 percent).
The CPI increased 4.0 percent for the year to the December 2010 quarter, influenced by the rise in GST. This is the largest annual increase since a 5.1 percent increase in the year to the September 2008 quarter (when petrol prices peaked). In the year to the December 2010 quarter, significant upward contributions came from higher prices for food (up 4.6 percent), petrol (up 14.2 percent), and cigarettes and tobacco (up 17.0 percent). The rate of GST rose from 12.5 percent to 15 percent on 1 October 2010.
This increase could raise retail prices that are subject to GST by 2.22 percent. For example, a product priced at $100 (excluding GST) would have sold for $112.50 before 1 October. When GST increased to 15 percent, that product would retail for $115 (all other things being equal), which gives a 2.2 percent increase in its price.
Of prices collected by visiting shops in the middle of the December 2010 quarter (which excludes those collected monthly or by postal survey), about one in 10 prices rose 2.0 to 2.5 percent (in line with GST), one in four rose more than 2.5 percent, and one in two did not change.
Not all goods and services in the CPI basket are subject to GST – about 91 percent of the cost of the CPI basket is directly affected by the rise in GST. This would result in an increase of about 2.0 percent in the CPI if all other things remained equal.
The CPI measures the rate of price change of goods and services purchased by households. Statistics NZ visits 3,000 shops around New Zealand to collect prices for the CPI and check product sizes and features.
No chart with that title exists.
(Update adds comments from ASB economist Christina Leung).
143 Comments
Congratulations to the department of disinformation and statistics. You've done a fantastic job of hiding the rising costs of essential items (such as food, energy and shelter).
I'm sure your weightings in the non-essential categories of the index (such as TV's, lawnmowers, leather sofas, holidays to Europe etc) contributed heavily to the overall lower score giving the impression that the govt has inflation under control, and the value of our money and wages is not being eroded away.
For this job well done, I am comforted by the fact that you are remunerated well above the private sector workers that pay your salary but are sharing with you in enjoying the great news.
In the detailed release by Statistics NZ there is a lot of disclosure on how they weight the range of consumer prices they use in this index.
You can view the exact weightings the Department uses by going here ... http://www.stats.govt.nz/~/media/Statistics/Browse%20for%20stats/ConsumersPriceIndex/HOTPDec10qtr/cpi-dec2010-all-tables.ashx
and clicking on tab "Table 9". This also shows how the weightings have changed over time.
Thanks for the link.. very useful to find out how irrelevant and misleading the CPI actually is.
For example I have worked out that only 40.2% of the items listed apply to me in the last 12 months. The remaining 60% of items surveyed don't apply to me. I would assume that for most households a similar percentage of items also would not apply at any one time.
I make this point since the -19% drop in telecommunications equipment (as an example) is great if I were a regular purchaser of such equipment. I would also be equally happy with a -12.6% drop in the price of Audio Visual equipment, but my tele has been working fine and buying a new one each week might be a bit over the top. However I might be a bit annoyed at the 23% hike in education costs, but luckily I have long since left university.
As for the weightings, I have been scratching my head. Now, we spend each week approx $200 on food, $150 a week on petrol, and $400 on rent. i.e my rent costs double what we spend on food.
However the weightings and price increases for the CPI are as follows:
Food: 17.83% weighting / 21% price increase
Petrol 5.47% weighting / 15% price increase
Rent: 7.85% weighting / 3.1% price increase
My observations is that the weightings are not in keeping with the real world.
From our outgoings say roughly $1k / week, the weightings for us personally are more like:
Food - 20%
Petrol - 15%
Rent - 40%
Bottom line for me, the things that matter are going up a significant amount in price while my income has remained mostly flat. I got approx 3% increase during the year.
Errr, I think you're reading off the contributions to the 4% inflation rate. The price changes were actually 4.6% food, 14.2% petrol and 1.6% rent.
That aside - sadly, there is no-one in the world who would fit the profile of the 'typical consumer'. For example, since you pay rent, I'm guessing that you don't also spend 5.51% of your income on new houses (up 3.2%), nor 2.32% on local body rates (up 6.9%). So that's 7.83% of the index (up 4.3%) that you've managed to dodge. Kinda makes it hard to feel bad about your rent situation...
actually I make it 7.3% divided by 3 that he is 'dodging'
but it just goes to show the old adage ... lies, damned lies, and statistics.
It certainly feels in one's waters that the cost of living rise is far higher than they have been making out and has been for a few years now.
SK you have to be joking. The average New Zealander is just coping with the increase in the daily cost of living involving food,power,rates,insurance premiums and petrol. How the heck are they going to go out and get loans for so called investment properties. A few will be able to admitably however they are going to be buying an asset that is gradually dropping in value month by month so why would you. You would say you need to take a long term view but why would you borrow for an asset that is dropping in value.It is all about timing and now is not the time.
As we know - not all properties are dropping in value month by month - far from it actually.
So all one needs to do - is be selective on location - nothing earth shattering there.
With regards to timing - I disagree - thats not earth shattering either. I dont beleive in following the herd - that is probably at the root of our difference of opinion on this.
"An Auckland glamour couple has paid $9 million..a few weeks ago ..QV also showed the house and land currently valued at $10,180,000, but in 2008 it had a valuation of $13.73 million."
Nasty! 12% down on current CV and 34% down from 2008.
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10700341
SK you just keep taking those pills and pretend it is not happening. The increased costs of living are making it harder for people to buy assets and so those assets are deflating in value including every location in NZ other than the expensive central areas of Auckland and I would not bet on that lasting if the economy does not pick up soon.
Brazil has raised interest rates sharply, following China, India and host of countries across the emerging world in acting to curb inflation and counter the flood of dollar liquidity from the US.
http://www.telegraph.co.uk/finance/globalbusiness/8270412/Brazil-slams-…
SK the only properties that are currently not dropping in value are the ones in the posh areas of Auckland and they are far from being viable renters as the yields would be ridiculously low. That they will never decline in value cannot be guaranteed as we do not know how the economy is going to pan out this year. Borrowing for investments that are dropping in value(currently all of NZ other than the expensive posh areas in Auckland) is madness. You can say all you like SK. You only buy assets when the trend is up especially when they are being geared up with finance. What is the hurry after all?
Sorry ex agent, posh areas also dropping. Over 30% down on 2008. Yikkeessss
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10700341
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Warren Buffett
What is the dominant emotion in the NZ property market currently?
Fear or Greed?
Thta old chestnut drops of the toungue (or keyboard) easily, SK. Have you done it? I mean really done it...put everything on the line against common 'wisdom'? The 'hard' option right here, right now for you... is to sell all your property. That will give you the real feeling of Buffet's quotation.
Errr....nope! Most of us could go out and buy property, well by 3.30pm. So it's not that. That's the easy option. Most of us did 'the property thing', years ago, when it made sense; when ,'back then' people were hesitant Those doing it now, are going where we once were. In effect, giving us the profits of our past descisions. "Always leave an apparent 10% in the price for the last guy", SK. I'd guess that's you....
Hint: The 'fearful' are still a contrarian minority, even in here. The general population hasn't really clued in yet, or just doesn't want to think about it. So it's perfectly feasible that you think you're getting bargains* while everyone else holds back, but in reality you're just one of the vast greedy flock.
*Because something has gone from 'insanely overpriced' to merely 'ludicrously overpriced' doesn't make it a bargain. Your perception may vary, of course.
SK is right , that's what I did last time, bought when prices were struggling and that's how to make a buck or two. Not buying now as have enough assets with income steam to live off, but if prices keep going up in Tauranga like last month a property there could make for a good sale soon.
oops, but go the BOP Streamers anyway. Net income stream of couple thousand per week from property should keep the wolves from the door for a while. By the way sorry to say this but Laurence is not my favourite name, have some monies tied up with St Laurence, thank goodness not too much
Gear Up ? .. interesting ..as NA asks .. have you done it .. are you doing it .. what gearing ratio do you propose .. what LVRs are currently available from the lending institutions .. or are you just throwing a hickey-hand-grenade to see if it goes off? .. a better cliche is to buy when there's blood on the streets .. and that hasn't happened yet. You will be right in the long run .. but anything higher than 80% and you run the risk of being blown up before it happens.
Thanks ctnz. You have confirmed either of two things. SK is just fabricating the 8.5% return on his or her investment or he or she bought a pup as the vendor drastically reduced the price to get rid of the problem and pass it on to some sucker. I suspect the former. Just a load of dreamed up fabrication to get people debating the issue.
In other works you screwed the vendor because the market was not that great and the vendor had to be highly leveraged which is not uncommon these days.And it has got worse since you bought last year so you are behind the eight ball already. Agents I talk to say the buyers are getting worse to deal with as time goes by. In fact I could not repeat the descriptive words they are currently using for buyers on this site.
It really is a waste of time expecting a govt dept to present an honest picture on the extent to which the govt is managing to debase the value of savings and incomes....you might as well ask a team of career criminals to advise you on how to set up the security for a bank vault.
Inflation is best seen by observing the retail trade collapse as the peasants discover they face cost rises which they do not have the cash to cover...so they buy less of what they need and stop buying the crap they don't need. This market reaction results in falling govt revenue and to the concern of the retailers it results in the peasants discovering the power they have to save cash and force the sales to be steep and continuous. Profits drop off and govt revenue takes a second dive. Unemployment increases especially in the youth sector. The dole payments rise. The need to borrow more to fund the spending, opens up the fiscal hole...inviting a downgrade...leading to higher borrowing costs.
In other words we have inflation going on at serious levels impacting on the vast bulk of the population and resulting in new trends of thrift getting a foothold in communties. It is not a trend that banks like the look of. Hence the scream to get farmers to borrow and splurge from the ANZ. Ditto the offer of a cheapy mortgage from Kiwibank.
No matter how many index games statsnz opt to play....they cannot erradicate the consequences of inflation.....
And that could be why the OCR is going to 0%; as the Govt desperately tries to keep disposable income in the hands of the masses with a mortgage. But as others countries have seen; once your at 0%, there's no where to go! Even the Swiss, who tried negative interest rates decades ago, found that there is a limit that cannot be gone beyond. And when the disposable income monetary charade is over, it leaves higher financing costs on those, most, who cannot afford them. Then, will be the time of the New Zealand property capitulation. Until then; it's just a slow monthly dribble down.
Along with a slow endless stream of effluent about recovery, growth and jobs creation, about surplus, strategies and export bonanzas.
Only a very small % of the population have been able to and prepared to learn the facts about why the indebtedness developed and where it is taking those who fail to get out of the way. This recession is set to be here for a bloody long time because it will take ages for the hundreds of billions of debt to be paid down if indeed this is ever achieved.
Pay off your debts and avoid mortgage debt as you would a Funnel Web spider getting into your pants.
RV? Aren't generally the name of a Registered Valuation, as they are "...council rating values (RVs) are compiled by statute, under the Rating Valuations Act 1998". So your telling me that after buying a property in mid 2010, you've paid for another valuation since- call it what you will?
Fair enough. I'd be inertested ,thought, in who gave you 100% in the middle of 2010, when the banks were in 'downgrade' mode, and lending was down to 80% LVR. But it could, of course, be private finance. In which case, I don't envy your lender. You believe that property goes up; I down. That's what makes a market!
Dont even have to be Central ..
West Harbour surging ahead
Te Atatu Pen steadily going forward
Lynfield , Blockhouse Bay demand exceeding supply
New Lynn picking up with the new transport hub
Just got to have features to Attract those on the right side of the medium wage and have a reputation as a safe suburb to live and prices will hold firm . If it ticks all the boxes and your not forced why sell ?
Im not looking out those parts as have settled in Titirangi but have plenty of friends ( a younger crowd ) out there , Am hearing from a lot of people that it will be a suburb to watch over the coming years as more first home buyers move in and start cleaning up some of the scrufy older parts
Still plenty of well priced 50's and 60's stuff on large sites out there and good transport links into the city with being a quick hop onto the Nor Western . Plus its a Penisular so hey, always near the water ...
Waterview could be another good one , plenty of solid old state stock and will probably be classed as a inner city suburb in a few years time , just want to watch out for the tunnel though and some of the current residents
Check out the separate sectors on the graph in the article...see if you can find the one sector in decline and ask yourself if that decline is likely to continue. Only a fool would claim inflation is not happening after looking at all of the sectors. Bollard will have to raise the ocr sooner and he is already behind the curve.
Olly was 100% right as usual in warning about inflation and you whingers were too dim-witted to listen.
Four months ago in another brilliant article he predicted that inflation could be a problem:
extract:
"Massive problems in the USA and Europe, combined with bubble economies in China and Australia could rock the world’s economies in the next 12-18 months and this, to my mind, will be the forerunner of a tidal wave of hyper- inflation as countries print their way out of recession.
When inflation hits it will already too late".
link:
http://www.ollynewland.co.nz/?s=inflation
As for the Remuera house that sold for much less than the CV, anyone who knows anything about real estate knows that CV's are useless for super expensive homes because the evidence is too sparse to make comparisons.
Gold....a miner not the metal....an aussie gold miner....one with fat reserves and plenty of tenements...wait until the second greater financial collapse...a repeat of 08 with more bells and trumpets....then put your pennies down...the nett dividend income and after a decade flog the shares.
Medical devices in demand from BBs to stay alive. Fisher Health at $3.30 are cheap as chips..pay a div and one day will be bought out by a whale for maybe $7 a share. Utilities that supply power and gas in NZ. Buy all shares in the big crash being set up by Bernanke and Co...it has to come.
Please understand I am no way qualified to give financial advice , but for me personally
Physical gold and silver , not the paper ETF's . divert a bit of coin into a commodity based managed fund , good if they have wheat futures included .
Aussie Equities due to the high liquidity compared to the NZX , plus you can tap into their resource boom , read china .. . Companies the mine materials for Fertiliser is a good long term bet , potash etc
And of course hard assets like property .
just my thouhgts
Olly is being a bit simplistic. High prices will cause a drop in demand, if interest rates rise it will place hugh pressure on the indebted. As producers respond to the price increases they will run head first into falling demand. This is just part of the end game in the west. Low savings, lots of off balance sheet commitments and poor allocation of resources.
This could go on for years but just watch the unemployment rate rise and get a feel for whats happening under the surface, I think there is a fair bit of panic out in the productive sector, the banking sector and the RB.
If prices rise the people will find it harder to pay the mortgage and assets will fall in value. This is all part of a giant cock up in the west, thinking we could create wealth out of credit and make promises we could never keep. I suspect the tax take has dived,its going to get a lot worse before it gets any better.
Thing is AJ...I cannot see what will make the situation better..but I can see things that will make it far worse. The budget will either cement in place the end of this economy...or it will signal the start of an effort to end the state thieving that eats at the potential for the economy to produce wealth.
Wolly, Government borrowing has increased to 5 billion a quater, we have 180 billion of offshore debt, we have unfunded liabilities in the Health and pension sectors. These Politicians have no idea how to get us to the other side without sinking. They surely would have reacted by now if they could, wouldn't they?
On top of all this the Government requirement to borrow to maintain high wages in the public sector and the huge increase in welfare payments as unemployment rises, pushes our dollar higher hurting our exporters. If the dollar falls our interest rates will rise forcing down asset values and destroying our banks or in this case the Australian banks. If the government slashes state salaries and welfare payments then the economy enters a depression, again state employees unable to meet repayment obligations cause asset prices to collapse. Mean while high costs are hampering the export sector and if the dollar falls then the high proportion of imported materials will force up costs ans destroy the economy.
We have painted ourselves into the ultimate corner. The next discussion will be whether we committed suicide voluntarily or were coerced by greedy short thinking idiots. The blame game begins.
Quite right AJ.
There is a lot of optimistic spin, lurking just under the surface of which is fear, I fear.
The interesting thing is that the turkeys still treat 'petrol' as a stand-alone item. Modern agricultural produce, for example, is more an oil product than anything else. Count the litres of oil in a litre of milk, by the time it gets to your 'fridge. Start with the concrete truck delivering the shed floor.....
Same with buildings, indeed everything. They could validly run a sliding-scale graph on everything, using energy as the universal slide.
This is going to be an interesting year - nobody knows how long BAU can go on, with a barrel over $100. I'm predicting a spike and implosion sequence, as in mid 2008. How many sequences before folk get the message, is an interesting side question.
The main issue isn't the 'which suburb to invest in' above, it's working out which things are lifeboats, and which are deckchairs. By investing, I mean 'posessing', not sharing by proxy at arms length. We've just bunged in another 30 fruit and nut trees.....energy shortage = food shortage.
Is that you Murray?
If so, I have been reading your blog and like a lot of what you have to say.
Just wondering what nuts you are planting - I am up in central Otago and looking for some good options for the same reasons - long term certainty of supply for my family. Also, where do you source them from locally?
Here is a pattern of what has happened in a depression.
Massive mortgagee sales as people lose their jobs and are unable to meet their mortgage commitments.
Real Estate prices drop dramatically with a surplus of houses and a shortage of buyers.
Banks rather than take a hit on their balance sheet by selling at negative equity, choose to hold on to the property and keep it as an asset at its inflated value.
Banks don't want to be landlords so mothball the house until the market recovers.
A shortage of rental properties causes rents to rise.
But
The trouble with that historic scenario is that is wasn't established under the fiat money system.
All gloves are off.
There was also a global supply of resources still to be tapped, enough for a few more decades of exponential growth in the tapping.
Good Finlay Macdonald forum on Nat Radio the other night - first time I've heard 'Peak everything' mentioned in the media, I think.
Watch food this year - on the back of that $100 oil. Watch the discretionary spend shrink. Watch that hit the discretionary retailers. Watch their inability to meet rent, as folk turn to the on-line (cheaper) alternatives, if they buy at all. Watch the building owners divest or diverge - the 'barns' may well go the way of the corner dairy.
I think fiat lending was alive and well in the sugarbag years, albeit a bit more conservatively released. The system worked fine until it peaked, beyond which it can't.
Meaning your 'gloves' comment is right on the .............money.
You might be ablte to design the residential re-use of those barn-buildings :)
You know I am good for a bite. Lol.
I think I hear an echo, something about mega malls and stores becoming dinosaurs.
A smart property investor might look at some defunct corner stores that litter the country.
When the property investors and developers start to understand embodied energy then we might make some progress.
I am still not convinced that oil demand will continue as a lot is used for chemicals for manufacture and to ship those same goods around the world. A drop in consumerism may give us a reprieve of a few years. But maybe not.
Have you looked into any of this sort of alternative PDK?
Yeah, I've looked at it. Gassification was used hereabouts during WW2 (read One Good Run - about Burt Munro) but is not very energy-efficient. I thought about turning my trees into charcoal...but the energy invested is too great for the return. It's a possibility for turning my sawbench and static (grinder, buzz planer, drill press) tools, though, and has the smug spin-off of not adding to carbon emissions.
I think the answer to your 'reprieve' ponder, is in the oil consumption figures July 2008 to now. Base-line demand hardly fell at all, and has now made up the gap. It is true that we could cut the private car out and halve consumption, but that would hijack the world as we know it, won't happen, and we're out of time for it to be initiated.
Food is the one to watch - it's an energy chain in its own right, of course, as well as being artificially energised, and last I heard, food is not a discretionary spend.......
One can predict localisation of everything, and the village as the unit size where skills can be exchanged. Public transport, rail, coastal shipping will all be valid, but food will become local, and seasonal. A lot of folk won't have tradeable skills, of course. Economists and PI's and so on.
Re those boxes - If you design them right, they stop echoing :)
Look at corn go
http://4.bp.blogspot.com/_pCDyiFUv9XU/TTb82CaPgjI/AAAAAAAAM3c/5riEW4dOK…
Equity futures are lower this morning as Goldman Sachs (GS) and Wells Fargo (WFC) report weaker earnings that go along with weak economic data. However, in what is obviously a trend, the dollar is weaker breaking below support, and that is leading to oil that is now making new highs above $93 a barrel to go along with rising gold price. Bonds are lower again. Food commodities are soaring, corn continues to make new highs and has DOUBLED IN THE PAST SIX MONTHS, now rising 101% (wheat has risen 90%+, rice has risen 60%, and oats have risen 115%):
Look at corn go
http://4.bp.blogspot.com/_pCDyiFUv9XU/TTb82CaPgjI/AAAAAAAAM3c/5riEW4dOK…
Equity futures are lower this morning as Goldman Sachs (GS) and Wells Fargo (WFC) report weaker earnings that go along with weak economic data. However, in what is obviously a trend, the dollar is weaker breaking below support, and that is leading to oil that is now making new highs above $93 a barrel to go along with rising gold price. Bonds are lower again. Food commodities are soaring, corn continues to make new highs and has DOUBLED IN THE PAST SIX MONTHS, now rising 101% (wheat has risen 90%+, rice has risen 60%, and oats have risen 115%):
Almost lost in the poodle media was this wee gem....
"rents, which are not subject to GST and which rose just 0.2 per cent in the December quarter. That raised some eyebrows, as rents had increased by a consistent 0.5 per cent over the three previous quarters.
"It implies scant pressure on housing supply, still, just when we thought the rate of under-building over the last couple of years might by now have worked off the over-building that preceded it, amid ongoing population growth," Bank of New Zealand economist Craig Ebert said. Googlenews.
In other words folks, the BNZ got it wrong...which takes us back to this great BNZ statement...made not long ago....." Misinterpreting or simply ignoring actual data on the state of the economy was a common mistake last year when we focused too much on good stuff coming down the track and missed the fact that the economy was nowhere near as robust as we assumed. So we shall look to avoid the same mistake this year."
Obviously the BNZ has failed to read it's own new year resolution!.....go figure...doh
You did use the word hard which is a softer word one would use when you don't want to admit you screwed someone. The market has certainly changed since mid 2010. You should have waited a bit longer and you might have got a 9 to 10% yield. Like CTNZ I find it hard to believe anyone would be stupid enough or be in such a bad position they would sell you a property at such a price you would get such a yield. Like CTNZ I think you are full of bulldust.
There's a parallel between this story and the debate that's going on further down this thread, about SK's recent purchase of a high-yielding property in Auckland. Some would call it enterprising to spot and take the opportunity of a bargain. Others seem to think it's immoral to use circumstances to one's own economic advantage. Presumably they insist on paying full price for items that are marked down in sales.
Well, charity's a fine thing; but it's not the main reason why most people are able to eat and put a roof over their heads ...
YOu can dance around the issue as much as you like SK and you can attempt to soften your style of business as much as you like but if you bought a property at a yield of 8.5%in Auckland last year(which I doubt the veracity of) then you screwed the vendor. There is no other way of describing such a deal if it exists.
You are quite incorrect - this place was a house with a self contained unit attached - and as I said there was no duress.
In any case - tell us more from your bizzare moral high horse of assumption - how would you go about deciding on a price to pay for something?
If a TV is on sale at less than cost price - will you pay more than the shop is asking for it?
And how do you go about deciding on a price to pay for a property?
We looked at a two 3-bdm multi-unit rental recently. To get an 8% net return (and that would be without factoring in about $15,000 which needs to be spent on maintenance/upgrade) - the asking price needed to be 1/3rd less than the current RV. Present owners (very elderly) purchased in 1994 - and so a 33% less than RV price still delivers a handsome capital gain.
I see these sorts of sales prices coming through soon - which also means that there is a chance that rents can and will be lowered by the new owners if less than 8% is acceptable by them.
Hi Gareth. The latest is, my offer was rejected. The CV is $435k and they want to see a "4" in front of my offer, as the CV says that's what its worth. I asked the agent , a nice man from LJ Hookers,what the best offer has been over the year or so it's been for sale. Get this, there hasn't been any other actual offer, not one, just, expressions of interest. So he said he will keep in touch. Nothing ventured nothing gained, and as I said last time, there's lots for sale anywhere north of Wellsford and south of the Cape.
I assume you mean RV (rateable value - which is CV, capital value and LV, land value combined). Yep, RVs across the nation are inflated by about 30% in my opinion. And then there have not been enough sales for QV (the main valuation agency used by local government) to lower the RVs to the realisable market price next time around. So it's likely a slow and painful deflation period in RE here. Unless of course the jobs situation changes for the worst, as it did in the States.
So many existing owners just can't accept a loss if they were buyers during the boom times - and so they keep paying the interest on a depreciating asset - likely racking up further interest on their day-to-day consumption - and all the while paying inflated local government rates on the property as well. Then there's the deferred maintenance. We've seen so many places where the owners bailed to Oz and have been renting their place here... and the deterioration is taking thousands off the capital value yearly.
Yikes - any land agent out there who still uses the old GV (Government Valuation) acronym is years (as in a decade or more) behind the legislation governing what is supposed to be their area of expertise!
Says something about the calibre of RE stock (of the human kind).
PS - with an address for the property, I can look up what the existing owner paid for it if you like.
The things one finds out....like...I can't edit a post after it's been replied to!...never mind. I appreciate your information. No. It's a '69 build in untouched condition. No ones tried to 'add value' and as such just what appeals to my beautiful wife. Thx, again. PS: So, $250 k still gives them a profit on their beach house....!!!
It sure does and if they were sensible they'd take the non-taxable capital gain and run!!!! Hope you get it :-).... but don't change your price, it's a good offer as that's a long way from nowhere! Beautiful country though... and the diving!
PS. back in March 2010 they had it listed at $498,000! So they've come back a way from that....hahhaha. Give 'em another year.
Thx, Kate. An unexpected bonus from Bernie's ( and David's) website! We have the time, and will use it. Worst is, we pay to go on holidays once a year, instead of the same place all the time ( that's me , not janet speaking!). Oh, and , too late....'she's' already admited ( just this minute!) to going to $325k! Grrrr....Lucky she's pretty!
You can purchase some of it from here;
http://www.terranet.co.nz/terranet3/
at $2.95 each for the previous sales history. I find that very useful - i.e. knowing when and how much the current owner paid. We often don't take our interest any further than that look up if we see the previous owner paid way over what we'd be prepared to pay.
The rateable valuation breakdown and school zoning (if any) is available free of charge here;
or from many of the city council websites (also the amount of rates)
But the bit on what it was previously listed for and what agent(s) handled it and for how long is only available to my knowledge on rpnz.co.nz - a subscription website.
It's is important to know also that most/all agents have access to this website and so if you're the seller, well, you need to realise they know all that history, as well as whether there is a legal encumberance (i.e. mortgage) on the property and who the mortgagor is (though not the value of it).
As the market continues to drift down over the next few years a lot of the current $450k's are going to end up at $250k. Just too much debt out there and the cost of living is rising quicker than incomes. People who are currently turning investments into cash are going to be very happy when they look back in years to come.
Look a bit wider afield SK, it is already happening in Whangarei. I know people in the RE game up there and 450K houses from 2007 are struggling to get low 300K, and 80% of those deals that do get signed fall over on finance. The new pattern that is emerging is that even those with pre-approved finance is still seeing their deals decline.
Trouble is they lost 1000 professionals to other cities and Aussie during 2009. Plenty up there are hurting bad already.
You invest in Auckland, which I have been told some time in my past, lags the smaller cities by two years.
No area will be safe from the gradual and steady downturn over the next several years. Just too much debt right through the community and not enough growth in incomes to overcome that problem. Just talk to any retailer and they will confirm the current state of the economy.It is bad out there and you have to be kidding yourself if you think otherwise.
BRITAIN TRIGGERS GLOBAL INFLATION ALARM
http://www.ft.com/cms/s/0/f7fc18da-2593-11e0-8258-00144feab49a.html
Get out of cash and into hard assets.
Now.
This is exactly what many have been suggesting for nearly 2 years now, SK. 'Inflation' in everyting you need; 'defaltion' in everything you own. Notice, in the article you caption, that nowhere does it mention about 'get more debt'. Quite the opposite. If you have debt, repay it or fix it. Because the one financial class that will become more expensive with 'inflation' is...debt! That's much higher interest rates ~ much higher! Debt backed assets may or may not rise over time. But many will be wiped out by the cost of carry before any price effect filters though. And those that just have cash will be compensated with higher rates of return on their holdings.
You would have to be mad to get into depreciating hard assets at present. Especially if you are borrowing all or part of the purchase price. Keep that cash in the bank. Asset values have a lot further to drop in value and when they bottom you will get more bang for your buck and you will be borrowing less than you would now.
You need to be patient as it will be years before the economy steadies and asset values turn around. Some will say you need to be brave when people are fearful. But others would say you need to be sensible when people are being stupid.
The majority of New Zealanders are on a very average income which is the main reason we have this inane love affair with property as people see it as means of getting ahead capital wise. Because of the low incomes we do not have much in the way of savings so we borrow for investment. It is insane to borrow in a dropping market as there is no capital gain to cover the losses from negative gearing. You just get further and further behind and you need to support the cashflow of your investments from your income.
Compare us with Australia where they have 1.2 trillion dollars in their super schemes. If only we had politicians who had the guts to do what they did over there and set up a strong super scheme.Then New Zealanders would be wealthier to a person and would move away from their tunnel visioned focus on property and we would have a huge pool of funds to grow the economy with. I spent part of the xmas break with my wife's cousin and her husband from Sydney. They have worked hard and been successful over there. In their early fifties they have three mill tied up in their super scheme part of which they manage themselves and part of which is managed by Macquarie Bank. Their retirement is guaranteed. If only New Zealand had followed their example.
New OECD Report. “Housing investments should ideally be taxed as part of income tax in the same way as other assets by taxing imputed rental income…..An alternative second best solution would consist in removing mortgage interest deductibility…tax favouring of housing can lead to excessive housing investment and crowd out more productive investments, thereby adversely…affecting productivity and growth…Moreover, taxes which favour home ownership may encourage speculative behaviour by lowering the cost of borrowing to finance housing investment….”
Interesting reading from Page 16...
http://www.oecd.org/dataoecd/42/11/46917384.pdf
Thanks for that link , St. Nick . A fun little Sunday read . But didn't it spell out alot of what we've been banging on about here . And so much of the material is simple commonsense , but them in government can't see it . ......
......Many here blame the BB's for policy decisions which favour property as an investment . But I reckon it's sheer stupidity on the part of them in power , not some design , or some conspiracy to fleece the following generations .
Call me a " gloomsteriser " if you will , but sometimes I feel that the pollies and their pointy-headed advisors just aren't very smart . No more so than a bog standard blogger at interest.co.nz ............. ahem !
Hugh P. has presented plenty of evidence to show that local councils are responsible for soaring section prices , by overly zealous restrictions on land development . The actual costs of house construction have not surged anywhere near as much as the house section prices have .....
..... More stupidity than conspiracy , I reckon . .......... Visited your local council lately ? Go on , check it out first hand .
Oillyn
But you have to feel for the tortured souls who jump on the conspiracy bandwaggon just because "the result was much the same as if it was [one]". I guess some people just need a simple explanation within the bounds of their comprehension to rail against eh!
Unless they are 'doing a Paul Henry' like Bernard.
Good point GBH.
If there is a chink leading to easy money, the entrepreneurial and the downright greedy of any generation will find a way to leverage it. The fact that it remained open and was allowed to develop into a gaping black hole sucking all life from the economy is a failing of pollies all over the western world. If it is not a conspiracy, it might as well be. hmmm wadaya think Oily?
Point is Oily, the baby boom is a statistical construct... the mythical tribe of fundamentalist property nazis on a mission to rob their children that the bb conspiracists believe in...is just plain silly. Greed is a human failing not a generational one... Regardless of your dob.
Yep that anal inflation is painful alrighty...
Inflation is now worse than Zimbabwe!
There is alotta hickeysterical xenophobic inter-generational nonsense spouting by Bernard Hickey himself . ..
...... History shows the dangers of pigeon-holing people into convenient groupings , and then vilifying them ....
... From the behaviour of churches , the hatred towards gypsies , Jews .......... and now ( to a lesser degree , of course ) to an anger against the " baby-boomers " .
If we'd had a bit more commonsense from our governments , our economy would not be as unbalanced as it is , today . Therein lies the starting point to our recovery , some good policies and some financial regulators with teeth , and a few financial regulations which make sense .....
................... A level and fair playing field for all investors and businesses .
I dunno Gummy, I can't understand the Hickster on this one, perhaps it's personal. He has admited to doing quite nicely out of property himself, but seeing as that was in Aus and he isn't branded with the boomer tag, it was probably just good fortune... or entrepreneurial nous. I seem to remember this site being basically an info service for PI's...
I would think that hysterical attitudes don't usually reach a critical mass of acceptance amongst the sort of folk that post here, but when new 'isms are endorsed by respected and credible media folk like BH, they could gain a whole new momentum, no matter how illogical, unhelpful or divisive they are. Hard to get any consensus for political change with such emotive red herrings flapping around.
Common sense - government - Hah! With the partisan self interested bunch of hypocrites we've got at the moment.... but you never know, the time is right for someone with a bit of vision to step up.
Fair do , I am a tadge hard on the Hickster , from time-to-time ........... But I get the niggly naggly feeling that the bloke thrives on a good rark up ........... He'd puke if we all agreed with him .....
..... As for the " someone with a bit of vision to step up " .......... well , Bob Jones was the last guy to do that . And under FPP , he left empty handed . .......... Cool dude , but . He shook them up !
All very well in theory Nicholas, but you would be handing Central Government an incentive to keep infating the economy, and keep property prices rising, and the unintended consequence would be ever increasing "imputed rental values" .. how would you overcome that .. of course I suppose you could index the values.
I'm not so sure that would happen. At the moment there is an incentive to escalate property prices as 'the more you pay, the more you save" ie: savings money ploughed in to property equity is tax free versus sticking it, say, in the bank ( in effect renting to oneself and paying no tax on the implied rent, and reaping any capital gain at sale time, again - tax free to a home owner). So if imputed rent was to be applied, the incentive is to lower property prices, as the imputed rent ( tax ) would hence be lower. The home owner would actually save on his tax bill by having a lower property price. The saved expenditure would find its way to alternative income generating parts of the economy; not least being, less foreign private sector borrowing to fund our national pass-time. The Government would thus get the same tax take, but from non property related income generation.
I have spent part of today with my mate at one of his home appliance retail stores and am pleased to say that retail is a little better this month as the country seems to have got through the silly sale season where every shop was offering and every customer was expecting silly prices. I am not saying it is a lot better but it is a little better than the October to December months. Shops need to make some profit otherwise there will be a lot more people unemployed and that would be a disaster for the country.
While there a local Westpac lending manager who knows my mate came up to us and asked how retail was. He was told not great and he in return said his bank was very busy with two groups of clients. The farmers who were over leveraged and multiple owners of investment properties who had bought with interest only loans and who when they came up for review the bank was putting them onto P & I loans as they wanted these clients in a better position security wise.This meant these clients were generally being made to sell down their portfolios as the cashflow from their rents was not enough to sustain the demands from the bank. He is not busy with new loan applications but rather with old loans being restructured.
The banks are only concerned with their own position first and anyone who has over leveraged with see just how uncaring and ruthless they are. One minute you are their best friend and in the next minute you can be their enemy.
Hi,
Much retail spending over the last few years has been boosted by easy credit...so what has happened is there are too many retail stores and retail assistants for a bloated retail sector no longer boosted by debt.o actually debt is bad, ppl have got retailing jobs that were un-sustainable instead of getting jobs in another sector that could have offered them better job security and income over the longer term. In fact its worse as the debt is now being paid down. So if 10% of your business was based on spending today to pay back tomorrow, well tomorrow is here so that's 20% down have a nice day....
In the US retail was 70% of GDP, that couldnt grow for ever....in NZ it was also high....
What you are saying is a bad choice was made but now we have to continue as thats bad....the trouble is to do that, that debt has to increase year on year, at some point it cant continue to do so....logic should tell you that you cant grow infinitely on a finate planet.....but what we have seen is for the last 60 odd years is that that is what Pollies and voters have tried to do....expotential growth with tomorrow being put off by each Govn and voting generation in turn....sorry but the buck stops here, or at least inside this decade...
Yes there is going to be un-employed....and yes a lot of them will be retail.....anyone with shares in retail, but also tourism and air lines is plain stupid IMHO...by the end of the decade 50% smaller....none work on expensive oil......
regards
If people are laid off from retail where will they get new jobs Steven? Do you want more people on the dole? Do we benefit from more and more people going to Australia for work.?Surely we need people working and paying taxes. We need a diminishing number of people working and paying tax to support a growing number of unemployed like a hole in the head at present. We have enough to worry about regarding the baby boomers who are now starting to retire and who want national super to come their way.
As retail dies so do a lot of other industries such as the couriers and trucking companies who deliver the goods to be sold and some of them are already struggling. Then there is the companies who services the vans and trucks and sell them. Suppliers of stationery,computer services,accounting services and alike will suffer.Small retail businesses employ a large part of the NZ working population. They need to be supported and kept healthy otherwise the NZ economy will struggle even more than it is now. The government is borrowing a lot already each week to keep us going. If the number of unemployed grows then the amount will only need to go up as the amount of tax and gst being recovered by Bill English will diminish.
Please dont confuse what I think will happen v what I want to happen. I have been made redundant 3 times in my lifetime, I wouldnt wish it on my worst enemy....not that I have any at all!
More ppl on the dole, no....but employed in make believe productive jobs is little better, you cant keep doing that for ever.
So we benefit from more and more ppl going to OZ? if they are retail and at best semi-skilled I will give that a qualified yes (I'm happy to be corrected/enlightened).
"As retail dies, etc" yes indeed what you lay out is what I expect to happen, our entire economy is based on cheap crude oil and consumerism, ie that below $50USD....but we have now used 1/2 of it, or in otherwords at our about peak daily production, it now will run at $80 to $90 and at $100 we will see yet another recession............so hello 25% even 30% un-employed.....
The problem is one of re-directing the economy to one of valuable production in an ever decreasing scenario of less energy.....there will be higher costs to live, food will become based on organic farming with resulting prices, so your food bill will double....ditto electrical power....the end result will be we will live like we did in the 1950s in terms of energy consumption, or about 1/2 our present rate...Then there will be the tax hit....and you think retail can survive this? I dont....
regards
Looks as though there will be heaps of work across the ditch for anyone in the building sector. Add that to the mining boys and it will not surprise if the data points to an exodus about now.
This will egg zasa bate the deflation trend picking up steam in property even though Bolly and Co are doing their bit to pork the market with cheaper credit for longer.
Word is out that the peasants have caught on to this saving lark and to paying down debt...nasty trends if you are a banker.
Watch carefully now as the Irish give the ruling party a left hook in early March...and the new govt plant a straight right into the ECB IMF and the Germans. Psssst anyone wanna make a deposit in an Irish bank?
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