Immigration the Key to Growth
I’d been thinking about it for some time – just how long can these low interest rates go on for?
Take me down to the paradise city
Where the grass is green and
the girls are pretty
Oh won't you please take me
home
I wanna go, I wanna know
Guns N' Roses - Auckland
concert
I’d been thinking about it for
some time – just how long can these low interest rates go on for?
What prompted me to action was the article in this morning's NZ Herald
where Liam
Dann says "There
is virtually no chance of any change in the official cash rate and focus has
turned to the odds of any change at all in 2017."
But it was Roger
Kerr’s article in interest.co.nz on 31 January that caused me to
reflect on the changes in interest rates since I entered investment banking
over 40 years ago.
Roger says he “finds it surprising so many pundits
thought record low interest rate would continue” and that “Higher fixed term mortgage rates,
higher bank lending margins to corporate/commercial borrowers and more
stringent bank lending/credit criteria are a feature of the debt and interest
rate markets in early 2017”.
In my own experience the
residential first mortgage rate in 1968 was about 7% and in 1986 18%. This Reserve
Bank of New Zealand graph shows the change in rates from 1990 and
notes the highest was 20.5% in June 1987
So it was really interesting to
see another article by Jarrod
Kerr in which he says “we
are in the middle of the largest demographic shock ever seen”. He
suggests interest rates are destined to remain low as population growth (which
induced the high interest rates in the 1980’s) declines.
Migration
Jarrod’s view is it’s all about
migration. I’m not going to get into detail, it’s a long article. Enough to say
the U.S (hmmm maybe with Trump that might change), Australia and New Zealand
have much younger populations “and
that migration flow can solve (or at least postpone) a lot our first world
problems.” See New Zealand statistics here.
I read the article several times
and the more I read it the more I liked it. It’s very thought provoking. He
says, “There is push back
against immigration, competition and globalisation. That could give rise to an
inflation pulse in due course. But more importantly, baby boomers have been
retiring and supplying interest rate product. A large driver of the glut in
global savings has been the saving of baby boomers into their retirement.”
A must read in the article is “Lucky Country. Lucky to be in Demand”
and the section on Australasia’s proximity to Asia and especially Figures 33
& 34. He says “Australia
and New Zealand are part of the hottest club on the planet” I’ve
mentioned the importance of our proximity before – see my newsletter written
5 years ago on the Asian Crescent Moon.
By the way, the popularity of New
Zealand as a destination for tourism and immigration has been growing rapidly,
with population growth from migration more than trebling in the last 3 years.
See NZ
Herald article by Sophie Boot.
Interest Bearing
Investments.
Of course your view on interest
rates will depend upon whether you’re borrowing or investing money. Low
interest rates are great for home buyers and businesses.
But if you’re retired and looking
for a regular income to pay the rent or mortgage and every day expenses, higher
interest rates are a boon. To see the 2 year term deposit rates for the most
common interest bearing investment available to everyone click here.
These range from 1.0% to 5.5% p.a.
There may well be higher rates
available and anyone interested should talk to their financial adviser. At TBK
Capital we do not give financial advice but structure investment opportunities
for “wholesale” investors, one of which by the way, is a first ranking secured
fixed interest investment paying
12% p.a.,
Other Investments with a Fixed Return
I mentioned some of these in my November newsletter Investing
in Property and Fixed Interest. The most common available here fall
under the heading of managed “Funds”. They vary as to the asset classes
within the fund which include property, shares and fixed interest. The
recommended minimum term of the investment seems to be about 3 years. This is a
specialised area and for more information you should contact your financial
adviser.
Property funds are also popular.
There’s a certain feeling amongst investors about the stability of the
underlying asset of property. Some funds simply offer a fixed return while
others include any appreciation in the property. At TBK Capital we’ve offered
these in the past only to wholesale investors. But we’ve got a new one coming
up shortly which has a Product Disclosure Statement and accordingly is open to
the public. Let me know if you’d like a copy when it’s available.
Borrowing Money
Of course low interest rates are attractive when you’re borrowing money.
At TBK Capital we offer a service
arranging debt finance for business and property. To see more about this
read my March 2016 newsletter “Debt
Finance Options Available through TBK Capital”.
Recent Government regulations
attempting to slow the rising cost of housing, have made it more difficult to
raise residential mortgages, and over the last few months the banks have made
it harder to obtain finance for subdivisions and residential and commercial
property developments. However there are other ways – and we can help there.
However we have noticed in our sister company Tabak Business sales, the
banks' appetite for lending to businesses has improved. So remember if you’re
interested in selling or buying a business check
out their website. Alternatively if you’re looking to arrange the finance
to purchase a business or to expand an existing operation, email
or give me a call on 021 902 901 or 09 307 3257.
Cheers
JP
John Paine B.Sc., Dip BIA
TBK Capital Limited
Level 10, BDO Building
120 Albert Street
Auckland 1010, New Zealand
Phone +64 9 307 3257
Fax +64 9 309 4519
Mobile +64 21 902 901
Email john.paine@tbkcapital.co.nz
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