News } TBK Capital

Investing in Property and Fixed Interest

It’s been a pretty busy few weeks, with Donald Trump elected U.S. president, Leonard Cohen's death, and then earthquakes in the South Island. Not that I’m saying any of these are related.

Date Created: 25/11/2016

Ring the bells that still can ring
Forget your perfect offering
There is a crack in everything
That's how the light gets in

Leonard Cohen – Anthem. Live in Florence 2008 And for comments on its meaning.

Hi John,

It’s been a pretty busy few weeks, with Donald Trump elected U.S. president, Leonard Cohen's death, and then earthquakes in the South Island. Not that I’m saying any of these are related.

Donald Trump’s election was one of those “it’s obvious now” things. Hillary Clinton lost it rather than him winning it. See one opinion in the NZ Herald article quoting Chris Cillizza of the Washington Post. For the American people it was a matter of Change versus Risk.
 
Of course even more interesting now, is Donald’s repartee prior and post-election. All of a sudden he’s now a confused nice guy with a bit of cleaning up to do.

Even interest.co.nz's Bernard Hickey had trouble trying figure out the effect it’s going to have on the world. In summary he says “If Trump carried out his various trade and defence threats, New Zealanders would face the risk of slower global economic growth, higher interest rates and fewer capital flows into our housing market and the rest of the economy. The other wild card is if New Zealand becomes the ultimate safe haven from Trump and all the trouble he creates.”

For me quite frankly, the aftershock of New Zealand’s earthquakes and Leonard Cohen’s death (and David Bowie’s), were far more distressing. And I still think this country remains the favoured place to live. 

So what changes might the Trump win have on our investment decisions? Well the short answer is not much – so far. The New Zealand economy continues to be strong as the October ANZ Bank Economic Outlook reports. This is quite a long report, and deserves a read, although it’s yet to be seen if any subsequent surprises from the U.S. Elections will affect the bank's outlook. But I doubt it.

Moving on, in this newsletter, I thought I might examine how all this might affect that favourite subject for everyone - how to get a return on our savings. We did cover this subject in last month’s newsletter Baby Boomers, Interest Rates and Retirement, but here’s an update on the most popular.

Residential Property

Property has always been New Zealanders’ favourite investment. ASB’s quarterly investor confidence survey taken in August shows the investment picks were as follows:

• 21% of people say their own home.
• 18% pick rental property.
• 13% term deposits.
• 7% bank savings accounts.
• 6% publicly listed companies.

For most investors, investment in their home or residential rental property is by far the most popular and remains within reach. Meanwhile it seems the new LVR rules are having some effect on the ability to raise residential mortgage finance, and consequently on demand for houses and therefore house prices. In my view the demand for housing - particularly in Auckland - will continue, but the cost of obtaining finance may rise. Looking on a world sense, Trump’s Presidency may well trigger this and the Fed seems to be predicting it.

If you’re an investor, you will not be looking so much at the return on the rental property you own, but its appreciation due to demand. That’s fine in certain locations - and I include Auckland in that statement – but I’ve seen the prices paid for houses in some locations that scare me.

Commercial Property and Property Funds

The demand for and price of commercial and industrial property is of course driven by factors like lease terms and income. All these remain strong, and it would take an adverse change in New Zealand’s economy to alter them. However, while there’s some obvious signs of increased building activity, we’re also noticing the withdrawal of proposed developments and subdivisions.

Partly this is a result of an increased difficulty in getting Bank finance for developments and subdivisions, although I’ve got a feeling a major reason is capacity restraints which lead to higher construction costs that in turn make the projects not economically viable. The Reserve Bank is wary about these emerging pressures in Auckland; as is reported in a recent article in NBR.

The price of a commercial property is usually much larger than that of a house, but the opportunity to participate is available through various property “Funds”. We’ve got a couple of these available now or coming up in the next week or so.

The first available now is open only to “Wholesale” investors, is a private issue not being advertised, has a very high return, and a minimum investment of $250,000. If this might be of interest reply to this email accordingly or give me a call. Any further information is subject to approval by the promoters and signing a Confidentiality Agreement.  

The other is not restricted to Wholesale investors, has a Product Disclosure Statement and will be an offer open to the “public”. I will be sending subscribers to our Opportunities Newsletter information about this at the appropriate time. If you'd like to look at this reply to this email and I'll make sure you get a copy of the PDS.

Interest Income

One of the services we provide at TBK Capital is arranging debt finance for borrowers.However if you’re an investor looking for interest income, whether you’re amongst the 20% identified above or not, you should also talk to us.

We have access to bank and non-bank lenders providing interest bearing investments, some of which are offering interest rates up to 12% p.a. By notifying us of your interest in these kinds of opportunities we can contact you as they arise.  Please note that strict conditions apply and we will need to evaluate your eligibility prior to presenting any offers.

Other interest bearing investment offers we have available include:

• Manuka Bonds which offers a bonus interest payment available on certain conditions being met on maturity of the loan and;
• Alpine Fresh, which offers an optional convertible note, being regular interest payments with the option to convert to shares in the business on maturity of the loan.

For further information on all or any of the above, email or call me on +64 21 902 901 or +64 9 307 3257.