I have yet to write a piece lauding the opportunity presented for everyday investors by the property market. Why? Because it simply does not make sense for many people to pin their entire financial future on assumed returns from real estate.
To be clear, it does not make sense to pin your financial future on any one investment – be that housing, or any other specific industry or asset class.
In the case of housing, it has been a stressful few years for those who caught housing fever at the tail end of the boom and paid top dollar only to have their investment materially fall in value and their mortgage rates soar.
While house price growth is slowly starting to claw its way upward again, it’s not expected to near the halcyon heights of 2021 until mid-2029.[i]
When the decline in value is inflation adjusted, it shows the gravity of the predicament many investors find themselves in. On average the decline is 29%.[ii] Their effective buying power has shrunk before their eyes. If they bought on the high and are facing selling on the low, it’s likely they will make a loss.
A turnaround could occur if interest rates go down quicker than anticipated, but generally the consensus seems to be – build Rome, then we’ll talk.
(Rome, in this case, has lower interest rates and a better economic situation in general.)
Westpac has downgraded its 2024 price growth forecast to 2.1% from 5.8%, with other major banks doing the same:
· ANZ has downgraded from 3% to 1%
· ASB has also dropped to 1%
· BNZ cut its forecast from 5% to 2%[iii]
· Kiwibank has pushed their 5-6% forecast for 2024 to 2025[iv]
Already we are seeing terms like ‘buyer’s market’ popping up. Technically it’s true – it’s certainly not a seller’s market with house prices trending as they are. However, now is not the time to go all in for fear of missing out.
We’re still in dire economic straits as a country. Some people’s budgetary belts will have run out of notches to tighten well before this point. If you can’t afford to take risks… don’t. Housing is not a ‘safe’ investment. This is a long-held misconception, made worse by our national obsession with home ownership.
A roof over your head is one thing. ‘Investing’ to provide a roof over someone else’s head, coupled typically with bank debt, at the risk of your own financial livelihood and future is another. At this point, it’s tantamount to throwing your life’s savings into crypto because someone you know made a nice return back in the 2010s.
Some other ways you can invest which would be more conducive to achieving your long-term financial goals:
Your KiwiSaver Fund
Like a piggy bank, you can’t access it until you need to, only you also get the benefit of compound growth over time as your KiwiSaver investments mature. An easy way to set yourself up for retirement is to invest more in your KiwiSaver. If you can’t commit to more than the minimum, at least make sure you hit the threshold annually to max out the government contribution.
It's also worth checking that you are in the right kind of fund for your timeframe (and ethical preference). People who are retiring in five years will be better suited to a more conservative strategy as they don’t have the time to weather any big volatility storms. Those with many earning years ahead of them, however, could take on more risk as they have the fullness of time on their side.
Tax-efficient PIE funds
Much like KiwiSaver, a tax-efficient PIE fund will allow you to contribute small amounts into a convenient package and build wealth over time.
This is a good option to look into if you would like an investment product which is easy to withdraw from, and which usually has a lower threshold for minimum investment than traditional portfolios. They have an inherent tax advantage for some investors with a capped tax rate of 28% and investors also don’t have to file another return at tax time making them an administratively attractive investment.
As with any financial product – check with a trusted financial adviser first.
A globally diversified portfolio
Portfolios tend to be more ‘bespoke’, in that they are less of a packaged option than PIE funds or KiwiSaver (which have broader categories). They also tend to be better suited for investors with more capital – as opposed to a financial product like KiwiSaver, where you can start from zero and grow with very small deposits.
A globally diversified portfolio with a robust financial strategy will be a mix of investments from different asset classes, countries, and industries. Working with a fiduciary financial adviser, you will be able to invest in a strategy which takes into account your timeframe, goals, ethical considerations, and risk appetite.
Note what all of these have in common – diversification, and no get rich quick schemes in sight. Good investments are the ones that won’t have you glued to the headlines, feeling sick every time things take a turn.
If you would like to have a chat about your investment options, calling your local financial adviser for a face-to-face chat is a great place to start.
Better than trawling the real estate listings, at any rate.
by Nick Stewart (CEO and Financial Adviser at Stewart Group)
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 364.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.rnz.co.nz/news/national/517687/house-prices-won-t-return-to-2021-peak-until-after-2029-forecaster-says#:~:text=Gareth%20Kiernan%2C%20chief%20forecaster%20at,affordability%20and%20debt%20servicing%20costs
[ii] https://www.goodreturns.co.nz/article/976523249/lessons-from-a-silent-housing-crash.html?utm_source=GR&utm_medium=rss&utm_campaign=Lessons+from+a+silent+housing+crash+
[iii] https://www.nzherald.co.nz/business/another-major-bank-scales-back-house-price-forecast/H3TALIEP35CELN3JRMUNGEEFVI/
[iv] https://www.kiwibank.co.nz/business-banking/thrive-hq/kiwi-economics/commentary-insights/survive-til-25/
