Indexgroup Newsletter

Hi [salutation],

You know the world economy is in a bit of strife when the TV's at work are no longer tuned to the sport but now on CNN and CNBC so we can watch the Credit Crunch- Live...

1. KiwiSaver

To start with the positive- those of you yet to join KiwSaver why dont you give our 60 Second KiwisSaver process a go- it literally is that simple so if you need a bit of a hand contact cecile@adamparore.co.nz or give her a call on 09 524 0150 and she can talk you through it and sign you up. In a nut shell everyone who joins and contributes at the minimum level will go close to 3 times their money in year 1 and should at least double it thereafter thanks to our especially generous government and long suffering employers. On that basis everyone should join but especially if you are: A Kid: All kids should be in KiwiSaver because for them it is not a superannuation scheme but a 'saving for the deposit on my first house scheme'. They can take all but the government contributions out when the time comes. They get: $1000 kick start, $40pa fee contribution, Employer contributions (once 18) , Own contributions, Govt contribution of $1042 pa (once 18), Investment returns. When the time comes to buy their first house they can withdraw everything except the government contribution.

If they don’t want to make their own contributions they can take a contribution holiday after 1 year and keep renewing this every 5 years.

Anyone with a mortgage

Any one with a mortgage should be in KiwiSaver because for them it is not a superannuation scheme but a 'pay off your mortgage while getting your employer to save for your retirement for you scheme'. With mortgage diversion you can reduce your own contribution to 2%, apply 2% to paying off your mortgage but still get the employer contribution at 4%. You get: $1000 kick start, $40pa fee contribution, Employer contributions, Reduce your own contributions to 2%, Govt contribution of $1042 pa, Investment returns.

2. OCR Review- What now?

It would be fair to say that much has changed over the past few months and unusually the RBNZ has made a concerted effort to get out in front- with some justification it turns out. The easing cycle which was until recently forcast to be be reasonably shallow got a big kick up the backside a few weeks back with Alan Bollards shock 50 point cut and a clear indication that the same treatment is coming again on October 23rd. Recent global banking collapses have strengthened the case for a swift drop in the OCR- effectively forcing banks to pass on cuts to consumers despite their best attempts not to. The intention is to try to kick start the econonmy which is now into its second quarter of negative growth.

3. If I was a borrower...

Those who took my advice last time and went floating are looking pretty good now. If you support the view that we here in NZ will be facing increased costs of borrowing as a result of the credit crunch (a view that seems pretty unanimous for obvious reasons) then the outlook for the next few years is for Fixed Rates to sit at about where they are now- possibly a little higher- in the 9% range. This means a slightly different (higher) track than previously forcast so a good chunk of those coming off 2-3 year rates next year will find them about 1-2% higher than anticipated. The surprise could well be that by mid next year Floating Rates will have reverted to norm and be priced under Fixed rates.This is typical in most economies and has not been the case here because we have borrowed so much of our money off shore for the past 5 years- mainly because Kiwis are poor savers and so we cant fund our own mortgages with deposits. So whats the plan? Go floating- take a 50 point cut in a few weeks and see how things pan out from there. Otherwise Fix for 12 months or less.

4. Economic Outlook

I think its looking ok- albeit a little soft. Fortunately the fundamentals of our economy are reasonably good although the days of good strong growth that we have become used to over the past few years are probably over for now. The sobering thought is that this growth was largely funded by an abundance of cheap credit that allowed us to leverage ourselves to the eyeballs and create a housing run that is now beginning to unravel. House prices will drop a bit (they already have) and we will all feel a bit glum for a while, focus on trying to pay down debt and hope we arn't the ones who get a call from the bank to bring their borrowing back within acceptable LVR ratios- these guys will have to write a cheque, refinance or sell. With a bit of luck we wont lose our job either, and hopefully all comes good in the fullness of time. Or not.

5. QuBa [click here]

Those of you interested in whats happening down by Vector Arena on Aucklands waterfront should check out QuBa at 55-57 Mahuhu Cres, Parnell, (next to the Stadium). The property comprises 113 luxury level leasehold apartments, built from the best materials, as well as 14 commercial boutique commercial properties. These properties represent extremely good value, and will be launched to the public mid October. Properties are 1, 2, and 3 bedroom apartments, with carparks, and views to the city and the sea, made with the best quality fittings and finishes, and sure to please.

APM and the sales agents CBRE will be joining forces to help new city dwellers into these properties, Call Craig Abel on 021 937915 now, and see how easy it is to own your own slice of Downtown Auckland.