"Buy a house, save for retirement"

Personal Finance

Tower Investments upbeat about NZ; sees value in select stocks (including Trade Me), sovereign debt at the margins and home ownership as a hedge against inflation

25th Jan 12, 4:24pm by Amanda Morrall

By Amanda Morrall

Despite 2012 shaping up as another year of volatility with nagging concerns over sovereign debt, Eurozone fractures and the threat of inflation, Tower Investments sees reason for optimism in New Zealand and opportunities to make money for value investors.

With international markets roiling, Tower CEO Sam Stubb's said the firm has shifted its focus toward New Zealand and Australia, moving more money into the domestic equities of both countries, which look poised to weather the storm better than most.

"We're relatively bullish about New Zealand,'' said Stubbs today at a media briefing. "If you go overseas, you'll see how relatively good it is here and we feel the same about Australia.''

In addition to increasing its equities exposure in Australia and New Zealand, Tower said it has upped its weighting of commercial Kiwi property, increasingly hedging to the New Zealand dollar, a currency it believes has entered a "long-term period of strength."

'Plenty of upside in our Trade Me shares'

Tower's NZ$3.3 million uptake of Trade Me shares in December's initial public offering is a reflection of its overall outlook for domestic equities. Equities portfolio manager Stephen Bennie said the company's purchase of Trade Me shares was the largest wholesale uptake in the country.

Since the iconic Kiwi company went public on December 13, shares (originally sold at $2.70) have risen above $3 but were at $2.89 today. Based on pricing models of similar Australian outfits, Tower tags their potential value at $4.66.

Commercial New Zealand property is another asset class favoured to perform well in 2012, along with selective bonds from Europe's so-called PIIGS nations (Portugal, Ireland, Italy, Greece and Spain).

With the European Central Bank printing and pumping more money into foundering European nations, a potential banking crisis looks to be averted but without economic growth in the developed world inflation remains a long-term risk, said Stubbs.

'Buy a house'

For that reason, he believes the best bet for average Kiwis will be buying a house, or for those who already own a home, fast tracking the mortgage and socking the rest into KiwiSaver or a comparable retirement scheme.

"We don't see anything in this environment that says you shouldn't be positive about buying or owning a house,'' said Stubbs.

He said when mortgage rates start climbing, it'll be a sign of either growth, or inflation. In either case, owning a home will be a form of protection against it, he adds.

"Inflation is the home owner's best friend. If we are going to be heading into a period of inflation, you'll want to own your own home.''

'Fix your mortgage rates'

Tower's view on the fixing versus floating home loan debate, is to fix.

"Long-term rates are very low historically, people should be fixing.''

And despite New Zealand's love affair with term deposits, Tower's position is they are a poor place to be invested, long-term.

"In five years plus, they'll look back and see they weren't getting an appropriate rate for the money they were putting on deposit for a long time.''

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19 Comments

by moa man | 25th Jan 12, 5:07pm 1327464420

Is this the same company, Tower Investments, run by a man of the same name i.e Sam Stubbs, that froze thier investors funds because they couldn't run a piss up in a brewery?

http://www.stuff.co.nz/national/352384/Tower-fund-freeze-adds-to-fear

Read this advertorial with caution people.

by scarfie | 25th Jan 12, 7:21pm 1327472479

Nice Gotcha

by moa man | 25th Jan 12, 9:52pm 1327481571

But it gets worse Mr Scarfie, notice the last two sentences which include Tower's current position on T/D's i.e. they are "a poor place to be invested, long-term."

Wonder why they say that? Wouldn't have anything to do with touting mortgage funds I hope.

I also wonder wether the people who had thier investments with Tower frozen, would have been better off in T/D's, rather than a mortgage fund. I somehow suspect so.

Reading this tripe article makes me think i am back in late 2006, when Blue Chip was still listed on the NZX.

by Fairfax O Rouke | 26th Jan 12, 12:17pm 1327533451

To be fair I think he had just started at TOWER when that fund was closed. Although he was the CEO at Hanover before TOWER. And at Goldman Sachs before that. And with Fay Richwhite before that. Cripes.

by Wolly | 25th Jan 12, 7:22pm 1327472569

I think the headline ought to be..."buy an older sound house on a larger property and escape the new build red tape and gst nightmare".....sound advice as many who know a whole generation of houses were built by master builders and contain no chemical saturated Rhubarb.

Replace the single glazing if you are in a cold zone...foam the walls and pad the underfloor in PolyS...stuff the ceiling with batts...do your own reno work to make it a place others will dream over.

You end up with a quarter acre garden likely already established. You won't need to rush the DIY and you can save for that and grab the bargains.

Here is but one example...there are plenty of them:

http://www.trademe.co.nz/property/residential/for-sale/auction-431985580.htm

by scarfie | 25th Jan 12, 7:23pm 1327472582

And don't buy anywhere that you food has to be trucked in. I would say a cap of perhaps 10,000 people for a town, although with New Zealand growing conditions it could go higher than that.

by Wolly | 25th Jan 12, 7:29pm 1327472971

You can have native hardwood flooring and heart Rimu framing...try costing that today...and probably high quality timber joinery...Go for houses of the 30s era with wide verandahs...one that's well off the deck on concrete piles...not flood prone and nowhere near a cliff top or bottom...

by scarfie | 25th Jan 12, 7:50pm 1327474257

Now if you could get good thermal performance by tweaking a 30's home then that would be alright. They generally suffer from having lots of rooms with windows only on one side, but they don't have an exclusive on that. But along with solid materials they have craftsmanship and a mix of classical elements that make them eternally attractive. I see a distinct link between less attractive housing since the 30's and the onset of the modernist era. The language has been lost to all but a few designers.

by bob | 26th Jan 12, 9:15am 1327522540

If by 'foam the walls' you are recomending people pump the wall cavities full of expanding foam you'd better have some pretty good professional indemnity insurance 'cos that advice will most likely lead to rot and mould (as well as inferior insulation)

by powerdownkiwi | 26th Jan 12, 9:23am 1327523020

You can do better insulating old weatherboard. I developed a tool for that. Imagine an all-metal grubber (water-pipe handle) with a 50mm slot in the blade. This you slip either side of a stud, and lever quietly. It lifts either side of the nail, and pulls straight. No splits.

Two people working together, can easily de-boardthe side of a house, insulate with batts, wool batts, polystyrene or whatever, slap on new BP, and replace boards in a day. Much easier, and you can inspect/fix timberwork, and run new services while it's all open.

by Mike OLeary | 26th Jan 12, 1:11pm 1327536701

Be great to see this little tool as it sounds the most efficirnt way of insulating the walls of an older weather board house.

by powerdownkiwi | 26th Jan 12, 1:25pm 1327537506

Just imagine a claw hammer or a pry-bar, with a four-foot (1.2 metre) handle, and with the nail-slit widened until it goes either side of the stud. You work down from the top board, so you start by putting the prongs down either side of the stud, behind the board. Then you lever the handle upwards, just as you'd putt a nail with a hammer/bar. The two prongs just lift the board towards you from behind. They're either side of the nail(s), and pull straight out.

by Elley | 26th Jan 12, 11:53am 1327531996

"Replace the single glazing if you are in a cold zone...foam the walls and pad the underfloor in PolyS...stuff the ceiling with batts...do your own reno work to make it a place others will dream over."

Can't agree with that Wolly. The place we first bought in Chch after moving to NZ was a 70's typical Kiwi house (no insulation whatsoever, single glazing, timber floor etc). We spent a heap of money to make it healthier and better, to no avail (or at least the investment was in no way worth the result).

We replaced every old wooden-frame single-glazed window with double-glazed aluminium windows, insulated as much as we possibly could (floor, ceiling and any wall that got "opened up" during our other renovations) and did lots of reno work to turn it into a slightly more modern house (houses, bathrooms conservatory etc). Result: the temperature in the morning in winter was still in the 1 digit range.

In comparison, we have been amazed by the temperature in our newly-built house here in Oxford (inland from Chch and generally colder temperature on winter nights). With insulation in every wall, double-glazing, insulated slab, passive solar heating for the tiles and super-efficient wood burner (with wet back + heat transfer ducting to the 5 kids' bedrooms), it is always warm. If anything, it is too warm and I frequently have to shut the curtains or use the air-conditioning. In winter, the temperature when we get up is close to 18 degrees (if we had the wood burner on the previous night, which we usually do) and we barely use electric heating except for the youngest kids on the coldest nights. If we do need to heat the house up, it takes a very short time to do so. It couldn't be further from the old, draughty, damp, poorly designed (windows on wrong side, not facing north etc) house that we used to live in (and it was quite a good one compared to many others we visited). I won't even go into the nightmare that it was doing a chunk of our renovations with 3 children under 3 including a newborn (no water on some days, fridge in the lounge for weeks etc). Building was stressful but well worth it in my opinion.

Btw, I keep wondering about your comments re-GST on new houses. Say someone builds a place inc land for 500K altogether (inc GST). They'll probably try to resell for the same price (if not more!) so the asking price will include the GST that they paid initially. So why would it be cheaper to buy an existing house? Just because the seller doesn't specifically mentions the portion of the asking price that represents the GST on the place doesn't mean that it isn't there. I'm sure I'm missing something here, please enlighten me!

by Conrad | 27th Jan 12, 2:44pm 1327628670

Elley; there's no GST payable on residential property so if you buy an existing house you don't pay any GST on it. But there is GST payable when construcing a new house, the builder, architect and even the council will sting you for GST at every step.

by Elley | 27th Jan 12, 2:52pm 1327629161

Thanks but I still don't get the argument: the existing house must have been newly built at some point in the past. Therefore GST was incurred at that time. The seller is likely to include GST in his asking price (pass on the initial building costs, and then some). Therefore when buying a new house, one must be paying GST on it even if the GST portion of the price is not clearly stated?

by iconoclast | 27th Jan 12, 2:58pm 1327629507

What they are referring to is pre-GST houses.

by Elley | 27th Jan 12, 3:17pm 1327630650

Ah thanks, makes sense now!

by Conrad | 27th Jan 12, 3:06pm 1327629985

To some extent that's true but consider these points:

1. A major part of the price is the land value.

2. GST hasn't been 15% forever If the house is older than 1 year the GST was 2.5% less. If it was built before 1987 the GST rate was zero.

3. If you're buying in an area where the market is soft the seller's price is constrained by those around them. Sellers who are stuck in a "my price is what it cost me +x%" mindset will likely see their house sit on the market.

Essentially it's similar to what happens with renovations. I as a buyer don't really care how much your new kitchen cost you. I'll make whatever offer I feel comfortable with whether you just paid $10,000 or $40,000 on it.

by Wolly | 27th Jan 12, 3:10pm 1327630251

Hang on Elley...what you did up was a 70s box not a 30's bungalow. You were rorted by the aluminium joiney firm which no doubt told you the double glazing was super insulation...they didn't tell the the aluminium extrusions were shite and would suck the heat from the house faster than an open door on a frosty morning. They still market that garbage. They took the thermal break stuff off the market...hell knows why...only back recently and even now the manufacturers do not offer it on all types of joinery...you need to do homework on that one.

So your expensive double G was a waste of time.

Try fitting a woodburner in chch! fat chance.

My suggestion was aimed at people who cannot afford the massive amounts demanded for the place you own. And yes they can be insulated as well as your new place. All of the walls need to be foam filled. The underfloor done with thick polystyrene and the ceiling with thick batts and the joinery must be thermal break if you replace the timber...otherwise replace the glass with DG sections.

The GST slapped on the house and services costs in most cases means an extra $30,ooo that needs to be borrowed...and on that they pay interest...