If you believe the media hype, online shopping will bring the retail industry to its knees.

Of course, the recent survey from Macquarie Equities doesn’t help.

It found one in five Australians does most of their shopping online.

The mainstream media jumped all over this data. Headlines from the Age, and the Australian were almost threatening. The Age tells you ‘big retail groups anxiously await return of shoppers’.

The Australian cried ‘Strong currency lures more shoppers online’!

Headlines like this, paint a gloomy picture of the retail market.

But, the survey also explains 73% of shoppers only buy online because of the high Aussie dollar.

Are online shoppers really to blame?

Online shopping is often portrayed as the bad guy by the media.

Boston Consulting Group (BCG), recently carried out a study of consumer confidence. The Australian reported that BCG ‘…found the sharp decline in Australian’s discretionary spending came about despite the consumers feeling more secure about their jobs.’

James Roth, consumer practice lender at BCG said, ‘Australian consumers have a very cautious outlook’. He says Australians are cautious about spending. Of the 21 countries that took part in the survey, Australians are in the top three who plan to cut back discretionary spending.

He said, ‘Nearly half of all [Australian] respondents feel personally impacted by the economic crisis. That’s less than in the US but similar to European countries’.

So if online shopping isn’t a big threat to retailers, what is?

Katrina Ell, an analyst from Moody’s Economy.com said, ‘Slowing jobs and wage growth, as well as the threat of higher interest rates to come has taken a toll on confidence and discretionary spending.’

Sound Money. Sound Investments editor, Greg Canavan agrees. He writes, ‘retailers are under threat from online purchasing’. But he doesn’t believe this is the only cause of a falling retail market.

In his recent update Greg wrote:

‘…the retail sector is plagued with too much capacity. This is the result of many years of household debt growth, which resulted in huge demand for retail goods. Now that debt growth is not so cool, there are too many shops left chasing a dollar. The result is constant sales and price markdowns, a sure sign of too much capacity.’

It’s not all doom and gloom for the retail sector

According to a report in the Australian, Macquarie Equities says ‘…that more than a third of those surveyed would reduce the sum spent online if the dollar fell by 20%’.

A weakening Aussie dollar will drive some dollars back to local retailers. And Macquarie sees growth in retail this year:

‘Based on household disposable income predictions, Macquarie expects that the traditional bricks-and-motor retail sales will grow by about 5% this year.’

Many other analysts have downgraded forecast earnings for retail stocks too.

This hasn’t helped retail stock prices.

But despite the grim news, Greg surprised his subscribers with his latest stock tip.

Beaten down sector could prove to be a solid investment

Greg believes the market has now priced in lower earnings:

‘The market thinks things will be much worse than what these downgraded analyst forecasts suggest. It could well be right, but the fact that a pretty dire scenario is already in the price is a positive.’

But when many analysts are reluctant to recommend retail stocks, you have to ask yourself, ‘what drove Greg to tip a retailer?’

Greg says, ‘Recommending an out-of-favour stock in an out-of-favour sector is always tough. But one of my investment ‘rules’ is that if you feel good about an investment and think others would approve/endorse your decision, it’s probably the wrong one.’

In other words, you should buy when others are still selling.

And now Greg thinks it’s a perfect time to buy one Aussie retailer.

To find out which Aussie retailer Greg has added to his value investing buy list, click here.

Shae Smith.
Assistant Editor,

Money Morning

Home Loans on the other hand seem to have stayed in the dark ages. Banks know that the cost of homes has skyrocketed over the last 50 years yet they have not changed any of the fundamental lending requirements or the features of the home loans they provide to their customers.

Admittedly the CBA in Australia and Macquarie bank did try with a couple of innovative products however these were quickly withdrawn due to the GFC.

The only really great advance in the home loan industry came about 20 years ago with the introduction to the general masses thanks to Citibank of the Revolving Line of Credit.

This facility finally gave the home owner some control over his mortgage although for most of the people who have used one over the years they have ended up being a nightmare rather than the dream product they should be.

As the costs of building a home increase and as such the cost of buying a home increase the lending institutions really need to start looking at alternative ways of providing funds to our growing populations.

Saving up the 20% deposit and taking out a 25 year mortgage are pretty much things of the past now, due mainly to the fact that house prices will increase faster than most people can save the deposit and once people have that mortgage they realise that the banks will receive nearly twice as much back in home loan repayments as what was originally borrowed, once this little bit of knowledge is know people really set out to reduce their mortgage as quickly as possible.

With a little bit of planning, a reasonable amount of discipline and a dash of patience you can reduce the time it takes to pay off your home loan significantly and in turn reduce the amount of interest you pay to the lender by tens of thousands of dollars, in fact some people even save hundreds of thousands of dollars.

A home loan these days does not have to be the yoke around your neck for the rest of your working life, it can now be paid off quickly and with little change in your lifestyle giving you the freedom and extra cash to do the things you want to in your life.

To give you an idea, today 23/9/2010 you can get 6.2% per annum in a 5 yr term deposit. Now if you wanted to replace your income by having a nice little nest egg in that term deposit you would simply divide your income by the 6.2% which would give you the amount of cash you would need in that term deposit…. for example if you earn $50,000 per annum now you would divide that by 6.2% which gives you $806,000 in that term deposit to replace your income. If your income is $100,000 per annum you need $1.6 million…. how many of you are investing as if you need $1.6 million?

Now the tricky thing is that inflation has a massive impact. On one hand $50,000 today will need to be $52,000 next year if inflation is running along at 4% so that means you actually need $838,000 in that term deposit if you were going to start living off it next year, the other catch though is that once you pop that money into your term deposit you are only going to receive $50,000 per annum but as you have already seen next year you need $52,000 to provide the same lifestyle. The only way to get around the issue of how inflation depletes your lifestyle choices is to have a larger amount of money tucked away or invest in something that is going to provide you with a return that is inflation + return on investment required, in other words, in this example where we have used inflation as 4% and the term deposit is 6.2% you would actually need 10.2% per annum or you would need to start using some of the capital you have saved.

As you can see this is a major problem, especially if you leave your financial strategy until you only have a few years until retirement and then you start looking for the magic bullet which has happened up and down New Zealand and resulted in spectacular heartache for many New Zealanders as companies like Blue Chip and Bridgecorp crash taking your hard earned savings down with them.

I will provide interesting facts which may cause folks to stop and think, things like the calculation of how much tax the client would pay between now and when they retire if they do nothing about reducing the amount they must pay, things like how much money they would pay on their mortgage between now and having it paid off and how much money they need for retirement etc.

Creating financial strategies for people to help them save tax and create wealth is what I love to do and when you see how much money goes to things like the mortgage and to tax you might just say….”can you do one for me too”.

Currently when you visit a Financial Planner you will pay to have a Financial Plan written (If you don’t then you have to ask how is he getting paid and the answer will be in commission from the product he is going to sell you), then you will pay to have that strategy implemented and the planner will receive commission from the company that he implements the strategy with.

I have decided that I want to move purely to an advisory capacity and bypass the implementation stage. I will charge for the creation of a financial strategy however you will be able to implement that strategy with any institution you like, therefor saving you many thousands of dollars in implementation fees.

I will of course be able to introduce you to other companies if you do not have relationships or do not know who to go to which will also mean that you will be dealing with specialists in specialist areas.

The idea came to me while working with an architectural firm, the Architects create the plans based on what you tell them and then a project manager takes those plans and employs the various specialists to build the house based on your plans.

So the Architect develops the plans in consultation with you to make sure you are getting what you want, the project manager co-ordinates the builder, the plumber, the electrician, the tilers, the roofers and all the other suppliers to the job.

Your Financial Strategy is similar to those Architects plans are and the project manager (that can also be me if you desire) is the person who makes sure that your mortgage is structured the right way, your insurance is appropriate, your investments are made when they should be and that you are getting what is required when required to achieve your financial goals.

Too many Planners are trying to be the Mortgage Broker, The Insurance Adviser, The Accountant, The Lawyer, The Investment Adviser and the Property Consultant when they should be focusing on planning and project management and letting the other Financial Services experts do their bits.

In the long run this will cost you less because each of the industry specialists gets paid commission from their suppliers which does not cost you anything.

With this structure I believe an average client could save up to $4000 or more in the Financial Strategy process by only paying for the planner to write the Strategy and then oversea the implementation rather than actually transact the implementation.

Usually a Financial Strategy would cost $495 and then implementation could cost anything from $5000 to $9000 or more depending on what is implemented.

My new structure is only $995 for the strategy and then I either introduce you to specialists to implement each section of the strategy or if you know specialists you can use them.

The book runs from 9000BC to the present day discussing the story of the History of Money.

This little excerpt starts in 1934 with the “US Silver Purchase Act”.
The Act obliges the government to buy large quantities of silver. This raises its price in world markets to such an extent that China is forced off its silver standard and many other countries demonetize their silver currencies. Thus in the long run the Act reduces the demand for silver, contrary to the intention of its supporters.

*1934 German Banking Act* This establishes a national Banking Supervisory Board authorized to license every bank.

*1935 – c.1970* Continuous moderate inflation in Britain The general level of prices rises every year but at a moderate rate.

*1935 US Banking Act* The changes this makes in the Federal Reserve System have the effect of shifting power away from New York and the Federal Reserve Districts towards Washington.

1935 Reserve Bank of India begins operations India’s central bank is modelled on the Bank of England. c. 1935 Cowries still used as money in Nigeria.

*1936 France abandons the gold standard* The French government’s policy of a strong franc is undermined by competitive devaluation.

After abandoning the gold standard France continues to be the centre of a Franc bloc including most of the non-German European countries south of Scandinavia until the Second World War.

*1936 Tripartite Agreement* between Britain, France and the US on exchange rates The aim of the agreement is to stabilize exchange rates. It falls apart with the advent of the Second World War

So, some interesting times I’ll probably post more at some stage so subscribe and don’t miss a thing.

Obviously this is a great topic to focus on because there is a whole lot of misunderstanding, myths and untruths about the property investment market and it is easy to make bold statements like “the property market due to crash because of the budget”…. what a load of old bollocks.

Yes there will be some people who will struggle with keeping their investment property because the ability  to claim depreciation put some money back into their pocket which allowed them to pay the mortgage. Without this injection of cash from the government these folks will not be able to maintain the mortgage and will need to sell. That’s a fact. However think about this…will the small numbers of people (and I mean relative to the overall property market) who must sell be enough to cause the Real Estate Market to tumble? I don’t think so.

Let’s look at why.

To begin with the rental market makes up approximately 34% of households in NZ with the other 66% of people owning their homes.

We also know that on average landlords have approximately 2 rental properties each, with some having many but a lot of people have dipped their toes into the water and own just 1 rental property.

So taking that little bit of info it means that statistically we can only have maximum of 17% of homeowners are landlords and the number will actually be less than that due to the great number of people who own more than 2 investment properties.

Ask yourself this question now, of the 17% of people who own the properties that people are renting, how many will now go out and sell their investment properties for less than what they paid for them?

That’s the big question….how many of you out there will sell your investment property for less than what you paid for it?

After all that’s the definition of the property market crashing, the value of the market based on what people are paying today vs what people will pay tomorrow.

Even if 100% of property investors rushed out and tried to sell their properties tomorrow the market would not crash….. not unless those investors had to sell…that’s the kicker, if the investors had to sell, i.e someone else made the decision as to what price the property was going to be sold for as the case if for mortgagee sales, then you would see the prices drop, however if 100% of the property investors went out tomorrow to sell I doubt any of them would be saying “you know what, we paid $300,000 for this property and now we are not going to get that extra $600 per annum back from the government so lets sell our property for less than what we paid for it”….can you see that happening. I didn’t think so.

What I think will happen is that some people will panic sell….. that’s not unusual, some people will do the smart thing and visit a financial adviser who can work out for them exactly what the difference will be in costs and then work out what the best strategy is with regard to holding on, putting rents up, selling now, selling later….those people will be few and far between, some people will sit and hold and put the rents up accordingly and just like in 1984 when the Aussie governement did this watch rents skyrocket because of the following.

1. There is now no benefit having a new property over an old property when it comes to depreciation.
2. With no demand for new properties the developers will not build.
3. With no new properties coming on to the market the demand for rentals will increase.
4. With increasing demand on rentals the Rent will go up quickly just like they did in Oz in 1984
5. Property prices will increase as the yields increase and property that once was not good for investment becomes viable as a property investment.
6. Developers come back into the market as the demand for new housing makes it profitable for them to build again.

Obviously this cycle will continue with ups and downs but over the long term I still see property being more expensive to buy in 2020 than it is today.

So it’s the day after the budget, don’t go out and sell your investment property unless you already were planning on selling.

Remember one thing, the reason why investors were allowed to claim deductions is because property investing is a business and as in any business it is the user who pays. In this case it is the tenant who is the user and it is the tenant who will ultimately pay.

The herald states that this budget will cost landlords $235 million next year, I think the more accurate statement would be the budget will cost Tenants $235 million next year.

Controversial commissions paid by financial institutions to investment advisers for promoting their products will be abolished voluntarily before the government regulates them, an industry body says.

Investment Savings and Insurance Association chief executive Vance Arkinstall said under a new regime investment houses, banks and superannuation funds would stop paying commissions on any investment product including KiwiSaver.

The new policy will be signed off next week, but it could be up to 18 months before the change takes effect for some.

Instead of a commission being deducted from customers’ investments, often without their full knowledge, investors would negotiate a fee directly with their adviser.

Commission-based sales by supposedly independent advisers have always been open to criticism, Mr Arkinstall said.

The above excerpt from a news article just goes to show how far from being in touch with the real world the Financial Planning fraternity is.

The real people who need financial Planning advice, you know, the ones who don’t have hundreds of thousands to invest but would like to will not be able to afford Financial Planning advice.

When this occurs they will turn to the people who will give them advice, just like they did in Australia.

Who are those people you ask?

Those are people like Blue Chip and the like, property spruikers who will tell you that an over priced, expensive property that they have just developed is the perfect solution for retirement savings.

All I can see from these new reforms are Financial Planners providing the service to already wealthy clients and every body else being left to the sharks.

My simple, quick and dirty answer has always been. Rents Will Rise.

The following information pulled from From the Housing NZ (Auditor General)website will provide you with a bit more of an understanding however:

Role and structure of Housing New Zealand Corporation

1.2
Housing New Zealand Corporation (the Corporation) is the entity responsible for managing state housing on behalf of the Crown.1 It provides housing to people who are unable to find suitable and sustainable accommodation through the private sector. It houses about 190,000 people, and controls an asset portfolio of more than 66,000 state houses with a value of $11,300 million. The Corporation also works to increase levels of home ownership, and has a lead role in advising the Government on housing policy.

1.3
The Corporation’s services are in high demand. As at 30 June 2005, there were 11,458 applicants on the state housing waiting list. Of these applicants, the Corporation assessed 4288 as being of high priority for state-provided housing. Although 57% of the high-priority applicants live in Auckland, only 44% of all state houses are located in Auckland. In response to this demand, the Corporation plans to increase the number of state houses by 3164 between 2005-06 and 2008-09. Most of the additional state houses will be in Auckland.

1.4
Some of the additional houses will be built by the Corporation, and some will be buildings bought or leased from private owners. The Corporation will also reconfigure some houses to make them better match the needs of applicants on its waiting list. Most state houses are made available to applicants on the general waiting list, but some are specifically for people in rural areas, and some are made available only to providers of residential

Did you get that? 11,458 applicants in 2005 !! That was the number then  so guess what it might be now!

So lets do some maths with that information.  11,458 x 2.2. people average per dwelling (thats from the last census) = 25,000 people who need housing supplied by the state.

In 2010 the figure must be even larger and I would guess there might be 30,000 people today or 13,600 extra homes that need to be built to provide just the state housing demand – almost a years building.

Now we add to this already significant problem a bunch of nuffnuts who want to punish the private sector for providing homes either directly or to the Corporation.

There is only one way for rents to go- and that is up!

Books make great presents and what a great way to spend some of those Christmas hours reading a new book.

Live Well, Spend Less is a simple, practical and definitely not boring book on living well while spending less. It will appeal especially to families but also to students, flatters and fixed income households. It incorporates tips, suggestions and serious strategies but with a light hearted, easy to apply, honest approach. Covering all aspects of life there are suggestions for making money as well using less of it. The intention is to motivate and encourage not hector and lecture. It is NOT a book about investment, mortgage repayment or banking. Each chapter includes immediate as well as longer term suggestions. The immediate ideas are to capture the initial enthusiasm and motivation and longer term strategies will result in bigger savings given time or effort. Topics include: food, energy, cleaning, cars, outdoors; family life, kids and money, leisure, celebrations, looking sharp and presents.

About the Author

Sophie Gray is the face and inspiration behind Destitute Gourmet, the DG series of cookery books and www.destitutegourmet.com. She is a popular speaker and teacher on food, family life and finances, and writes regularly for Healthy Food Guide, Parenting magazine and www.simplesavings.com.au. She is married to Richard and they have two children, Isabella and Jack. Sophie works fulltime communicating the destitute gourmet philosophy from their home in Auckland, New Zealand.