· NZ government has $64 billion in external debt
· Our banks have borrowed $118 billion offshore, up from $55 billion in 2001
· Dairy, our biggest exporter, is in trouble, with estimated $7 billion drop in exports
· And no one can be sure that the dairy price will recover anytime soon
· That means the government’s tax revenue will be well down too.
Money troubles? Sell something…
Assets sales are unpopular with voters, but John is letting Aucklanders sell their houses to “aliens” for huge prices. In effect a lot of “alien” money is coming into NZ into the hands of Aucklanders, who cannot refuse the huge offers on their property. Many will leave Auckland altogether after they sell, taking the money and resettling in regions such as Tauranga, Napier, New Plymouth, and Northland.
The regions have been sagging and are in need of the economic and cash fillip. In theory this is all good so far, as it helps compensate in part for the low dairy prices, and injects cash into the the regions.
So, is this John’s cunning plan and will it work?
Cash flowing into NZ is usually good for just about everyone, in terms of increasing wealth and more jobs.
If it is John’s plan and it does work, he might just win a 4th term in government.
However in time it might become known as “John Key’s Great Auckland sell off” and he could be reviled by many Kiwis for selling NZ to the “aliens”.
John’s other tools
Tourism is a strong contributor to the NZ economy and, you guessed it, John was in Queenstown last week with his trademark smile, opening the ski season. Tourism is always helped by a lower NZ dollar, and lo and behold, the RBNZ actually let interest rates ease recently, and the NZ$ immediately dropped around 5%. This is good for tourism, dairy farmers, and all our exporters too.
Risky for our economy
Lower interest rates, aka lower mortage rates, will just add fuel to the Auckland property boom, and increase the bubble and its associated risks even more. Then again, the great Auckland sell off could bring enough money into NZ to get us through the current dairy price malady.
It is very risky though. Bursting bubbles mean loss of jobs and mortgagee sales, recessions and depressions. This is tough on people, and young families in particular.
What can Kiwi investors take out of all this?
Sometimes a number of factors combine to create price “momentum”, either upwards or downwards.
Auckland property is experiencing an extreme upwards momentum, and the obvious thing for investors to do is take profits. Remember, we are always urged to sell expensive assets and buy out-of-favour (cheaper) assets, so if you have a big Auckland house, downsize it, or leave town.
If you have several rentals in Auckland, sell some, buy something out of favour, and keep and bit of cash in your kitty too. If the bubble does burst, cash will be king, and you could buy a bargain.
For the farsighted patient investors who have real perception, invest where the money will go. Tauranga is an attractive city, with a good motorway system, reasonable job opportunities, and great outdoor living. Outer Auckland, within a reasonable commuter distance, is also an attractive option. Perhaps a rental on a few acres near the railway line, north of Huntly. However you will need to be both a thinker and have lots of patience.
If that’s all too hard, just invest in diversified portfolio of cash, bonds, and shares.
So is selling Auckland John’s cunning plan? If it is and the NZ economy holds together, the National party might get its coveted 4th term in power.
But what are the long term ramifications of selling our country to “aliens”?
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge.