Market Comment - 10th September 2010
The news of the week everywhere would have to be the earthquake which struck Christchurch in the early hours of Saturday morning. I was lying awake pondering the weekend when I felt the bed shake. It went on for such a time I knew someone somewhere was getting it very bad.
I am sure we all have friends and relatives in the area we know and care for so it was a miracle that the quake hit at that time and even so it was truly a miracle that no one was killed.
On a real estate note this earthquake will change the lives of hundreds of thousands of properties in Canterbury. From farms that will show the scars for years to mum and dad residential properties. Some that will never be lived in again, some that will never be rebuilt in that the land will be deemed to be so unstable due to the work of the land structure will never be lived on again. There will be parcels of land that will be deemed to be unstable now. Then there are the commercial buildings, both modern and historic that will require huge amounts of money to restore or replace.
The face and character of Christchurch will be changed forever.
Some people will get new for old in terms of their homes. Some will get a new location, some commercial properties will get restored and others will get taken to the dump (so to speak).
This is a life changing event that will go down in history and will be talked about for years and years to come. It will change the way we understand how earthquakes work on the land, the buildings and the people. If you look at Christchurch you will see that the modern buildings designed and built for this time are fine. The designers and engineers do understand what is required. Modern building practices are OK.
For every negative there is a positive.
For my money this disaster will cost hugely and there will be casualties in small businesses where a disaster will see them go to the wall. There will be homes lost. This disaster will wipe a certain amount of appeal from the area for new people to live there. This disaster will cost in terms of property value.
What I think it will do is to kick start the economy of Canterbury first, the South Island second and the whole of New Zealand third.
From where I sit it is not possible to inject the cost of the clean up and restoration of this area totaling; forecasts suggest $2 billion, without it providing new business opportunities, a lift in production of other businesses, jobs etc., etc.
Add to this the $1.7 billion that will be injected into the economy from the South Canterbury Finance Government bailout.
Any economy the size of New Zealand’s that gets around $4 billion injected into it must come out the other side with a smile on its face.
So I know the area has just come through the greatest disaster most people will experience in their lives, but the reality is that it has happened. There are things that must change, there are things that will change, if each and every person looks on and helps with the changes that must and will occur, everyone will come out the other end much better as people, as a community and as a country.
My heartfelt sympathies go out to those who have lost property in this natural disaster but shake off the dust and dirt, roll up your sleeves and go for it.
Have a nice week
Colin C Wilson
Last Weeks Market Comment - 3rd September 2010 is below
So another finance company is about to bite the dust, the difference with this one is that this one is the big daddy of them all. The negative is that shareholders of the company lose their investment. Some of these people are the stalwarts of SFC. One in particular the founder Mr. Hubbard from what I see is about to lose everything he ever thought he had and perhaps the only thing he is guilty of is handing over his empire to some trusted governors of the company.
I guess the positive is that there are a huge number of investors whose money is protected by the government guarantee put in place in 2008. While there are a number of people who will cry foul that you and I as tax payers have to pay for this please think again. This was put in place in case this happened. It was not put in place to make the government look like they cared. Now it has happened this piece of insurance is there to be used and the positive is that a huge number of shareholders in NZ will get their money returned including interest. That is great. That will give confidence.
In the words of our NZ General Manager there will a lot of people in New Zealand with a pocket full of money and they will be deciding what they should do with it.
So what are their options?
Another finance company? Hmmmm do you really think they would go back and trust their luck again?
One of the banks, Government, Insurance company, bonds, the share market, etc.
The thing to think about with all of these investments is that the rates of return are not that good in comparison to money invested, there is withholding tax to pay and you really do not have anything concrete for your money.
This large hiccup in the economy could be the kick start the housing market needs.
Let’s look at the benefits of owning some property. In this case residential real estate.
It is real. You can drive past it every day.
The 20 year average in property is positive to the extent of 5% average per year. Certainly there is some pressure on prices at the moment but these will go up again. It is a cycle. Now is a great time to buy to catch the market on the way up again.
You are providing housing for a Kiwi family and getting paid for it every week.
Property can provide the greatest satisfaction as well as an income paid to you directly.
It can be mortgaged to provide cash and in turn someone else will pay it back for you.
It is what we do in New Zealand.
For my money property is secure, it is yours and you are in control.
You can drive past it every day and in more cases than not it goes up in value with time.
So watch this space and be positive, New Zealand is about what is going on in your life. If it feels good plan and live your life the way you want to not how media commentators tell you your should
Have a nice week and remember – there is only one person who will look after you and you must look after that person as best you can. The person is you.
Have a great week
Colin C Wilson
