Hi Guys
Interesting article in The Sunday Times.
Sharing property's boom
SUNDAY , 21 DECEMBER 2003
By GARRY SHEERAN
So who did well last year - investors who traded shares or those who got on board the property bandwagon?
The short answer is: both.
As to who did best, only time will provide a long-term answer.
The headline numbers say 2003 was a good year for investors - with one exception. Retired people on fixed incomes have had to struggle with returns well below 10%, unless they have been willing to bet on more risky investment vehicles.
But on shares and property there is a remarkable coincidence. The headline NZSE50 share index went up 21.8% in 2003, with two weeks left to the year's end.
Similarly, global shares have had a good year. The S&P500 share index - which best shows underlying value in the US market - rose an almost identical 21.75%.
Figures from researchers Quotable Value show house prices increased 17% in the year to September, the biggest jump in 15 years. And property experts don't expect calendar 2003 to be much different, with a recent softening in sales volumes after a strong quarter to September 30.
As usual, what's below the headlines throws up a few qualifiers. For share investors, the strong Kiwi dollar has wiped out any gains they may have made in the US markets in the past year.
The Kiwi, which started out at US52.42c, has risen during the year to US64.73c. Much of that rise is a reflection of the weakening US dollar. That has meant NZ dollar-adjusted returns from the US sharemarket for local investors fell 1.4%.
Kiwi investors fared better in the Australian sharemarket. They have the currency to thank as much as the performance of the market itself.
The benchmark ASX200 Index rose only 6% last year, with the poorly performing banking sector wiping out much of the gains made by the booming resources sector.
But with the Kiwi dollar falling from A91.31c to A87.48c during the year, dollar-adjusted returns from Australia for local investors were up 13%.
The New Zealand market had some old favourites to thank for its strong index performance last year - Contact Energy up 43%, Fisher & Paykel Appliances up 57% and Sky TV up 60%. The index, still dominated by Telecom, was certainly helped by that company's 19% rise.
Things could have been even better had it not been for the poor showing from the retail sector, said Macquarie Equities investment director Arthur Lim.
The buoyant domestic economy and healthy consumer confidence should have seen retail stocks do well. But a difficult 2002 Christmas trading season got The Warehouse, Briscoe Group and Michael Hill International off to a slow start.
Stock-specific factors continued to be a drag throughout the year and, at the end of last week, Warehouse shares were down 27%, Briscoes down 35% and Pacific Retail down 19%.
As an indication of how many local share investors will have scored, the average return from actively managed equity trusts at November 30 was 13% and tracker funds were on the nail at 17.91%.
Direct share investors should have done better.
Property prices showed variations countrywide. Regions that scored significantly better than the average 17% included Nelson City (39%), Invercargill (32%), Marlborough (32%), Dunedin City (23%), New Plymouth (21%), Christchurch City (20%) and Waitakere City (20%).
But even sharebrokers admit potential returns from property have caught the imagination this year because of that magic ingredient - leverage.
ABN Amro Craigs research manager Cameron Watson said while it has been a long time since people borrowed to buy shares, they had no hesitation in borrowing to buy houses.
"So for people who borrow 90% of what they pay for a house, a 17% increase in the value of their house translates into a whopping 70% increase in the value of their deposit.
"Little wonder then that investors this year regularly sold shares and fixed-income investments to buy houses and factories."
There are no headline figures for returns on rental property investments. But property expert Kieran Trass says many people who had bought homes to rent would find mortgage repayments and other outgoings cancelling out rental income.
Infometrics calculates rental housing has returned investors 20% in the past year, slightly above the 17% rise in house prices. That assumes a 7% rental yield and income on rental property taxed at 33%.
Looking ahead, Watson said strong performances from many leading stocks meant it was more difficult to find bargains in the local sharemarket.
"Some investors have been taking profits and we expect more modest share price rises next year as the economy slows and interest rates rise," he said.
Higher interest rates will also slow house price rises, but most economists pick a real cooling down is not yet in sight.
The sooner that happens, the better. If house prices continue to defy other weakening fundamentals, the inevitable housing slowdown will become a slump.
Regards
Interesting article in The Sunday Times.
Sharing property's boom
SUNDAY , 21 DECEMBER 2003
By GARRY SHEERAN
So who did well last year - investors who traded shares or those who got on board the property bandwagon?
The short answer is: both.
As to who did best, only time will provide a long-term answer.
The headline numbers say 2003 was a good year for investors - with one exception. Retired people on fixed incomes have had to struggle with returns well below 10%, unless they have been willing to bet on more risky investment vehicles.
But on shares and property there is a remarkable coincidence. The headline NZSE50 share index went up 21.8% in 2003, with two weeks left to the year's end.
Similarly, global shares have had a good year. The S&P500 share index - which best shows underlying value in the US market - rose an almost identical 21.75%.
Figures from researchers Quotable Value show house prices increased 17% in the year to September, the biggest jump in 15 years. And property experts don't expect calendar 2003 to be much different, with a recent softening in sales volumes after a strong quarter to September 30.
As usual, what's below the headlines throws up a few qualifiers. For share investors, the strong Kiwi dollar has wiped out any gains they may have made in the US markets in the past year.
The Kiwi, which started out at US52.42c, has risen during the year to US64.73c. Much of that rise is a reflection of the weakening US dollar. That has meant NZ dollar-adjusted returns from the US sharemarket for local investors fell 1.4%.
Kiwi investors fared better in the Australian sharemarket. They have the currency to thank as much as the performance of the market itself.
The benchmark ASX200 Index rose only 6% last year, with the poorly performing banking sector wiping out much of the gains made by the booming resources sector.
But with the Kiwi dollar falling from A91.31c to A87.48c during the year, dollar-adjusted returns from Australia for local investors were up 13%.
The New Zealand market had some old favourites to thank for its strong index performance last year - Contact Energy up 43%, Fisher & Paykel Appliances up 57% and Sky TV up 60%. The index, still dominated by Telecom, was certainly helped by that company's 19% rise.
Things could have been even better had it not been for the poor showing from the retail sector, said Macquarie Equities investment director Arthur Lim.
The buoyant domestic economy and healthy consumer confidence should have seen retail stocks do well. But a difficult 2002 Christmas trading season got The Warehouse, Briscoe Group and Michael Hill International off to a slow start.
Stock-specific factors continued to be a drag throughout the year and, at the end of last week, Warehouse shares were down 27%, Briscoes down 35% and Pacific Retail down 19%.
As an indication of how many local share investors will have scored, the average return from actively managed equity trusts at November 30 was 13% and tracker funds were on the nail at 17.91%.
Direct share investors should have done better.
Property prices showed variations countrywide. Regions that scored significantly better than the average 17% included Nelson City (39%), Invercargill (32%), Marlborough (32%), Dunedin City (23%), New Plymouth (21%), Christchurch City (20%) and Waitakere City (20%).
But even sharebrokers admit potential returns from property have caught the imagination this year because of that magic ingredient - leverage.
ABN Amro Craigs research manager Cameron Watson said while it has been a long time since people borrowed to buy shares, they had no hesitation in borrowing to buy houses.
"So for people who borrow 90% of what they pay for a house, a 17% increase in the value of their house translates into a whopping 70% increase in the value of their deposit.
"Little wonder then that investors this year regularly sold shares and fixed-income investments to buy houses and factories."
There are no headline figures for returns on rental property investments. But property expert Kieran Trass says many people who had bought homes to rent would find mortgage repayments and other outgoings cancelling out rental income.
Infometrics calculates rental housing has returned investors 20% in the past year, slightly above the 17% rise in house prices. That assumes a 7% rental yield and income on rental property taxed at 33%.
Looking ahead, Watson said strong performances from many leading stocks meant it was more difficult to find bargains in the local sharemarket.
"Some investors have been taking profits and we expect more modest share price rises next year as the economy slows and interest rates rise," he said.
Higher interest rates will also slow house price rises, but most economists pick a real cooling down is not yet in sight.
The sooner that happens, the better. If house prices continue to defy other weakening fundamentals, the inevitable housing slowdown will become a slump.
Regards
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