KEY POINTS:
Q. I read with interest an article by Anne Gibson regarding falling prices of Auckland apartments.
I am a 28-year-old Kiwi living and working in London, earning pounds to try to give myself a bit of a start. I own two New Zealand properties, a basic four-bedroom rental house in Birkdale bought in 2004 for $252,000 and now valued at $395,000 and a three-bedroom rental in Rotorua bought earlier this year for $160,000.
I wondered whether in your view the next few months could be a good opportunity for me to pick up a bargain apartment - especially as it is predicted rents will rise. With my two existing properties I have a bit of equity and, with my UK salary, I could service another mortgage despite the high rates provided I could get a reasonable rent for the apartment.
A. Now is a good time for you - and every investment property owner - to work through a worst-case scenario.
In your case, it might run something like this: You buy an apartment now. You find a tenant but at a lower rent than you expected. Soon after, one of your houses is left untenanted for several weeks. You have to ship lots more money than usual to New Zealand to cover the shortfall on the two properties.
Suddenly, there's a big bill on one of your properties - perhaps because a tenant trashes it or you discover the roof needs replacing. It's hard and expensive to organise repairs from the other side of the world. Then you lose your job and the only other job you can find pays considerably less.
After a while, you realise you just can't keep up the necessary cash flow to New Zealand. You decide to sell one of the properties, only to find that apartment prices have continued to fall and house prices are also dropping.
Nevertheless, you figure that you can still sell the Birkdale house for way more than its mortgage. You list it at $360,000. It sits on the market, with no offers, for several months. You drop the price to $340,000 but still no bites.
Feeling a bit panicky, you list the Rotorua house or the apartment and end up selling it for less than the mortgage. To meet the shortfall, you sell the Birkdale house in haste for just $310,000.
Sure, you may still be left with some gain from all your property ventures, but you'd be considerably worse off than you are now.
Of course, there are other scenarios, including the one you no doubt foresee - in which you buy your apartment and then apartment prices rise again, rents rise and you live wealthily ever after. And I'm not saying that won't happen - just that it might not. In these times of uncertainty - with falling property prices in some places - it's not a bad idea to take stock.
The key question is: Could you end up forced to sell a property? That's when the big losses happen.
If your income is high enough and your job secure enough that you could survive our scenario without selling - or perhaps you have family who would help you out - you might want to go ahead and buy an apartment.
Failing that, though, it might be best to consolidate for a while by getting the mortgages down on your two rental houses. You've got many years ahead of you in which to expand your property empire.
Q. As employers, my husband and I gathered enough information about KiwiSaver to choose a provider, encouraging our son (25) and daughter (19) to join with us. No problem with the son who, like us, is self-employed and able to contribute $100 a month. But not so with the daughter, who is a second-year student with a casual part-time job working for us as study commitments allow.
The provider we chose quite sensibly declined to accept her irregular pittances of 4 per cent (which amounted last week to $1.28) on the grounds that administering such sums was simply not cost-effective. IRD, however, assures me that once our daughter is enrolled with KiwiSaver any earnings, no matter how small, will have to have the 4 per cent contribution deducted from them.
What IRD have not been able to tell me is which of even the default providers will be prepared to accept our daughter into their schemes. Since she has already enrolled through our payroll system with KiwiSaver, we are now unsure what course of action to take.
There must be many others in this situation. Do you know whether any adjustments to the rules regarding contributions of those in casual employment are being considered? And what advice would you have in the meantime?
Incidentally, while I didn't like the message, I was impressed both times I phoned with the helpfulness of the IRD messenger.
PS: Thinking about the figures given for minimum contributions, it would seem the providers are not really keen to take on the administration involved with processing the contributions of the kind of people the Government is presumably trying to get to save. If our workplace - in an industry with below-average pay rates - is in any way typical, the few people who have joined KiwiSaver are those who already have savings in place.
A. That's my main objection to KiwiSaver from a policy point of view. It uses lots of taxpayer money to encourage behaviour that is already happening.
Perhaps, though, it's not surprising that those who have already got their financial act together are early joiners of KiwiSaver. Hopefully, others will also join as they hear more about the advantages.
On minimum contributions, I'm sure you're right, that providers would prefer big contributions. But the Government's $40-a-year fee subsidy will help cover the costs of running accounts for tiny contributors.
And some providers will accept contributions as small as $1 a year. They may well be the smart ones. Research shows that only a small proportion of people on low incomes stay that way. Your daughter is probably a good example. A provider who snaps her up now might have a big contributor on their books in 10 years.
Providers with higher minimum contributions are perhaps short-sighted. Still, Inland Revenue says that no provider is obliged to sign you up if you approach them directly.
However, the situation is different if you join KiwiSaver via your employer - either by automatic enrolment when you start a new job or by filling out a KS2 form and handing it to your employer.
If your employer has a chosen provider, you will invest with that provider. If there is no chosen provider, you will be allocated to a default provider. In both those cases, the provider must accept members even if their 4 per cent contributions are miniscule, says Inland Revenue.
If you are an employee who prefers to choose your own provider, you have to go directly to a provider rather than via your employer. Inland Revenue says you are obliged to tell the provider that you are an employee and give your employer's name. And if you have more than one job, you will need to tell the provider which job or jobs you want your contributions to apply to.
Inland Revenue will then tell your employer to take 4 per cent - or 8 per cent if you prefer - out of your pay.
Getting back to our correspondent, you mention "choosing" a provider. If you, as employers, have gone through the formal process of setting up a chosen provider, then that provider has to accept even tiny contributions from any employees who join via their employer, says Inland Revenue.
I suspect, though, that you have simply selected a provider for your family. If that's the case, your daughter has two options:
* Hunt around for a provider that will accept small amounts and sign up with them.
* Sign up through you as her employer, at which point you send a KS1 form to Inland Revenue and start deducting 4 per cent or 8 per cent of your daughter's pay. If she doesn't select a provider, after three months Inland Revenue will assign her to a default provider.
The default schemes' investments are not suitable for most people, so you or she may want to move to another scheme at some stage. But at the moment, with such small amounts involved, it doesn't really matter.
Finally, you ask if the rules might change for people in casual employment. I doubt it.
As you say, the Government presumably wants to encourage low-income people to save for retirement, and getting them started through any job is an important first step.
Quick KiwiSaver info
For basic information on the rules and incentives of KiwiSaver, how the tax credit works and so on, see the KiwiSaver book page on www.maryholm.com
* Mary Holm is a seminar presenter, author and publisher. Her website is www.maryholm.com. Her advice is of a general nature and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers or give financial advice.
