Mary Holm: Everyone wants a home of their own – or do they?

OPINION:

Q: I was hoping to get another perspective on our situation. My partner and I have been renting at a very reasonable rate for more than 10 years. I am 40 and he is 50. Our house is now being sold, and we have been looking at properties to buy. We have savings of around $350,000 and have been pre-approved to buy for $750,000.

However, something in me resists the idea of buying when we could keep investing as we have, especially with rising interest rates at the moment. I’m really not sure what the best path forward is for us!

A: You don’t have to ever own your own home to live well. Renting for life is a perfectly valid option.

Common reasons that many New Zealanders prefer home ownership include:

• They want their children to stay at the same school and in the same neighbourhood.
• They want to be able to garden, knowing they can be around to watch a tree grow.
• They want the freedom to decorate and renovate as they wish.

Do these matter to you? Perhaps not.

What does matter to every tenant, though, is that you would prefer to pick your own time to move on. You’re just experiencing the hassles of being turfed out because of the landlord’s needs. But hopefully the landlord will give you an excellent reference, which may help you to negotiate a long-term lease with a new landlord.

Another common reason for wanting to own your home is financial. People point to the rapid rises in home prices in recent years, and paint gloomy pictures of renting in old age.

However, I’ve seen economists model home ownership versus renting for life. The winner is not clear. It depends on the assumptions about rents, house price increases, returns on a tenant’s savings and so on.

As a tenant, it’s wise to ask friends who own homes of a similar standard to yours what they spend on their mortgage, insurance, rates and maintenance. Then make a point of saving at least the difference between that and what you pay in rent.

Ideally you should invest the savings in a higher-risk fund, in or out of KiwiSaver, so you get good long-term growth. The aim is to retire with enough savings to cover your rent for the rest of your life — or to buy at that point. With your current savings, you seem to be heading in that direction.

Of course deciding not to buy now doesn’t mean you can’t change your mind later. And while timing the housing market is a game for fools, I agree that rising interest rates make taking on a mortgage less attractive now than a few years ago — and perhaps a few years hence.

And these days there’s less worry about house prices rushing upwards. They might even fall by more than the recent price dips.

In the meantime, enjoy the lack of worry and chores that tend to come with home ownership — something that gets too little attention. When the beach beckons, you’re free to go. As someone once said, “Did you have a good weekend, or do you own your own home?”

Shares for students

Q: Full marks to the teacher in your last column seeking to improve secondary school students’ financial literacy about share investing. However, it raises some questions about getting the students to actually invest, as the teacher proposes, versus simulating share investment, as you did with your students at university.

Setting aside the legal complexities of dealing with minors, even with parental consent, involving such matters as, for example, entering and exiting the share club at fair value, what about the taxation implications? These were not covered in your column, yet taxation seems very relevant for a group that is otherwise unlikely to have a complicated tax life.

Perhaps the teacher may be able to convince Sharesies (or an equivalent platform) to offer simulation access to its platform, as a contribution to public good and as a means of commercial promotion.

A: To address your concerns, I put three questions to Sharesies and another similar online platform, Hatch.

• Do you offer guidance for someone trying to set up a share club for high school students?

Sharesies: “Following a successful pilot in 2021, we’re running our Sharesies in Schools programme this year for students aged 16 and over (who are eligible to create a Sharesies account). We’re helping students and teachers get set up with their own Sharesies accounts and navigate Sharesies. Schools participating in the programme also get access to educational and community support.”

Hatch: “We have a fabulous team on hand that would welcome working with a school on any investing initiative.”

• Would you be able to help with the students’ tax obligations?

Sharesies: “With companies and exchange-traded funds (ETFs), most New Zealand investors are only taxed on income (dividends) rather than on profit or loss. With managed funds, the amount of tax you pay is based on the prescribed investor rate (PIR) you set in Sharesies.

“Tax is calculated at the end of the tax year (March 31). We keep a record of how much tax needs to be paid (or returned to you) with each calculation and make any payments on your behalf. This will be deducted (or paid) into your Sharesies Wallet in April. We provide you with a tax statement at the end of each financial year which shows you this information, and what information you may need to provide to IR. It’s your responsibility to ensure you are paying the correct tax.

Hatch: “If you earn less than $200 in dividends from your shares through Hatch, you don’t have to do anything at tax time (this is assuming no rental or self-employment income at this age). This makes tax time for 98 per cent of our investors easy as.

“Another thing to keep in mind is that with Hatch, you invest in US-listed shares, largely known for their growth stocks, not for the dividend-paying businesses that NZX-listed companies are known for. The great thing about starting with US-listed shares as a teenager is that it’s likely they use a number of these brands every day.”

• Do you offer simulation access to your platform? If not, would you consider doing that?

Sharesies: “We currently have not explored simulation access, as yet.”

Hatch: “While we would always encourage people to start with a very small amount, we don’t offer a simulation. In our research, people make very different decisions when it comes to ‘fake’ money. They don’t take it as seriously and take bigger risks — not behaviour we’d want to encourage.”

Thanks to the many other readers who wrote in about share clubs. I’ll run some of the letters in the next couple of weeks.

Bonus Bonds unfair?

Q: About Bonus Bonds, whilst hardly of significance to the recent correspondent with just $100 worth refunded, it would have been far fairer if refunds recognised length of ownership.

As it is, a 40-year holder received the same 10 per cent as some shrewdy, possibly informed, who bought up in the last year.

Now that interest rates are on the rise again, ANZ must regret killing off this cash cow. They made colossal profits in the past when the interest rate accumulating for prizes was vastly less than lending rates. Any attempt to restart will attract close scrutiny of rates, so they may have cooked the golden goose.

A: I disagree that longer-term holders should have been given a bigger final payment. Their reward for holding the bonds over the years was the repeated chance to win a prize. That was the deal. If at any time they thought that wasn’t a big enough reward, they should have cashed in their bonds. Johnny Come Lately had a much lower chance of winning.

On your last paragraph, ANZ responds: “Bonus Bonds was a unique product established by the New Zealand Government in 1970 to encourage savings.” ANZ took over its management in 2013.

“The decision to wind up the scheme was made based on the best interest of bondholders at the time. With the scheme now closed, the vast majority of funds returned to investors and the advent of new savings options such as KiwiSaver, ANZ has no intention of reopening the scheme.”

Bonus Bonds & charity

Q: I still have a small number of Bonus Bonds (20) from an office syndicate we had many years ago. There must be thousands of similar situations of very small parcels of bonds bought as presents for children etc that have never been redeemed. What has happened to these? I wrote to the ANZ suggesting they should go into some sort of charitable trust fund but never got a reply. Has the ANZ just kept the balance?

A: No it hasn’t.

ANZ says it has a team working to contact people who still have Bonus Bonds, to give them their share of the money in the scheme. Since October 2020, holders of about 90 per cent of the total funds invested have been redeemed, says a spokesperson.

However, “nearly two thirds of bondholders had $50 or less in the scheme, so they may be less motivated to claim their funds. That is why ANZ is encouraging people to think about donating their money to the Cancer Society,” she says. Maybe the bank picked up on your idea!

“More than 13,000 bondholders have already chosen to donate their funds to the Cancer Society. This means ANZ will be passing on more than $300,000 on behalf of these investors.”

She adds that at the end of the wind-up, “remaining funds are passed to Treasury as unclaimed monies”.

Treasury will manage the process for claiming funds after the scheme is wound up.

Gold and tax

Q: I thought one more point should be added to your explanation of the risks of gold. In contrast to a managed fund, any capital gain on gold is taxable as income, given gold will almost certainly have been acquired for the purpose of disposal (although I suspect this is the most non-complied-with part of the NZ tax code in relation to speculative investments, such as Xero shares or Bitcoin).

Some readers may say, “Ah but I’m buying gold as a hedge against inflation”.

Unfortunately the IRD website specifically states this still means the dominant purpose is disposal of the asset.

A: Good point. Under New Zealand’s peculiar law, gains on the sale of an asset are taxed as income if they were bought with the dominant purpose of selling.

People sometimes argue that they bought a rental property with the purpose of receiving rent, or they bought shares with the purpose of receiving dividends. But there’s no similar argument with gold.

A 10-page paper on ird.govt.nz says, “Describing property as being acquired as a long-term investment, a hedge against inflation, for portfolio diversification, or as a store of value outside the monetary system is not sufficient to negate a dominant purpose of disposal.”

Another reader wrote about gold. His main point: “The day is coming when all paper gold holders want to convert to physical gold, and that will be the time when there will be a disconnect between physical and paper gold prices.

“That is when the physical gold price could go through the roof, along with physical silver which normally is an 8 to 1 ratio with gold.”

Sorry, but I don’t buy your argument — or gold for that matter! If investment experts thought what you say is correct, they would be buying physical gold now, and pushing up the price now.

Prices of investments — gold, shares, rental property — always reflect not what’s currently happening, but what experts expect to happen.

You add that “Gold and silver have always been God’s currency”. Not sure how you know that!

UPDATE: The reader who said last week that he will stop reading this column because other correspondents have written too much about gloom and doom seems to have changed his mind.

“I shall probably continue to read your column, because I find it informative and sometimes entertaining,” he says now. “I shall just have to learn to ignore the Chicken Little letters.” Excellent!

– Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s 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 [email protected] Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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