Is industrial property for automagical income and shares for gambling? Plus more insights affecting investors in property news this week…
Our aim is to glean the important economic and property insights affecting investors from the torrent of information filling the newsfeeds each week so you don’t have to. We then present them in digestible snack form so you can update yourself over morning tea.
Get breaking news in your feed!Like our *NEW* Provincia Facebook page →
Read on and enjoy your economic and property news this week.
In property news this week…
- Is industrial property for automagical income and shares for gambling?
- Key economic themes.
- Construction boom.
- The horrendous council fees pushing house prices through the roof.
- Auckland landlord criticises unbalanced punishments under new tenancy laws.
- New rules in place but more rental changes may follow.
- What is the weirdest way someone became rich?
Is industrial property for automagical income and shares for gambling?
This week’s feature story is a long read about a seismic shift sweeping the world. Technology is disrupting everything.
3D printing, 5G networks, artificial intelligence, augmented reality, blockchain, drones, eCommerce, internet of things, machine learning, nanotechnology, quantum computing, robotics, self-driving cars, virtual reality…
These new technologies are disrupting established businesses and sending them to the wall.
Not just established businesses either, but whole industries.
Here’s a story that vividly brings this seismic shift to life, courtesy of billion-dollar Wall Street money manager and Growth Investor publisher Louis Navellier (who openly admits to being a one percenter)…
Reed is a 28-year-old founder who had an idea for a new business and has already begun getting it off the ground. So far, it’s working out like he’d planned.
But Reed has a problem. He doesn’t have a lot of money. He needs help growing his business. So he decides to approach an established business in his industry.
He figures the two can team up. His newer, younger business can help the older business reach a wider audience and, at the same time, help Reed’s small company grow. He sees it as a win-win for both companies.
But the other company doesn’t share his vision. They don’t think Reed’s business will help them. They’ve got it all figured out. To make things worse, they’re not very nice about it. He’s essentially laughed out of the conference room.
Reed has no choice but to go it alone and eventually finds other investors willing to take a chance on his business.
Turns out, he’s onto something. His idea is not just good, it’s fantastic. His business grows like wildfire. In just a few short years, Reed’s business becomes more valuable than the established business he approached.
It becomes so successful the other, bigger company can’t even compete. Because Reed’s business leverages new technology to provide better value – and a better experience – it enables him to run his business with fewer employees.
This makes his business extremely profitable. Reed goes on to become one of the richest people in America. Investors in his business get crazy rich too. His stock soars nearly 500-fold.
Meanwhile, the other company goes bankrupt. Tens of thousands of jobs are lost. Investors who backed the business lose everything. It’s one of the most abrupt bankruptcies in American history.
Incredibly, the story you just heard is NOT made up.
This is the real-world story of how Netflix single-handedly drove Blockbuster out of business. Every detail you just read is true.
Yes, Blockbuster actually had the chance to join forces with Netflix in the early days, but passed on the idea when its founder, Reed Hastings, pitched them on it.
Blockbuster went from a market value of $5 billion to bankruptcy in less than nine years. Its shareholders lost everything. Its “pass” on Netflix is widely regarded as one of the worst decisions in modern corporate history.
Meanwhile, Netflix is one of the greatest success stories of the past 20 years. It has taken over the $2.2 trillion entertainment and media industry and it made its founders and shareholders lots of money.
What does this story have to do with you?
In a word, EVERYTHING.
What’s probably most remarkable about this story is how it’s not a one-time, five-time or even ten-time thing. This phenomenon has been repeating itself over and over again.
You’ve probably noticed in recent years how established businesses that appear sturdy and in control of their markets are suddenly getting destroyed by technology upstarts…
Amazon has transformed the way people shop and get their stuff. In the process, it’s driven dozens of old-school brick & mortar retailers into bankruptcy. Department stores have lost 18x more jobs than coal mining since 2001.
A few years ago Uber debuted its popular ride-sharing technology. In less than seven years, Uber demolished the “old” taxi industry.
Airbnb now offers more rooms than the top five hotel brands, including Hilton, Marriott and Hyatt, combined.
Wikipedia, the free online encyclopaedia, has annihilated traditional encyclopaedia companies. By 2012, Encyclopedia Britannica published its final volume, after 244 years of circulation.
Spotify and iTunes have turned the music world upside down.
Google has taken over information.
Facebook, YouTube, Twitter, and Instagram have disrupted traditional media outlets. Vast amounts of cheap, online content supplied over internet connections killed many newspapers that followed the “old” business model. Since 2004, at least 1,800 American newspapers have ceased publication. The sector has shed 47% of its jobs during this time.
And these are just the examples you’ve probably noticed in your daily life.
Behind the scenes, small tech upstarts are beginning to wreak havoc on established businesses and industries across the board.
One small startup, for instance, just developed an AI-based software program that can review and analyse legal contracts faster and with better accuracy than a human can. It was recently pitted against 20 of the best lawyers in America – and won!
Similar disruptions are occurring right now in real estate, human resources, transportation, customer service, finance, sales, marketing, and more.
Most people don’t realise it, but technological disruption is creating a giant shift in the way economies work and how we build wealth.
The destruction of seemingly strong and dominant businesses by innovative technology-focused upstarts is a story we are starting to see over and over.
The risks of investing in businesses have never been greater.
Those who avoid sharemarket losses studiously research the market, stay on top of emerging trends and act decisively. They’re prepared to accept a loss rather than falling into the sunk cost fallacy.
It takes nerves of steel that most investors don’t have. Most hold on in the vain hope that the share’s price will recover enough for them to sell without losing money. Ironically, this loss aversion often causes them to lose even more before they’re finally forced to sell.
As for which technology-driven companies will succeed in disrupting the old guard, it’s a gamble. It’s a hard and bleak truth that 90% of startups will fail.
Seriously, the risks of investing in businesses have never been greater.
Asset allocation by age plays an important role in building a sound retirement investing strategy, but the same strategy should not be used for every stage of your life.
If you’re in your 20s or 30s you can tolerate more risk. You might allocate 70-90% of your funds into shares and have plenty of time to recover from any nasty setbacks.
If this is you and you’d like to invest in emerging technology, read this video transcript of Louis Navellier, a billion-dollar Wall Street money manager. He’s a one percenter, and proud of it.
Navellier shares his research in Growth Investor, his flagship publication where he keeps investors up to date on everything going on in new technologies and the stock market.
But the nearer you get to retirement the less time you have to recover from any losses. You’ll want the major portion of your portfolio in something much safer that produces a reliable income.
Many bonds are relatively secure but offer low returns in the current low-interest-rate environment.
Some listed property funds are relatively secure but so highly priced they also offer low returns.
Some unlisted property funds such as Provincia Property Fund [shameless plug -Ed], on the other hand, are both relatively secure and provide great income.
If this is you and you’re looking for better returns and the security of industrial property, I suggest you consider Provincia Property Fund…
If you’re looking for somewhere secure to park your money and earn 6% p.a. pre-tax PLUS capital gains, find out why Provincia industrial property fund is rated so highly by investors…
Key economic themes
Last week ANZ released early results from their Business Outlook Survey. In Tony Alexander’s latest newsletter he says…
“All I want to do here in commenting on their numbers is reinforce the themes I’ve been running with for some time.
- The economy is in relatively good shape.
- The labour market is tight and getting tighter.
- Inflation risks are rising.
- Interest rate risks for borrowers are rising.
“The survey reported that business confidence about the economy rose to a net 12% positive from 9% in December. This is the highest reading since August 2017, just before Labour won the general election.
“Looking at that sort of a response one would expect to see businesses saying they plan hiring more people and boosting capital spending. They do.
“The numbers bespeak of good economic growth this year near 2.5% with up and down risks.
“The upside risks come from confidence building and world growth improving as vaccinations spread.
“The downside risks come from a probable earlier than expected tightening of NZ monetary policy, rise in the Kiwi dollar, and capacity constraints.
“And that is where things are interesting in this report. A net 48% of businesses say that they intend raising their selling prices. This is up from a net 35% in December and the highest reading on record.
“This is the sort of thing which tells us inflation risks have turned and borrowers need to make sure their minds are not still stuck in thinking the economy is munted and they’ll be able to myopically run their debt at low short-term rates for many years.
“At this stage there is not a high risk of interest rates rising by a lot in a short period of time. The Reserve Bank’s hands are tied in some regard by the likes of the Reserve Bank of Australia promising to keep its cash rate at 0.1% through to 2024.
“But even with this restraint, risks regarding medium- to long-term interest rates will lie on the rising side for the next few years.”
Get breaking news in your feed!Like our *NEW* Provincia Facebook page →
Tony Alexander has highlighted for some time that residential construction is on a tear.
This week, he says, we learned that the number of consents issued for new dwellings to be built around New Zealand hit 39,400 in 2020. This was a near 5% rise from 2019 and the highest annual total since early 1974.
“The pace of growth in people signing up for houses to be built has accelerated recently, and this will be because of the slightly earlier surge in dwelling sales.
“The correlation fell apart a bit after the GFC, substantially due to rebuilding after the February 2011 Christchurch earthquake. But surging sales recently suggests plenty more growth yet to come for building dwellings.
“In the old days when writing about this statistical series, we mainly used to use the word ‘houses’ rather than ‘dwellings’ because most things built were standalone houses.
“In fact, we would discount to some degree the headline consents number and focus instead on the trend in standalone house consents to get a real picture for what was happening.
“We don’t do that these days.
“That is because houses on average accounted for 75% of all consents between 1992 and 2015. But since then, the average has been 65% and the latest proportion is 56%.
“The big growth area has been for the grouping of apartments and townhouses. In Auckland now 60% of new dwellings are attached, not standalone, houses.”
The horrendous council fees pushing house prices through the roof
A Hamilton developer revealed some of the horrendous fees and frustrations in dealing with councils that are driving house prices through the roof.
“We’ve just paid $130,000 in development contributions for four new houses on Normandy Ave in Hamilton City. We used to pay about $11,000 for infill housing, per house. [That’s a 195% increase – Ed]
“The $130,000 in council fees does not include the fees for:
- Resource consent
- Subdivision consent
- Building consent
- Engineering consent
- Council connections for sewer, water and stormwater
- Council inspections fees
“Or the cost of actually paying for and installing the infrastructure that our development contributions used to pay for, like stormwater retention tanks.”
The developer is not allowed to connect directly to the council’s stormwater lines because, he says, the council doesn’t want to incur the cost of upgrading their lines.
“And there are many more fees and development contributions to be paid to other monopolies:
- WEL (power)
- UFF (internet)
- First Gas (gas)
“These companies set the fees at whatever they like as you have no choice but to use them.
“There’s also a constant stream of new regulations that drive up housing costs, many of which come from central government.
“One example: We spent close to $200,000 on this site for retaining and foundations alone. A ridiculous amount, and mostly due to new ‘potential liquefaction’ rules.
“There’s so much talk about affordable housing, but its not going to happen until councils and government stop increasing their fees and regulations.
“Even within the same council there are differing rules and opinions. When we get our consents, resource, subdivision, building and engineering we deal with different parts of the same council and they often contradict each other.”
“People don’t see the costs. They just keep shouting we need cheaper houses and that developers/builders make too much money.
“The people making the money are councils and government.
“We are about to start a 6-unit project on Hammond Street in Hamilton. We have spent $200,000 already and we haven’t even moved the existing house off yet!”
One Auckland investor did a subdivision of a small property and 58m2 house in Auckland. She says Council fees were 30% of the project cost.
A South Island property investor has a similarly shocking story…
“We started a subdivision in Twizel in 2019. Same deal. Contribution fees for everything. 5% of the value of the section.
“We paid all the fees in 2019. Didn’t complete the subdivision until 2020 as there was no urgency. Went for final sign off and they made us revalue the section and pay a higher contribution fee as it was a new year. We will invest in Timaru now. Mackenzie council are too hard.”
Even house movers have been hit with horrendous increases in council fees. One who deals with Central Hawkes Bay District Council says he used to pay a $2,500 ‘capital contribution’ fee per application to move a house.
The fee is now $10,500 per application. 320% increase almost overnight.
Affordable homes? Yeah, right.
Auckland landlord criticises unbalanced punishments under new tenancy laws
Auckland landlord Peter Lewis was interviewed by 1 News yesterday, the same day new tenancy laws took effect.
He shines a light on the draconian nature of the new laws.
As one investor said, “A lot of people just don’t get it! We have folks currently rushing out to buy a first rental property without a real clue and unfortunately some are going to come seriously unstuck. The assignment of tenancy is a big risk among many others.”
New rules in place but more rental changes may follow
Major tenancy law reforms have just come into effect but there may be more rental sector changes to come, the Associate Housing Minister Poto Williams says.
The Government’s overhaul of the Residential Tenancies Act was the biggest in a generation.
Despite that, many tenant advocates believe further Government intervention in the rental market is necessary, especially given escalating rents around the country – and it looks like they could be in luck.
When asked about the prospect of additional changes to the rental market in the form of rent controls, Williams said the government was looking at a range of options.
Both Prime Minister Jacinda Ardern and Finance Minister Grant Robinson have emphasised this week that the Government has more announcements on housing related measures to come.
Looking for someone to manage your commercial property?
We are one of the few firms to specialise in managing commercial properties for investors 🏭
Many of our clients previously managed their properties themselves but wanted to simplify things so they could enjoy life 🏌️♂️🛥🎣
With management fees usually paid by the tenant as part of their outgoings/opex budget, why would you take on all that hassle yourself when we can do it at no cost to you? 🤔
We currently manage anything from large multi-million dollar commercial property portfolios right through to single units.
If you own commercial property in Auckland or Hamilton, get in touch now: email@example.com
And finally, in not-property news this week something too good not to share…
What is the weirdest way someone became rich?
American architect Rick Ferrara relays his story about the weirdest way he knows of someone becoming rich.
He says he once had a client whose head of development was a childhood friend. The client was a well known businessman, but his friend was far more low key… and very wealthy.
He would summer in The Hamptons, an exclusive seaside resort on the east end of Long Island, New York, and collected restored Chris-Craft boats like the one above and these…
He had a large collection of them.
Ferrara was talking to a decorator who was working on the house project and told her how much he admired the boats. She asked, “Do you know how his family made their money?”
Of course, he didn’t.
She said, “chick shit.”
Ferrara looked at her not quite understanding.
She said, “His parents owned a huge chicken farm [I’m guessing an industrial-sized one – Ed] and raised eggs. Years later they figured out that the nitrates in the chicken shit were worth a fortune and sold that”.
Amazing… the land turned out to be worth a LOT more than when they bought it. Back in the day people thought that west Texas land was worthless, and it was.
However, the oil and gas under it was worth a lot.
But it was the chicken shit that made them rich!
Story credit: Rick Ferrara on Quora
That’s it for this week, thanks for hanging in there.
Cheers, Brandon 🙂
This content is provided for general information only and should not be relied upon or used as a basis for making any investment or financial decision. To the extent that any information or recommendations in this content constitute financial advice, they do not take into account any person’s particular financial situation or goals. As individual circumstances differ, we strongly recommend you seek independent legal and/or financial advice prior to acting in relation to any of the matters discussed herein. Neither Provincia Property Fund Ltd nor Provincia Property Management Ltd nor Provincia Property Fund Management Ltd nor any person involved in this content accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this content.