NZ Herald 15 September 2018

ASorry, but the news is not good.

Firstly, here are the rules when you buy land and build on it:

“When assessing an application for a HomeStart grant, for a new build, the combined cost of the land and build need to fit below the appropriate house price cap — which is $450,000 for a new build,” says Mike Webber of Housing NZ.

“The fixed price building contract will need to be provided at the time of application. There is no fixed period by which the house has to be built. But the cost of the build has to be factored into the HomeStart grant assessment, so the cost-to-build plan and contract has to be finalised prior to the HomeStart application.”

Secondly, the rules on buying a home with others:

“When several people are jointly purchasing a house, applications are still assessed against the purchase price of the house — not an individual applicant’s share of the price,” says Webber.

“This policy is actually spelt out on the Application Form in Note 3 — If purchasing a share in a property the equivalent total property purchase price (sum of all shares) will be assessed against the maximum purchase price caps outlined above, not the individual share being purchased.”

He adds, “For HomeStart grants to fit the eligibility rules in Coromandel, the land and house will have to fit under the cap of $450,000. Whilst going ‘halves’ with parents would make the property more affordable, it does not follow that the sales price of the property is also halved.”

And there’s more bad news.

“The other thing to bear in mind with joint purchases is that all purchasers (whether each is applying for a HomeStart grant or not) have to fit below the $130,000 income cap.

“In this example the combined income of all four purchasers needs to be below $130,000 gross. The parents themselves don’t need to be eligible for the grant, but their incomes would be assessed, as they would also be purchasers.”

There’s a bit of good news, though. As Webber points out, “this couple may still be eligible to withdraw their KiwiSaver funds to assist with the property purchase.

“There is not a house price cap or income cap to fit with the KiwiSaver First Home Withdrawal. They do need to have been contributing KiwiSaver members for at least three years, not currently own any interest in estate and have a sales and purchase agreement identifying themselves as buyers.

“They can apply directly to their KiwiSaver provider, as the providers administer this process. They will need to leave at least $1,000 in their respective accounts if they do withdraw their funds.”

Could the house price caps change?

“The Minister sets the house price caps for HomeStart grants, on advice from MBIE, on the basis of sales values across each particular territorial authority (District and City councils),” says Webber.

“Whilst each council territory will have higher and lower priced areas within them, house price caps are set according to sales across the whole council territory.”

You could wait in the hope that your price cap will rise, but I wouldn’t recommend it. It’s not usually wise to put your life on hold in the hopes of a government change that might take a long time to happen — if ever.

I feel for you. It doesn’t seem fair, especially the bit about not halving the price if your parents are going to be half owners.

I suppose that rule is there because otherwise people would find clever ways of structuring purchases so they qualified for the HomeStart grant. But still, it’s tough for you, particularly given your difficulty in getting a good long-term rental agreement.

Still, as you say, at least you can get help from your parents. Many others would envy that.

AI’m glad you’ve eliminated that last idea. This is not the time of life for you to take on a mortgage when you don’t need to.

Of your other two options, the second one is interesting, but riskier.

If you were planning to keep the studio through your retirement, I would be arguing against that. Rental property in retirement is fine if you have plenty of income, but if not, you’re better to sell the property so you can spend your capital. And, by the way, that applies to your apartment too.

But you’re talking of a capital gain on the studio, which suggests you plan to sell it in the next few years anyway.

And in the meantime, if you can get $1000 a month, that looks like a return of 5 or 6 per cent on $200,000-plus. But don’t forget expenses, which might include not just rates, insurance and maintenance, but also perhaps bed taxes or higher rates, which are starting to hit people on Airbnb and similar. So your ongoing return might be a fair bit lower.

As for a capital gain, who knows? Property prices in many places are slowing or even falling. You could, of course, hold out until they rise again. But that might be quite a few years away. And in the meantime, you haven’t got a lot of income in your early retirement years, when most people spend more than in their later years.

There’s also the hassle factor. Do you want to deal with sometimes noisy, messy or unreliable short-term tenants? You might enjoy meeting new people, but there are sure to be some tricky times.

Your first option is less risky. You could go on the KiwiSaver Fund Finder and find two suitable funds for you, one lower-risk conservative or defensive fund for money you plan to spend in the next few years, and another balanced or growth fund, for longer-term money.

I know you’re not in the KiwiSaver market, but once you’ve found the most suitable KiwiSaver funds you can ask those providers if they have similar non-KiwiSaver funds. In most cases they do.

In the lower-risk fund, your balance will hardly ever fall much. In the balanced or growth fund, it will fall sometimes, but should grow more over the long term.

AYou’ve got enough money to buy a wide range of shares, so you could do it yourself. Here’s how I suggest you go about it:

• Make sure you buy in many different industries, as there’s no good way to predict which shares will perform better. Just because a company or industry has a promising future, that doesn’t mean its shares are good buys, as they might already be highly priced.
• Don’t buy and sell. Even the professionals get that wrong often. Be like Warren Buffett and buy for the long term.

Buying shares directly is a bit more hassle than investing in a fund or two — as suggested to the previous reader. But your costs will probably be lower than paying fees on the funds.

In the end, it probably comes down to whether direct investing appeals to you.

AYou should definitely join KiwiSaver. Between now and when you turn 65 you can receive a total of more than $6000 in tax credits from the government — plus interest earned on it. Why wouldn’t you?

To get that money, you need to contribute at least $1043 between July 1 and June 30 each year. Then you’ll receive the maximum tax credit of $521.

Where can you get the contribution money from?

Firstly, as an employee, 3 per cent of your pay will go into the scheme. And by the way, your employer will also put their 3 per cent contribution in, which will help your KiwiSaver account grow.

But at your pay level, your 3 per cent contributions will total only about $75 a year. So where will the other roughly $970 come from? Your savings. It’s fine to eat into that money for this, as it will mean that you have more total savings at retirement.

You’ll need to put that extra $970 into the account yourself, paying it directly to your provider — the company that runs your KiwiSaver, before June 30 each year.

Your employer will sign you up for KiwiSaver. If you have any trouble finding out who your provider is, call Inland Revenue on 0800 KIWISAVER (0800 549 472), with your tax number at hand, and they will tell you.