Chamber Announces Finalists for the Business Awards
 The finalists for each of the Westpac Rotorua Business Excellence Awards represent a wide cross section of the top businesses in Rotorua. “The high number of entries in each category has resulted in a difficult choice for the judges,” according to Roger Gordon, CEO of the Chamber of Commerce. “The panel of 13 judges and convener Melanie Short were in conference for a full day to debate the selection of finalists. We are particularly pleased with the variety of businesses in each category, both large and small organisations competing on the basis of quality.”
The Chamber introduced a number of changes to this year's Awards. A nomination phase opened up the entry process to all organizations to acknowledge and recommend their peer businesses for an entry. “Being nominated prompted a number of businesses to enter who perhaps had not considered they were justified in entering. Some of these have made it through to the final,” explains Roger Gordon.. “We have also received feedback that some businesses have benefited already from the visit of the judges in reassessing some of their processes. It really is a win/win situation, everyone benefits.”
The number of entries received this year was the highest since the Awards began back in 1991. Receiving the accolade as Rotorua Business of the Year brings a raft of benefits to the winning organisation. Previous recent winners, PF Olsen, Brumby's Bakery, Summit Engineering, House of Travel and Off Road NZ have come from across the spectrum of business sectors. Each has actively promoted their success as Rotorua's top business.
The second major change was to move to a template for the entry form. The Chamber recognises that many businesses are focusing all of their valuable time on running and building their businesses. The previous entry format required considerably greater input into form and content. The template which is available in Microsoft Word format, was more definitive in content and the areas of business management that had to be addressed. The whole process of completion of the entry was considerably easier.
As a result of the increased number of entrants, the interviews and selection of the three additional awards, Credit Union Lakeland Employee of the Year, Waiariki Institute of Technology Apprentice of the Year, and the Rotorua Trust Social Responsibility Award will take place during the first week of September. The TrustPower Customers Choice Awards will be received shortly in the mail with the TrustPower accounts.
The finalists are now preparing for their individual presentations to the full College of Judges. This will take place over the weekend of 23/24 September when the category winners and the ultimate winner, the Westpac Rotorua Business of the Year, will be chosen.
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Your Businesses Trash Could Be Someone Else's Treasure!
 There is little doubt that waste disposal is becoming an increasing talking point for businesses, both economically and environmentally. Utilising the Bay of Plenty Waste Exchange is an avenue whereby businesses can reduce waste volumes and expenses.
The Waste Exchange is a free, non-profit service that helps Bay of Plenty businesses and enterprises find alternatives to disposing of unwanted materials. It provides a web-based forum for connecting unwanted materials and recyclables with new owners such as schools and community groups. Its goal is to reduce the amount of rubbish ending up in landfills.
 Two local businesses that have benefited from utilising the Waste Exchange include Peterson Portable Sawmills and the Rotorua Family Holiday Park. Excess wood shavings from the sawmill demonstration site are listed onto the exchange database. Every month the Rotorua Family Holiday Park collects the shavings as bedding for a very appreciative Shetland pony. For more examples of how we connect re-usable materials with new owners, instead of them being unnecessarily dumped, visit our website below.
The Waste Exchange is funded by Environment Bay of Plenty and the region's district and city councils. To contact The Waste Exchange Phone 0800 NO THROW or visit the website http://www.nothrow.co.nz/
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Gala Awards Presentation Evening
This is without doubt, the business social event of the year. Come along and 'Shimmer and Shine' as the best in Rotorua business bask in the glory of their successes. Once again the Chamber is fortunate in a team of organising sponsors who look after the Gala evening. Event Impressions went over to attend a Convention Management conference in the USA during the last twelve months and brought back a host of new and innovative ideas for event theming. They will be using this event as an opportunity to showcase their ideas. They will be joined in the event by Audio Visual Techniques with their sight and sound presentation, Grand Tiara Hotel with their cuisine and service, and Event Venues supporting them in the Southern Trust Sportsdrome. The overall gala presentation will again represent the overall theme of excellence and be a wonderful opportunity to celebrate business in Rotorua.
Tickets can be ordered through the Chamber's web site http://www.rotchamber.co.nz/.
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Management and Energy Savings
 Power Solutions continue here with their Energy Management and Electricity savings advice. In the last issue the tabloid showed the possibilities of savings associated with lighting. This month the matter of office equipment is discussed.
Everyone should turn off PCs and terminals under their control when they're not being used. Often these items are left on overnight and during weekends and holidays. Turning your machine off when not in use can save over 75% energy and cost! Contrary to common belief, there is no evidence that computer equipment is damaged by turning it off and on. The power needed to start them up is equal to only that of a few seconds running time. (Equipment should be turned off completely. The “screen saver” mode saves negligible power.)
• Make sure that someone is responsible for turning off photocopiers and laser printers after hours - they are big electricity users. Alternatively, plug in a seven day timeclock (some photocopiers now have inbuilt timeclocks).
• Review the operation of your mainframe computer. Does it need to run 24 hours a day?
Some computer suppliers can provide a software package that allows the mainframe to “sleep” until it is called upon by a user. It takes a considerable amount of electricity to run a mainframe especially when they are cooled by energy consuming air conditioning.
Lighting and office power equipment consume most of the power in the office but there are also other areas where you can make savings.
• Avoid using the lift for short journeys. Walk up one flight and down two - you may even get a bonus heath improvement!
• Have your hot water cylinder thermostats adjusted to 60ºC by an electrician or have a consumer adjusted thermostat fitted. This reduces both standing losses and the chance of scalding.
• Avoid unnecessary use of hot water, heaters or any other appliances.
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The Rotorua Economic Opportunities Forum
on 10 August 2006 attracted 230 guests,
mostly Rotorua business people.
Professor Wayne Cartwright, Professor of Strategic Management at Auckland University, explained the rigorous work that the BrightEconomy Advisory Board has done to identify key drivers of change that will affect Rotorua's economy and lifestyle over the next two decades.
BrightEconomy Board chair Bryce Heard explained how the Board has used these drivers of change to map out six new fields of opportunity for sustainable economic growth, along with the three existing primary economic drivers of agriculture, tourism, and forestry and wood processing.
Each Forum participant was able to attend an hour-long workshop on one of the new opportunity areas, to discuss the work the Board has commissioned to identify specific opportunities, to learn more about the topic and to contribute their own ideas.
Feedback from Forum participants rated the workshops as a highlight, with a number of comments calling for more workshops, more chances to discuss the issues and opportunities to attend workshops covering more than one field of opportunity.
Overall, 94% of participants who filled in feedback forms gave the Forum an overall rating of good or better, with 84% rating it very good or excellent.
Details of the presentations, workshops and feedback will be posted on http://www.brighteconomy.com/.
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Immigration and Lifestyle
Did you know that 53% of Rotorua's population lived elsewhere in New Zealand or overseas five years before the 2001 Census was taken?
The immigration and lifestyle workshop focused on discussing the best marketing tools that could be developed to help businesses overcome investment and staff recruitment issues, while also assisting us to sell positive messages about investing and doing business in Rotorua.
Facilitators Lidi Schiefelbusch and Sandra Kai Fong outlined the opportunities for Rotorua through attracting skilled immigrants with investment capital who are looking for a secure lifestyle in a clean, green environment with the benefits of semi-rural living combined with the advantages of urban infrastructure and leisure and recreation activities.
Workshop participants came up with a list of 29 suggestions, centred on positive media publicity, branding, IT advances, personal contact and networks, further web site development, clean lakes and a beautiful city, education and career opportunities, local and regional cooperation, and easy access to business support through a central hub.
They identified a range of negatives and positives, including a negative perception of Rotorua's “dark side” and positives such as the district's central location for business and recreation, and the comparatively low cost of housing and business overheads.
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Bio-Materials
BrightEconomy Board chair Bryce Heard led the bio-materials workshop with an explanation of the opportunities for products made from bio-materials to replace oil-based plastics and other compounds as oil becomes scarcer and more expensive..
He outlined the work the Board is doing to investigate and develop an Innovative Materials Centre in Rotorua to develop new materials through to the stage of commercialisation on behalf of those prepared to invest.
Russell Burton, Group Manager Investments at Scion, displayed a range of new substances based on such materials as timber, bark and harakeke. “Forests are our oil wells,” he said.
Those at the workshop formed discussion groups to examine where the focus on commercialising these products should begin, what the barriers to commercial-isation are and how we should deal with those barriers.
The groups came up with a long list of suggestions, including:
• Start by creating a product, then look for applications
• Scion = raw material; entrepreneurs = products
• Expose the technology to the innovation of other people.
• Open the realm of possibility.
• Big player to develop Scion’s product further.
Discussion also centred on whether bio-materials replacing oil-based products need to match costs, or whether further innovation could add extra value and remove some price constraints.
Possible barriers to development could include talent and knowledge, the right people plus confidence, cost and technology. Scion has the technology; also needed are entrepreneurs and education, with Waiariki Institute of Technology suggested as one resource for training.
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Land Use Optimisation
The land use optimisation workshop, led by Malcolm Short, viewed an intriguing presentation by Rick Vallance, chief executive of Ngati Whakaue Tribal Lands, on new tools and possibilities to get the best out of our land resources, both commercially and environmentally.
Both the workshop leaders and participants came up with new opportunities and methods to create a wider range of sustainable, environmentally sound land-based businesses and activities.
Participants identified a need for more participation to produce a flexible District Plan and called for more original thinking to get past entrenched views.
Tourism was identified as a driver of land optimisation, through such activities as a “Great Lakes” walk with lodges along the route.
Both the leaders and the participants also identified a need for innovative thinking about land tenure to help unlock the value of Maori land in the district.
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Water/Research and Development
The water and R & D workshops were combined, and led by BrightEconomy Board members Lachlan McKenzie and Tupara Morrison.
Discussion of opportunities for water-based developments focused particularly on the need for a “stocktake” of water to establish what's needed locally, taking into account projections of population growth and business requirements.
This would help to establish how much water can be exported, in a world where there are growing shortages of clean water. Participants noted that water is expensive to export because it is heavy.
They also raised the question of who owns the water in Rotorua?
Research and development discussion ranged widely over such issues as:
• The availability of Scion and others such as AgResearch to assist with R & D
• The need to protect intellectual property
• The need to bring together researchers and business people to assist commercialisation, and the importance of good communication between stakeholders
• The work that the BrightEconomy Board is doing to help small and medium enterprises take advantage of research and development resources.
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Local Energy Generation
Discussion and presentation in the local energy generation workshop, led by Neville Nicholson, showed Rotorua has many opportunities to become self-sufficient and use renewable energy resources, but there is a desperate need for leadership and the development of an organised framework to move forward.
Presenter John Gifford, of Scion, outlined the potential of biomass from sawmill and forest residues for energy generation, as well as creating more value for forest and wood processing industries.
He said there was the possibility of a 100% renewable scenario if other generation methods such as geothermal, solar, landfill gas, hydro and wind were developed in sync. It was a matter of identifying the opportunities, researching these and putting a plan into action.
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Intellectual Property. Time to Get Smart
Are you a business who loves doing things the hard way? Have you wondered why some businesses seem to get all the breaks? Wouldn't you like to be that lucky?
The reality is that smart businesses use all of the tools at their disposal to create the breaks they need. Proper money and client management are well documented tools, though few understand the benefits of integrating Intellectual Property (IP) into their business strategies.
 Intellectual Property is perhaps the most powerful business tool that a business has access to. It has the ability to influence both the market and competitors with a degree of control that few, if any, other legal options can provide. To the smart business, IP is both a valuable tool and asset. It is its ability to both increase in value (e.g. goodwill) as well as being a tool for growth which makes Intellectual Property unique, and of such importance to business.
It is IP's ability to exert control in a market which makes it a positive tool for growth. Growth often occurs as a consequence of innovation, and it is this innovation which has Intellectual Property rights associated with it. By protecting this IP, your business can protect the investment it has made in developing the innovation and also exclude others from using it except under your terms.
The ability to protect your innovation investment is particularly important for businesses where developing new products is time consuming or expensive. However, protecting your IP is equally important when growth depends on new innovations. If you introduce these innovations into the market without IP protection, you are only doing the groundwork for your competitors creating a new market for them to compete directly against you. By protecting the associated IP, you can create barriers which force competitors to move in new directions. A clever IP strategy can have a significant impact on a competitor's ability to compete or remain in your market.
The smart business will possess an IP strategy, much as it will possess a marketing strategy and a growth strategy. It will integrate the IP strategy with its business plan, and treat it as a living document which evolves as its business plan changes. By doing this it ensures that it can maximise the value of its IP, and effectively respond to any threats or opportunities. In this regard it is important that your business maintains a relationship with an IP specialist, or patent attorney, who can oversee all aspects of your Intellectual Property in relation to your business strategy.
Intellectual Property is a versatile tool. Its protection can create barriers for competitors, as well as create opportunities such as licensing (and franchising), partnerships and joint ventures, as well as making the innovation more attractive to investors (IP protection is a pre-requisite for most investment). However it can also be enforced as a legal remedy, these commonly being infringement actions against others who copy or infringe your protected IP rights. This ability to enforce acts as a considerable incentive for others to behave appropriately, giving IP protection a valuable and extremely effective dual role as both a preventative measure (against infringement of your rights) and a cure (through legal action) for those who find your IP too attractive to resist.
If you've decided it's time to become a smart business, the first step is to identify your IP assets. Ideally this will be done in conjunction with an IP specialist who can readily identify and advise you in this regard. Most businesses are unaware of their IP assets, or their value. It is not surprising for businesses to find that their most valuable assets are IP assets, and that these are unprotected (goodwill is a prime example). Neither is it uncommon for businesses to learn, until too late, that they could have stopped a competitor from proceeding down a path that now seriously affects their business. Once identified, these valuable IP assets can be protected and a strategy evolved which can help the growth of your business. The important message is to identify your IP assets, create a strategy to protect and use them to your advantage, and to do it now!
Intellectual Property needs to be part of the repertoire of any business. It needs to be identified, it needs to be protected, and it needs to be used in accordance with a strategy which reflects the plans of the firm. In this series we shall focus on different aspects of IP and how businesses can use them to their advantage.
By Antonia Sims,
principal of the IP firm IPRIMA
contact:
tollfree: (0508) IPRIMA
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Economy On Track
The NZ economy remains on track for continued weak expansion over the next 18 months, with calendar 2006 and 2007 likely to register around 1.5% GDP growth. However, with inflation hitting 4%, the Official Cash Rate looks set to be on hold well into 2007.
There have been recent pockets of economic resilience, such as a second quarter in a row of surprisingly strong employment growth which took the unemployment rate back to 3.6%. House sales turnover has been relatively high in recent months, perhaps in reaction to a drop in fixed mortgage rates back in April. In addition, cold and wet weather will see a fillip to Q2 GDP growth from electricity generation. Moreover, primary sector output picked up over the quarter. But the second half of the year will see less of these one-offs, and more impact from rising debt servicing costs and fuel prices. But, despite decent wage growth and strong employment growth, retail sales volumes actually shrunk 0.5% in the June quarter.
 However, the recent focus has been very much on the recent inflation figure, which at 4% significantly exceeded market expectations and was just to the high side of the RBNZ's 3.9% forecast. That outcome, and more recent spikes in food and fuel prices mean inflation is likely to be still sitting at 4% in March 2007 before dropping rapidly over the following year.
The July OCR Review showed that the RBNZ, still focussing on second-round price effects and inflation expectations, has not shifted closer to tightening rates despite the likelihood of inflation being slightly higher over the next 12 months than previously anticipated. The RBNZ doesn't expect to see inflation back in the 1% to 3% band until "late 2007". In contrast, the June MPS forecast the CPI to hit 3% in September and 2.7% in December. In essence, the timing of the return to the band has been pushed out a quarter, in keeping with recent added petrol and food price increases.
Going forward, the key focus will remain on any signs of spillover to price and wage-setting behaviour and inflation expectations, though to date the NBNZ survey suggests inflation expectations have been relatively well behaved considering the magnitude of this year's fuel price increases and NZD depreciation.
The statement confirms that the RBNZ will not cut the OCR until it is confident headline inflation will head back comfortably into the target band. That degree of confidence should appear in 2007H1, though still risks coming later than our current call of March. We do, however, expect that inflation will be back in the target band a quarter earlier than the RBNZ does. But for now a cap has been placed on interest rates, given that the RBNZ has again indicated that hikes are off the cards for now.
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Icehouse Growth Seminar coming to Bay of Plenty
Ever wondered why your business is struggling in the slow lane and other businesses can seemingly double and triple in size in almost no time at all?
Does the idea appeal of getting your business into good shape for a potential sale or exit by you?
These are just two of the opportunities addressed in the Icehouse Growth Seminar coming to Tauranga for the only time this year on 12-13 October.
According to Icehouse BOP Manager Stan Gregec, there are now over 40 Bay of Plenty businesses that have benefited from the Icehouse's intensive business growth programmes. “Most are challenged beyond anything they've ever experienced before, and all come out with a terrific clarity, confidence and vision for how their business can grow and maximise future value.”
As a recent graduate Kay Rogers from United Travel can't speak highly enough of her Icehouse experience. “It challenged me in every area and opened my eyes to where I could take my business. We have already put the stepping stones in place, and I am feeling so much more positive about our future direction.”
Kay attributes the Icehouse programme as being a significant catalyst for the recent merger between United Travel and Stars Travel. “We now have much greater strength as a combined business, and can work on leveraging what we both do best.”
The Icehouse will be running free information sessions about the Growth Seminar in Rotorua in August and September. If you would like to find out more or receive an invitation, please contact Stan Gregec on 027 297 1180.
For more information, please contact:
Stan Gregec
Regional Manager-BOP
The ICEHOUSE
Tel: (027) 297 1180
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Shared Vision Important For Revitalising CBD
The CBD Revitalisation discussion document identifies a shared vision for the CBD, collectively owned by the council, the business sector and the wider community. It envisages the CBD as “a public space where residents and visitors can enjoy recreation, outdoor dining, retailing, and entertainment activities, within a safe and attractive environment.”
The “shared vision” articulated in this discussion document has been designed around a number of key elements:
1. The Central Spine
The spine represents the strong backbone of the Rotorua CBD, the spine is formed by Tutanekai Street. The spine should be a vibrant and pedestrian-focused environment encouraging pedestrian flow, this does NOT mean full pedestrianisation of Tutanekai Street and the exclusion of cars. High street environments thrive off limited traffic access. The spine will transgress a number of “precincts” within the CBD area through a “string of pearls concept” The interaction of the spine with the particular design characteristics of individual precincts will enhance the sense of place and assist in wayfinding and orientation within the CBD, which has been identified as an issue.
2. Green Corridor
The CBD concept plan proposes the development of the Arawa Street/Haupapa Street area as a “Green Corridor” providing a link between Kuirau Park and Government Gardens. This will require a significant landscape enhancement of both Arawa Street and Haupapa Street to enhance both pedestrian and visual amenity. The encouragement of an Art and Cultural Precinct development within the “Green Corridor” environment with the incorporation of appropriate art and street furniture to enhance pedestrian amenity, place orientation and articulate appropriate elements of the city narrative.
3. Lakeside Environment
The lakeside environment lies outside the parameters of this study. However, the integration of the lakeside environment and the core CBD area is fundamental if the CBD is to fully realise its potential. It recognises the importance of two main anchors to the CBD: the lakefront and the mall, and reaffirms the importance of the council's plans to produce a long term lakefront development strategy.
4. Grand Avenues
The core CBD area should be defined and consolidated by the development of “Grand Avenues”. These avenues already exist within the CBD urban grid. “Grand Avenues” should be subject to landscape enhancements that reaffirms their status as significant civic elements within Rotorua's CBD: street trees, enhanced pedestrian environments, reduction of traffic impact, public art, appropriate design guidance for associated new development etc. Amohau Street currently provides for “through-traffic” being a designated state highway. However, planned highway changes should allow the development of Amohau Street as a “Grand Avenue” which would enhance pedestrian amenity, encourage high quality commercial development and significantly enhance the core retail area within the CBD area. Other “Grand Avenues” within the core CBD area should be Ranolf, Arawa, Haupapa, Rangiuru and Whakaue Streets.
5. Retail Precinct
Rotorua's consolidated CBD area should be revitalised through the promotion and development of distinct urban precincts:
(a) Retail Precinct. The domestic retail offer extends from Rotorua Central along Tutanekai Street (Hinemoa St intersection to Amohau Street intersection). The tourist offer should be encouraged to the north (Hinemoa Street intersection to Haupapa Street intersection) to act as a buffer between the retail and the arts precinct. This should include high level offers such as YSL, Channel etc. This will be an area which is more likely to be associated with the night culture and tourist leisure shopping in the evening/night time. The Entertainment precinct (see below) will act as an anchor to facilitate this function.
(b) Art and Cultural Precinct. The CBD revitalisation programme should promote and encourage the development of an “Art and Cultural Precinct” in the vicinity of the proposed “Green Corridor” (Arawa Street/Haupapa Street). Central to the Art and Cultural Precinct, a new Civic Plaza is proposed capable of hosting events, concerts, themed markets etc.
(c) Entertainment Precinct. The entertainment precinct is shown as a natural development of that which is occurring along Tutanekai Street between Arawa Street intersection and Whakaue Street intersection. Consideration should be given to artistic lighting projects in this area to encourage night time use
(d) Commercial Development. Commercial development should be focused on the peripheral areas of the CBD area. Commercial development would be welcomed on the upper levels of core CBD developments, but not at the expense of ground floor retail outlets within the core Retail Precinct.
(e) Residential Development. Residential development should be encouraged above ground floor commercial/retail uses, particularly along streets traversing east/west across the CBD. Appropriate CBD residential development may comprise apartments, work/live units, short/medium-stay accommodation, 2/3-storey terraced townhouses etc.
6. Civic Plaza
There is a strong need for the development of a significant “attraction” within the heart of the CBD area. The concept plan indicates a new Civic Plaza located along Tutanekai Street between Arawa Street and Haupapa Street. The new Civic Plaza would form the centerpiece to the Art and Cultural Precinct. Its design should include artistic installations that articulate of the city narrative, perhaps tracing layers of history from primeval geothermal activity to modern day. Design and material specifications would facilitate intense use concerts, events, exhibitions, themed markets etc.
The Report outlines a number of key recommendations designed to ensure that the plan once agreed upon is acted on in a way that will drive efficient and effective outcome within appropriate time frames. These recommendations are headlined by the following priority actions:
Establishment of a Management Partnership: Create role of an “Investment Manager”, Set up Bi-partite group chaired by an “Investment Manager”, and provide resources and support for the CBD Manager role
Promote the CBD as a destination: Link major events to CBD, exploit Spa Town theme, improve family and pro-youth activities, and actively market CBD via multi-media
Structure the CBD to encourage movement and vibrancy: Improve the integration of Rotorua Central, link North and South of Tutanekai Street (“string of pearls”), improve integration of Lake front, maintain visual and environmental amenity for pedestrians and adapt local and regional tourist transportation to suit “Vision”
Provide facilitation and support for Private Enterprise to “Run with Vision”: implement changes to District Plan, address transport infrastructure support for “Vision”, adapt CBD traffic management to suit “Vision”, and implement “Bike Rotorua”
This article is an edited version of a document supplied by Destination Rotorua Economic Development. We have attempted to identify the critical points of the proposal. The Chamber of Commerce will be making a submission on behalf of its membership. Both Destination Rotorua Economic Development and the Chamber of Commerce will be pleased to receive your views on this proposal.
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Residential Property Investment
- Another Point of View
The Chamber welcomes commentary from members expressing differing points of view and will print if space is available.
In the three years to November 2005 there was a 51% increase in house prices and a 12% rise in rents. You don't need a degree in economics to see the problem!
New investors have had to settle for very low returns as a result of this, but investors who bought before 2000 have prospered from the increased values.
The Tenancy Bond Center publishes figures for bonds lodged which gives an accurate picture, and it's not one of rents racing away or $400 a week actually being achieved.
Certainly there are properties up for rent at that level and being advertised too, often fully furnished which distorts the picture a bit, but the fact that they are being advertised at all is testament to the failure of the market to snap them up at those sorts of figures. This is in stark contrast to
the impression given in the July
2006 article in the Tabloid. Its an offence not to lodge a bond so the figures given are likely to be 99.99% accurate.
I recently accosted a real estate salesman who was quoting $400 a week to one of my clients as a minimum figure for a particular town house, but he was utterly unable to justify his opinion with any evidence. The buyer decided against making the purchase.
In the six months ending 30 April 2006 the figures show one four bedroom rental home in Owhata/Fenton- which includes Lynmore, at $380 a week, but the median rent was $315 a week.
In Sunnybrook/Glenholme there was a 5 bed house let at $380 and the median for a 4 bedroom in that area was $305 a week.
In Pukehangi the highest rent for a 4 bed home was $295 and the median was $250.
There is no evidence of any rent over $390 being paid in the last six months, or the previous 6 months either.
A quick calculation shows that in the six months to end April 2006 the number of houses rented out over $300 a week was only 5% of the market so any rent expectation beyond that level is very much at the thin end.
Certainly demand for nice tidy homes is as strong as ever but the demand has always been there and is fairly static. The number of homes being let each month in Rotorua remains in the high 200s, the same as it was six years ago.
Some new investors have been unable to find tenants at a rent level which justifies the purchase price, especially if they bought in Fordlands or Pohutukawa Drive, and are faced with ruinous vacancies and pathetic returns. Investors who have taken independent advice before buying have generally avoided vacancy problems.
Richard Evans AREINZ
Rotorua Rentals MREINZ
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The Playing Field - PART TWO
The Playing Field Doesn’t Stay Flat for Long - Part Two…..
Following on from our article in the last Tabloid, there are some further changes in the Tax system that readers should be aware of:-
NEW BUSINESS TAX DISCOUNT
The 2006 year has been the first year where a discount of tax has been available for individuals (or partners in a partnership) starting out in business.
Someone starting in business will not have to pay provisional tax for the first year, however he or she is still required to pay income tax at the end of the year on that income. The discount, of 6.7%, is available for individuals who make voluntary payments before they begin paying provisional tax. In order to qualify for the discount an individual must:
• Be either self-employed or a partner in a partnership
• Derive business income (i.e. not interest, dividends, rental income etc)
• Not be required to pay provisional tax
The voluntary payment has to be made before the end of the income year, and an election must be made in the tax return, within the timeframe for filing the return. The discount applies only to people who have not been liable to pay provisional tax in the previous four years.
TAX DEPRECIATION TREATMENT OF RESIDENTIAL RENTAL PROPERTIES AND BUILDING FITOUTS
There is presently uncertainty as to the extent to which different parts of a residential building (excluding things normally regarded as chattels such as an electric stove or carpet) may be depreciated for tax purposes using the building fit-out asset category. Many of you will be aware that Inland Revenue has concerns about the treatment of building fit out components for residential rental properties. In particular when the costs of the components have been split out, such as the electrical wiring, plumbing and internal walls, and depreciated separately.
Inland Revenue has advised that its view is that the asset is the entire building and it is not acceptable for taxpayers to break up residential properties into smaller components in order to obtain higher depreciation rates. The Commissioner advises that his approach is:
• The better view of the law is to apply depreciation to the combined asset (i.e. the building) and not to accept the practice of “breaking up” rental properties into smaller components in order to obtain the higher depreciation rates listed und the “building fit-out (when in the books separately from building cost)” asset category.
• Taxpayers who have been using the component approach will be required to add the value of the various “components” they have been depreciating individually into the cost of the building and also combine the depreciation claimed for those individual assets. This will identify the asset to be depreciated, the cost of that asset and the depreciation claimed to date. They should then use the building depreciation rate to claim depreciation for that asset.
• Taxpayers will be required to take this approach from the first available income year (the earliest period for which no return has been filed or assessment issued).
• Taxpayers will not be required to adjust previous income years. Should the asset be sold or leave the tax base for some other reason – such as a change in use – any depreciation that had been over-claimed as a result of using the incorrect building fit out depreciation rates will be corrected as a result of the adjustment required by section EE41 of the Income Tax Act 2004.
• For cases still under investigation, or proceeding through the disputes process, Inland Revenue will consider allowing the taxpayers to take up the Commissioner’s approach to settle the matter. A taxpayer may of course decide not to settle and to take the matter through the disputes process if they do not agree with the Commissioner’s treatment.
• Taxpayers who disagree with the Commissioner’s view may of course continue to do so. However, taxpayers who have been using the component approach now have the opportunity to switch to the Commissioner’s approach for future income years with no reassessment for prior years and no imposition of shortfall penalty.
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CAPITAL GAINS TAX
Something that is akin to a ‘dirty word’ in the New Zealand vocabulary, but now very much on the radar screen of the present Government administration.
Under current rules if you are an individual and invest directly in UK, USA, Canada, Australia, Germany, Japan, Norway and Spain you are generally taxed on dividend income only.
What is proposed is that all offshore share and unit trust investments will be taxed on 85% of any capital gain plus dividends. After some lobbying, Australia is excepted which is at least one positive.
“Small” investors are also excluded i.e. where the total cost of their portfolio is less than $50,000. However, this concession is not available to Family Trusts (which most prudent people utilise to hold ownership of family wealth).
There is however, a cap of 5% in any one year where tax is limited to 5% of the gain and any excess is carried forward to future years.
Conversely losses will be treated similarly as a deductible item subject again to claiming 5% of the loss in any one year and carrying the balance forward to future years.
If you invest indirectly through managed funds it seems that these funds are likely to benefit from the new rules. Funds that elect, from 1 April next year, to take advantage of the proposed new ‘flow-through’ rules will no longer pay tax on Capital gains on NZ and Australian shares.
This article was submitted for the interest of members by Stuart King of Nairn Fisher Limited, Chartered Accountants. It should be used as a guide only and it is recommended that you consult with your tax advisor or Nairn Fisher Limited before acting on any of the information contained in the article.
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