When we surveyed Kiwis last August, as part of the RaboPlus Financial Confidence Index, we asked them how confident they felt about investing in property versus investing in financial instruments like shares, managed funds and bank deposits. Back then people felt significantly more confident in investing in housing as opposed to the financial sector:
August 2009 Results
- Confidence with investing in housing - 16%
- Confidence with investing in financial sector - 56%
However when we asked the same question in February this year it was clear that people’s confidence in property investing has taken a dive and that they feel no more confident investing in property than the financial sector, and in fact their level of confidence has increased for the financial sector:
March 2010 Results
- Confidence with investing in housing - 47%
- Confidence with investing in financial sector - 44%
So what’s behind this significant shift in sentiment?
It has been well sign-posted by the government, media and commentators that we can expect some form of material change in the tax regime, when it comes to property investments, when the budget is read on May 20.
Investors are money rationale people. They probably got into property for the tax benefits. We saw them get heavily involved in cash deposit products like our Cash Advantage Fund, to take advantage of the PIE tax benefits. And so one can logically assume that they are expecting to lose some of the current benefits from property investment come May 20.
You’ve also seen commentators talk about the expected announcements and the impact it’s had on the housing market. Property investors appear to be sitting on their hands at the moment and the demand for houses is currently quite subdued.
All pointing to Kiwi investors being very money rational.
Looking forward we also asked Kiwi’s where they intend to invest over the next six months, and as we have seen over the past 12 to 18 months, bank deposits continue to be the preferred investment vehicle. Combined with the security of the retail deposit guarantee, and good returns like our 4.95% for a 6 month Term Deposit, there is logic to this approach.
Over the six months since we last conducted the survey, we also saw people’s confidence in banks improve by the greatest amount at 4% - from 39% to 43%.
What about the retail deposit guarantee itself? If your bank decides to opt out of the scheme after October 2010, will that have any influence on where you invest? How important do you think the deposit guarantee is to you? I’d be really keen to hear your views.
Take a look at our full media release for the RaboPlus Financial Confidence Index Fe 2010 results here [link to attached media release].