Property an alternative for retirees: Council

Low interest rates are likely to drive more retired people to invest in rental properties, the Property Institute suggests.

Monday, March 2nd 2015, 12:00AM

by The Landlord

Chief executive Ashley Church said while low interest rates were good news for homeowners, they had a negative impact on people who relied on interest for income.

“For decades, Politicians and state agencies have been telling people to put aside enough money to provide them with an interest earning nest-egg to supplement their Government-funded superannuation. But a low interest environment means that depositors will now be paid less on the funds they have invested.”

He said that might drive some retirees to spend the money they had saved. “The temptation to eat into your capital to make up the difference in interest income will be huge for some – but it’s an ever decreasing circle and risks wiping out your retirement savings over time and reducing your ability to leave something to your loved ones in your will.”

Some of them might choose to invest their money in the property market instead, he said. Church said there were good reasons for doing that. “During property booms – such as Auckland and Christchurch are experiencing right now – capital growth can exceed 10% per annum. That’s going to be attractive to retirees who generally earn far less than that on a bank deposit.”

He said rents would increase over time, driving up income. “Even in the periods between property booms - rental property provides a reliable and sustainable form of slowly increasing income.”

Church is encouraging retirees, and those nearing retirement, to take professional advice on the potential impact of interest rates cuts on their retirement savings.

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