Meanwhile, Orr says he is comfortable with the level of inflation.
54 Comments
LOL, you asked the wrong crowd TM2, most people here do not have a clue about risks and rewards when it comes to investment apart from what they read in 101 economy or putting money in safe saving accounts !!
You wouldn't have had this amount of interest in housing If there were better investment vehicles around.
I will enjoy the silly comments coming up on your post while having a cold one.
LOL, you asked the wrong crowd TM2, most people here do not have a clue about risks and rewards when it comes to investment apart from what they read in 101 economy or putting money in safe saving accounts !!
Well that was a pointless troll. If people don't put money in savings accounts, the apparatus for the banks to lend on investment properties would be diminished and there would be limited opportunities to invest in housing.
LOL, when "80% of the loans in banks are to housing", that means the savers are helping banks to lend money to property investment or ownership ( which is the same) !! ...
i.e. it is all about property and the lending goes around a safe asset class (Brick and Mortar) which Banks can secure loans against and lend you 70-80% of your total investment ( leverage) .... so is that a troll? or is that difficult for you to understand?
Does any bank lend you 80% on your total investment put in a saving account ?
Eco Bird, I am still waiting on an answer from them, as to what and how to invest in something that I have control over and I consider safe.
H
Shares are a gamble that no one has any control over.
Term Deposits are safe enough but returns are pathetic and no capital growth.
Think I will stick to what works for us!
Some people don't want the hassle of owning a rental property - rental ownership comes with an increasing set of rules and regulations. Shares you can buy and sell easily - if you are paranoid about control, which you appear to be, then shares aren't for you. You seem to have been burnt once and are now twice shy. For all the market failures over that past 100 years share are still being traded , people are still making money. Just because your own prejudices cloud you judgement doesn't mean others won't carry on buying and selling shares. The more interesting question is why does it concern you. People are free to do what they want (for the most part) and if they want to buy and sell shares that is up to them. It is not a binary - win / lose game what people invest in.
BadRobot, you are right some people don’t want the hassle with owning property, I appreciate that.
The thing is I have known so many people that don’t realise that if they had borrowed against their property’s equity then they would be semi retired at worst.
There are people in this world that are happy with going to work for 40 hours a week and end up retiring with bugger all to live on.
Their perogative obviously.
Then there are people that want to take it on themselves to have a life so that they can retire early and choose what to do when they want and with more than enough money to do,it with.
Personally prefer the second option and it has been achieved thru property investment!
Could I have done it thru share investing, NO!!!!
TM2 this is a patent lie, you have asked many times about alternative investments to property and you have been answered many times. I even went to the trouble of giving you a thorough answer myself once. Quite the exercise in futility, as it transpired that you actually aren't intellectually capable of understanding the issues and responding accordingly.
You claim to have made good money via property investment, which I don't doubt , you would have to be a spectacular cretin to have failed to make money in the recent property booms. Up until recently, property investment outplayed other investment classes in NZ, not necessarily owing to yield, but because of preferential tax treatment and phenomenal capital gains. However, if that playing field is levelled, property might not be such an seductive investment choice.
There's also the issue of questionable morality (crowing about your property riches whilst homelessness and poverty increase in NZ). Alas, you've made it rather obvious that this does not trouble your conscience so is unlikely to deter your property boner.
There’s good opportunities to make paper wealth by purchasing “as is where is” red zone properties in Christchurch and renting them out. Yield looks good if you manage to rent out for market rent due to the low purchase price and the fact you cannot insure them so no premiums.
What about starting a cafe, restaurant, dairy, phone repair shop, yarn store, bakery, book shop, bed and breakfast, backpackers accomodation, vehicular rental company, website development company, data analytics firm, marketing agency, etc? Lots of direct control, I know some people who have become reasonably successful in some of those fields.
Firstly, it is a gamble as so many business’s don’t make money and don’t last long?
Secondly you need to work it for many many hours!
Thirdly, you haven’t got any control over it all, you are solely reliant on clients and customer and are competing with other business.
Fourthly, you are tied to it, that is if you don’t open then you don’t make money.
Fiftly, it is going to be harder to make money in those business’s in the future with the increased labour costs.
No,I will stick to housing investment thanks!
This is a waste of time but anyway
1. Life is a gamble
2. Like anything to do it well you need to do the hard yards, but this diminishes as you get the right people and process in place (and personally I hate not being busy)
3.you have as much control over it as your skillset allows you. I know my shortfalls and hire people to fill those gaps.
4. See 2
5. That's why you need to have strategy and business planning sessions so you look forward and make plans for the future taking into account the changing world we live in.
Your undying trust in property will be your undoing.
Its easy, invest in yourself. Back yourself, start a business work hard and smart and your invested capital will pay. And the biggest benefit? You are your own man/woman. Even in the potential stagflation environment a well managed business will keep paying a dividend. I'd be looking at services business's rather than discretionary spending type business's though.
1) Its not up to the Reserve Bank Governor to comment on tax matters.
2) If the Governor wants to do something useful he should seek to:
a) Have recourse mortgages banned - why should banks be able to chase a person forever to reclaim a mortgage? Making all mortgages non-recourse would level the playing field between business lending and residential lending.
b) Lift the capital requirements for banks to offset the increased risks with the removal of recourse mortgages.
Sorry but I think like everyone else he is entitle to express his own opinion on the Tax issue.
He communicates on money matters and economic very well.
By your comments it sounds like you have had mortgage troubles, i.e. could not pay the Bank back. Sorry you borrowed the money and should pay every dollar of it back. Non-recourse mortgages look what happened in the USA when people could or would not pay back their mortgages, just handed back the keys to the house. Thank goodness we have Adrian Orr as the Governor of the Resrve Bank he will keep the Govt and Financial institutions on their toes
Averageman, have done exceedingly well since the earthquake and that is with housing investment!
Prey tell how I could have invested in reading apart from buying into Fulton hogan or sorts?
How could I have invested in demolition apart from buying machinery?
I think that our housing investment has returned us a far better return and without the hassle and it is ongoing and profitable!
A New Zealand Property Investors’ Federation study into the cost of providing the average NZ home as a rental shows it currently costs $5,500 a year after all costs are paid, even with recent rental price increases and a cash deposit of over $50,000. If the plan to ring-fence losses is introduced, this cost will increase to $9,000. This is an extra $67 per week.
The burning question is why would someone with $50,000 buy a $550,000 house with a $500,000 mortgage, at say five percent, producing an interest cost of $25,000, that with rates and other costs make a $5,500 loss? It makes no sense without an expectation of capital gain.
But don’t hold your breath for a sensible capital gains tax. Even if one could be designed, it will be years coming in and then only capture capital gains from the date of its introduction. In the example of the ‘poor’ landlord above, the tax-free capital gain over the next few years may be very lucrative indeed.
The Tax Working Group should look carefully at the 2001Tax Review and explore a tax on net equity approach. Based on the principle that all income-earning assets should be treated equally, the $50,000 net equity could be treated the same as if the investor had placed that money on deposit at the bank. At five percent this creates a taxable annual income of $2,500, a rather modest sum. But with a non-deductible $25,000 interest bill to pay and with other costs, the investment is clearly not worth it at current rents.
And it won’t get better, because net equity increases each year as the value of the property goes up. Suppose in five years the value has doubled to $1,100,000 so that net equity becomes $1,050,000. Taxable income should be $52,500 regardless of rental income and regardless of other costs.
Unwisely Labour has taken the owner-occupied home off the Tax Working Group’s table. The danger of that decision is that elaborate owner-occupied housing becomes even more attractive. It would be better to allow a generous exemption for a home, say up to say $1 million net equity per person. That way the $20 million owner-occupied mansions will be included, but modest homes fall outside the net.
Under the net equity approach, landlords won’t be subsidised to speculate, and some may withdraw from this market. There would be no more fancy tax accountants needed to manufacture losses. No more fiddling the repairs and maintenance costs, crossing the fuzzy line between capital enhancement and write-offs for depreciation and replacements. Moreover, as past capital gains are captured in the net equity approach, the wealth gap may narrow at last rather than continue to grow exponentially.
A net equity approach could leave more houses for genuine first home buyers. But if we want to contain the biggest housing bubble in the western world, a price correction is also required. The best we can hope for is gradual adjustment, not a precipitous fall such as experienced in Ireland after their strong bubble 10 years ago. This means a carefully-managed transition to the net equity approach will be required.
Please landlords and home owners – no crocodile tears. If you can’t make at least as much taxable income as you could if you put the money in the bank, then the taxpayer should not be subsidising you.
-- Susan St John, Associate Professor, Department of Economics, University of Auckland Business School
https://www.newsroom.co.nz/2018/04/18/105460/landlords-save-your-crocod…
Thank you for the above troll J.C.
You have just proved to us all how narrow and shallow your and some others thinking is in line with academia who master spreadsheets ....
When private investors own more than 450,000 rentals and provide accommodation for over a million people, then there must be a good reason for that .
chasing these landlords out of the market will call for a social disaster which simple minded people have an apparent difficulty in understanding.
Someone has to carry this can when you put these tenants back on the street- the Gov cannot do that !!
Set aside the moral crap and emotional blackmail that some try to engage us all in whenever everything else fails .... why do you think Govs have allowed this tax loop to exist for decades ??
Were they all stupid or was there a basic reason to engage private capital in providing housing and accommodation? ..... tax free capital gain appreciation over a long time was allowed to cover and compensate running costs, capital investment, and for interim losses during a long investment period?
Why would any property investor put his own money and take the risk of housing others ( with all the headache that come with it) according to your simple calculus ?
They simply do that because they were allowed a reasonable ROI if they hold the property ( and provide the service) long enough to realise that gain. They were allowed to do that instead of the Govs of the day ... and that became an asset class.
Get your facts right ( and ask what If ?) before repeating what narrow minded economists claim is the way ahead or the moral fairness for society.
Home owners do not provide shelter to anyone else other than their families, Landlords Do !!
You are confusing ownership with accommodation.
Imagine the price of investment properties fell and they were purchased by first home buyers.
The houses remain unchanged - they accommodate exactly as many as they did previously
Unless investors are building new properties they provide no additional accommodation capacity - purchasing an existing investment property is simply a change of ownership.
There are many benefits identified long ago by Adam Smith of home ownership.
If the property investors all sold out tomorrow to owner occupiers the outcome would be a far superior society.
If Henry Homeowner sells his rental house to Billy Buyer who was looking at buying new from Dave Developer then Dave Developer has fewer customers and as such builds fewer new homes if any at all.
Henry Homeowner’s sale of his rental house has this reduced total Humber of houses available in the market, by preventing a new house from being built.
Strange thing is with your general shtick about unintended consequences, you fail to see your whole business and lifestyle is an unintended consequence, the current housing crisis that this Govt has inherited from the previous 2 is an unintended consequence that the decades old policy enabled.
When half of all houses for sale were being sold to specuvestors, and not providing a solid foundation for generations this was an unintended consequence, now you're out-numbered by renters, which was never the intention of allowing some people to take the strain of accommodation.
Now you're being legislated, because your voting block is dying and the rental vote, incidentally that you've helped create, is significantly larger, you've had it good for 20+ years, if you haven't made money over that period you're frankly an idiot.
Strange thing is with your general shtick about unintended consequences, you fail to see your whole business and lifestyle is an unintended consequence, the current housing crisis that this Govt has inherited from the previous 2 is an unintended consequence that the decades old policy enabled.
Who and what are you referring to about the "general shtick about unintended consequences"? If you're referring to taxation policy, then yes, the unintended consequences have surfaced. If you are referring to the unintended consequences of a property bubble, only time will tell to understand the full extent of those consequences.
The Boy all Goverments can implement laws that affect all types of investing including property. Labour is implementing a number of changes that are affecting New Zealand residential property. You don’t like these changes hence you are very negative and you constantly squeal. You need to accept the fact that Labour will unravel market conditions that National allowed to continue unabated. For the record I retired at 58 based on my equities and commercial property portfolios. I could have retired early just relying on my equities. Just because you do have the ability to be successfully investing in equities does not mean it is impossible to retire early based on a equities portfolio generating a sizeable passive income.
Gordon, I knew many people who retired on equities many many years ago but what happened?
They had to return to the workforce?
Why you say, because we had the sharemarket collapse didn’t we!
If they had inVested in property instead they wouldn’t have needed to go back to work!
You really show how uneducated and ignorant you are on a regular basis The Boy. The crash was 31 years ago.People who did not sell then and just bought more have done very very well. My uncle who was big in equities just saw the 87 crash as an opportunity to buy good dividend paying shares at a cheaper price than they were before the crash. So many pig ignorant people hark back to the 87 crash and probably no more than in New Zealand. A lot has changed since then including laws all over the world ensuring better protection for equities buyers. I was in the market before the crash but my broker advised me to get out as it was my house money. I bought back in after the crash and have never been out of it. The correction in 2008/2009 is a small blip in the past and those who just carried on buying since then have seen huge gains. The trick is to be diversified and I am with equities, commercial properties and residential subdivision interests. You are a one trick pony in a town that is in a terrible state and that is your problem and why you are so angry theses days. You have let your family down by being too heavily concentrated in one investment area in the wrong part of New Zealand. You should take advice and get into some better returning investments. I have a feeling you will not do that because you cannot get past your incessant arrogance. I know better. I am The Boy.
Very mistaken opinion - I was living and working in AK then, and knew many people who were invested in the share market, and lost lots, but i also knew quite a few who found their property values dropped back to significantly less than what they had borrowed. Especially one chap who had his wife walk out on him, and then try to screw him, but found that if they sold their house then, they would have still owed $30k+ on the mortgage. quite a hole, and most certainly not protected by being invested in property rather than shares.
murray 86. Yep, true. 1987 saw plenty of people who leveraged up and jumped into equities without understanding what they were doing and lost their shirts. I also remember those days very well. But as Gordon correctly reminds us - NZs market was the wild west back then and its was THREE decades ago. Investment conditions today are very different to back then. And you are right, house prices have in the past dropped in real terms and it is very probable they could do so again.
Buffets decades old advice on shares remains as true today as when he first expressed them - identify quality companies using relatively simple metrics and readily available knowledge, buy and hold them through the inevitable downturns and over the long run you will outperform house price appreciation but have spread your risk over a variety of assets classes and countries.
It's my investment approach, although I went against this philosophy by going fully liquid before the GFC and then rebuying the market in March 2009. More than a few sleepless nights followed before the market was confirmed to have turned up.
Surely the ridiculous skew to housing investment is simply explained by the fact that banks can lend four times as much to housing than they can to anything else. All else is secondary and designed to cause us to argue amongst ourselves rather than identify the major cause.
The IMF recently put out a major report on the synchronisation of house price rises in major cities worldwide. Auckland is second most stupid after Shanghai. Perhaps Mr Orr should read it.
https://wordpress.com/post/rogerwitherspoon.wordpress.com/99
http://www.imf.org/en/Publications/GFSR/Issues/2018/04/02/Global-Financ…
What are you even talking about? It's like you've invited every known logical fallacy to an orgy, complete with jelly wrestling?!?! What goes on in that brain of yours TM2???
Every objective measure, every institutional assessment has deemed Auckland as too dear. Home ownership rates have gone down, renters have gone up, the data can provide numerous differences. And no, there were times when Auckland was not too expensive. When DTI's are below x4 they are not too expensive. This is very easy data to find. The issue is that either you simply can't accept the data (because it doesn't fit your narrative) or else you are incapable of understanding.
Try studying this graph and figure our what direction the line is moving. Consider whether this may relate to house prices.
https://tradingeconomics.com/new-zealand/home-ownership-rate
80% of the loans in banks are to housing...
I struggled for years to get money out of a bank for my business, and I know a lot of other small businesses in the same boat, if you own a house then you can use that as collateral, if your worldly possessions are in the business, you need to find an investor to raise capital. It took me 6 years to get anything out of the banks. Personally I see this as a major hurdle to the productive sector.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.