From the Reserve Bank (RBNZ) Dashboard data we can take a look at the overall balance of bank loan books.
Banks are essentially loan books. We can't look in them to see individual loans, but we can look broadly at what sectors banks lend to.
We have a lot riding on our banks being well structured, and financially stable.
The RBNZ regulates and reviews bank and financial system stability. They last did that on Wednesday, November 25. Their conclusion was that "the banking system has maintained strong buffers of capital and liquidity, and the insurance sector remains well capitalised."
But that Dashboard data allows us to inspect the balance of each bank's loan book.
It is not something the RBNZ does in its review. In fact, it has explicitly said they have no power to tell banks who to lend to or what sectors to target.
But we can see, for example, that 61.9% of all overall bank lending is for housing. That proportion is growing. A year ago it was 59.2%; two years ago it was 58.6%.
So that raises the question about whether this is a healthy concentration, whether it is heathy that it is getting more concentrated, and Dashboard data allows us to inspect which institutions have the greater or lesser concentation.
The big five
The overall New Zealand banking system is dominated by five large retail banks, and perhaps Kiwibank is little weight in this group. So four big banks dominate.
It used to be observed that we really only had one real trading bank, BNZ. The rest are in fact really just mortgage banks. But BNZ has now joined the pack with more than half its loan book in home lending.
Here is the share of lending to each broad sector in each of these banks:
As a set, it is one that dominates 95% of retail and business lending, the overall consolidation is like this:
Only BNZ has anything approaching a balance in the spread of lending across sectors.
And in the current economy, that is hurting it. The New Zealand economy is more of just a housing market than ever, and being light on housing exposure isn't a competitive advantage.
In a real economy, we should be encouraging banks to diversify their risks across sectors, but we are doing the opposite.
The RBNZ allows special advantages for lending for houses. It allows very low capital risk-weights for housing compared with other lending, and it is about to deliver very low cost funding, almost all of which will be directed to housing.
And the Government has started its own lending program for SMEs, businesses that make up more than 90% of New Zealand's commercial economy - and the attraction of that IRD-administered loan service is that it comes with zero interest cost, is unsecured, and the obligation to pay back the loan in part or full will be negotiable based on how well your SME business performs. If it struggles, there will be debt and payment relief on a basis no banker would ever contemplate. Banks need their loans repaid and they apply proper credit assessments about that, something the IRD/Government isn't doing. So why borrow from a bank?
And the overall bond market that has an excess of funds looking for opportunity at very low yields, is an attractive option for large corporates who are taking full advantage now. So business lending by banks is up against severe headwinds as well.
All these practical market signals leave banks little option than to target lending to housing.
The next five
These banks generally are fighting for the scraps the big five miss. Specialist rural lender Rabobank is probably the exception. But these lenders, mainly locally owned, are in a tough spot, without the scale to effectively compete and no practical way to raise significant capital.
But some of them have built a commendable balance in their loan books, especially Heartland Bank which is a standout on this basis. But others are just as exposed to housing as the majors or even more so.
Rabobank and Heartland Bank give this disparate group some sort of rough balance.
And then there are the three Chinese banks, Bank of China, China Construction Bank, and ICBC.
Together (and they don't really work together), they have a different sort of loan book balance than any other bank set.
That our banks are choosing or prevented from lending to our productive economy should be of concern. "All" eggs in the housing basket isn't likely to help the New Zealand economy grow and develop.
Sadly, everyone knows this - the borrowers, the banks, the regulators, and even the Government.
But still, those who can are setting the incentives to target housing ever more closely.
Yes, we need more housing, and especially housing for first home buyers, people with average incomes, and more social housing.
But we also need more productive economy investment, investment in improved productivity, and more employment driven by tax-paying businesses. We will never get it when banks are effectively disincentivised from lending to these sectors.
216 Comments
Banks with all their eggs in one basket, kiwis with all their eggs in the banks basket. Nothing could go wrong here though... listen to Orr, banks have great capital and liquidity... just ignore that he had to bail the banks out with $128billion QE & FLP to keep them going.
Great article! The question about New Zealands economy having come to approximate a housing market, in the long term our fate will depend on how we deflate this bubble. We continue to accrue risk and it's completely obvious that will end badly if we don't take immediate, sustained action on housing affordability (which is driving household debt up rapidly from an already high base.) However it also appears the government are for some reason waiting for that crash, which either shows that they have a brilliant plan to deal with a deep and prolonged recession as the economy restructures afterwards (as happened in Ireland after the Celtic Tiger, New Zealand is now approaching similar levels of household debt) or they simply don't understand the level risk being accrued? I don't actually know which though but it might be a good question for Robertson and Ardern.
https://www.zerohedge.com/markets/how-much-space-300000-buys-cities-aro…
That is 300k American....but shows how we have been rooked in the Fair Isles of NZ.
Governments think in 3 year time slots. If it crashes they know it will be someone else’s problem so why even bother thinking about it?
There will be no plan for a crash. The expectation now because of what has happened this year is that we flood the market with even more money and anyone who can’t pay their mortgage just gets another ‘holiday’ until they can.
The incentives are for greed, incompetence, no care and laziness. Who even cares about productivity now?
And NZ Chinese investors. Note in the charts above how most (50%+) of the loans made by the Chinese banks here are to businesses and (interestingly) NOT to agriculture. Seems the howling of some a few years ago (Messrs Little and Peters) was misplaced about Chinese buying up large tracts of productive farmland
Money is plentiful
Crash will come with either (1) supply overshooting demand (2) demand falling away dramatically
IMO (1) not likely, (2) could happen, with immediate effects, with large reduction to immigration - political hot potato.
(2) could also happen if credit tightens dramatically for housing speculation and/or comparative investments are more attractive (risk/return profiles show possible arbitrage)
Theoretically, no, the depositors become bondholders. In reality this is often politically unpalatable and if they've bailed out AirNZ a few times I think they'd probably do Kiwibank as well because it would be a severe financial event for NZ super fund, ACC and NZPost as they are in up to their necks.
Kiwibank has top line growth similar to other banks and they often win awards for customer service. Their issues has just been that they have spent a few years sinking money into expensive "transformation" projects but it has yet to show any meaningful advantage from or return on the capital they've sunk (it's only investing if you one day get a return.) The long and the short of it being they've spent a lot of money, now it's time to show customers and shareholders the shiny new whizz bangs that will win them market share.
This is a universal problem in Washington Consensus infected nations.
When the moral code that requires service to the public good decays, the legitimacy of the state collapses. Here is a quote from the paper:
"Moral failure of the leadership in this social setting brings calamity because the state's lifeblood--its citizen-produced resource-base--is threatened when there is loss of confidence in the state, which brings in its wake social division, strife, flight, and a reduced motivation to comply with tax obligations.
In the resulting weakened fiscal economy, services that citizens have come to depend on fail, including public goods and administrative control of corruption.
To realize and sustain good government is especially difficult owing in large part to the importance of shared moral obligations between citizens and the state."
In other words, a strict moral code that requires elites to devote resources and leadership for the public good is the critical foundation of the entire social, economic and political order. When this moral code decays, the state and its elites both lose legitimacy and the consent of the governed. Link
We had a similar discussion about this on a different article during the week. If/when enough people realise this system is rigged against them why bother playing by the rules any longer? It’s not in human nature to do so if governance is failing the people. The economic data shows it, inequality is rising and more people are doing it tough, yet we double down on failing monetary policies. Why would those victimised by it want to play by those rules?
History would suggest they won’t forever and will in time change the rules for a fairer society - we of course can do that peacefully if commonsense prevails at monetary and fiscal policy levels - but it would appear those people are tone deaf right now which is worrying.
When will the powers-that-be realize what are the deep financial, economic and social impacts of the current monetary and tax policies ? We live in a real cloud cuckoo land if we think that we can create wealth by selling houses to each other, rather than investing in productive assets and promoting the real economy.
Two slight errors here on buying BTC. The first that it's tax free gains. You will most likely have to pay, unless it's tax evasion you're planning.
But that's more than offset by the fact the gains are SIGNIFICANTLY MORE than 20% per year.
If you brought:
6 months ago: +175% p.a
1 year ago: +132% p.a
2 years ago: + 202% p.a.
5 years ago: + 935% p.a.
Australia’s banks turned into giant building societies, lending almost exclusively against residential property and rarely, if ever, making unsecured loans to businesses or people any more.
If someone asks for a business or personal loan these days, the banker asks for the house.
The result is that traditional small business lending has dried up, and with it business investment, while Australia has the highest ratio of household debt to GDP (134 per cent) in the world, since business owners have to borrow against their houses.
And, by the way, the upward pressure on values from banks has probably contributed to the over-pricing of Australian real estate.Link
Diversified portfolio - The rule even the lowliest investor understands. It is not like what's coming is not obvious. The greed is out of control in NZ. The bankers and investors are like those 300 kg people you see on the TV who can't get out of bed, know they will die soon but keep on eating greasy food anyway. Orr is their clueless partner who keeps bringing them the food. Why can we not vote against this insanity?
I could not agree more. A perfect description of what is happening.
What comes also to mind is the scenario where an alcoholic is given more and more alcohol to deal with his problems.
The Government really needs to do something, and urgently, about this madness: RBNZ's independence or not, we can't afford to have an out-of-control RBNZ creating all the pre-requisites for a future financial and social disaster with its reckless monetary policies.
The tide is turning against the speculators and a DTI ratio followed by a worldwide recession and then rising interest rates will decimate the NZ housing market. Not that I care too much now because me and NZ are over, but I would love to see all the smug spruikers of the world be brought down a peg or two.
Its more like a moat than a fence. You, Yvil, Hook and TTP are all living happily in your mansions surrounded by the moat. You have pulled the drawbridge up and think that you are all safe and secure and you will never let us riff raff have a chance at living in your wonderful safe haven. But the masses are gathering and they are not happy. One of us have just found the plug and the moats water is draining away. The tide is turning my friends. This last 20% push has broken the camels back. You just could not resist could you.
That's a very personal question but I don't have much to hide. Yes I still have the Motel, I'm actually working at the motel right now whilst my managers are having a week off at the Whangamata Beach Hop.
As for the profit from the sale of my house, my bank, who used to ask me every 6 months if I needed money to invest in anything else, insisted it be used to repay various mortgages on other properties (including the Motel). They took real freight back in May because I'm heavily exposed in the accommodation business.
So now I rent my place (for 12 months) I own other properties that are all mortgage free and I feel quite stupid having sold my house and especially about being mortgage free, actually I absolutely hate it. I have sworn not listening to BW ever again
Right - so you still have significant skin in the game despite telling people you're 'just renting'. Was just clarifying on the off chance people got confused about any biases you may (or may not...) have.
We really should have a profile attached to each commentator that says how many properties they own - it would make the biases and heuristics you see in the comments here much easier to see through. It would be great if all our public servants had to do the same - so when they comment on monetary/economic policy you can see that they own 3 rentals and have a vested interest that the average 20 year old doesn't have.
If I was mortgage free on multiple properties there Yvil I'd find something much better to do with my time than troll people on here! I'd buy a boat and be out cruising the gulf and catching some snapper.....perhaps a bit more golf.
Young people have been dreaming about being mortgage free on a home since they invented mortgages Nifty1. It's nothing new. I also think you've misread Yvil's post - he's exposed to the accommodation sector due to owning a Motel, a risky and potentially loss making sector atm.
Nifty1, Hook, here you go:
I had mortgages on IO of course, where interest cost about $72'000 pa
I have now repaid said mortgages and I rent a place for about the same $72'000 pa
So is it all even? Absolutely not, the mortgages were tax deductible as they were used for the businesses so $72"000 - 33% tax deduction = $48'000 pa
What's more the interest rates have dropped and are going to drop even further, so the $48'000 is more likely to be around $36'000, about half of the rent I'm paying
If Yvil is an owner of a Motel complex then I totally commend him. Not a prospect I'd be remotely interested in, regardless of the income. IO, some people are motivated to provide for themselves in later life, or provide for their children as an inheritance or be able to help their children into ownership. Trying to make them out as some form of economic criminal is, imo,akin to shooting the messenger before you've even read the message.
Nifty1, you're probably too upset to listen but I'll still give it a go.
Our parents (mine too) told us it's a bad thing owing money, they were right for everything that devalues, cars, holidays, all consumer goods but unfortunately it's a bad lesson for asset that rise in value over time. A mortgage for real estate is one of the very best things you can have to get ahead in life. It's probably very counter-intuitive for you or "laughable" as you say but if today, you open your mind just a little that a mortgage could be a good thing, then your day will be worthwhile
I'm not upset at all, I actually find it funny how out of touch you are and think you've got it hard owning multiple mortgage free properties. You're right, the mortgage over 25 years has done you a great service and made you wealthy. You're not alone with this, many people fortunate enough have greatly benefited from this. What you and others who it has benefited don't realize is how much of this wealth accumulation was pure luck and that as a result of you all doing the same thing it's now inflated house prices so much that it's locked out a generation from house ownership. You're clearly oblvious to this and probably think it's a level playing field to that of 25 years ago.
There is no way anyone with experience will be able to convince those who don't have experience.. especially on this crap site. The "poor hard done by" are far more vocal and numerous than those who are experienced. Look at the general theme - uni students and academics with zero experience but tonnes of opinion
Nifty1 how is the current situation any different to the post war years when the Govt of the day gave returning servicemen farms and landholdings (The Ballot Farms) over and above those who stayed in NZ, supported the war effort but now couldn't aspire to owning a farm??
Life isn't fair buddy, there are always casualties but those who can learn to get up off the ground will succeed, those who don't will fail - an immutable fact.
Nifty
"it's locked out a generation from house ownership"
Utter b*llocks. Simply blame shifting yet again.
Anyone who has bought a property in the recent past has done well and many are young FHB.
We have one person posting here that they bought as a FHB three years ago and their 30% equity is now 60%. His mortgage is now no doubt considerably less with interest rates falling about 30%.
According to RBNZ data there are 29,000 mortgages - most likely over 50,000 people who as FHB have made a serious commitment and bought in the past 12 months.
Monthly FHB numbers for the past four months are at a record high since RBNZ first collected data in August 2014 - currently twice the number compared to 2014.
Interest.co reports show improving affordability.
So stop with this generation thing; take a good look and seriously ask yourself why you are bleating-on while many of your peers now own their home.
Baseless blame shifting is simply providing false justification to avoid accepting reality. Exactly as Trump is doing and you are right up there with him.
Cheers :)
Nifty
Not raging at all. Totally amused by comments such as yours and just bringing discussion back to reality.
Apologise to be bursting your bubble protecting you from reality. However I hope the week ahead goes well for you.
As for me, heading into the new week is no different to the weekend - same old, same old so don’t worry.
Cheers :)
So his right to provide for his children by turning residential properties into rental houses greater than the need of some other person's children who simple wanted one of his rentals as their first (and only) home? How is that fair on the other family. Or is Yvil's family more important than that other family?
That you can't see how this doesn't work across all of society - when everyone thinks they are helping their children by buying up houses - but in fact they are just buying the house that some other persons son or daughter wanted for their first home - its absolutely stupid! All it does is pushes prices up and increases debt.
Our fear of the future makes us greedy - and being greedy means we lose our moral compass and can't see the forest for the trees. Sorry Hook - completely disagree with you.
When did Yvil suddenly become the Salvation Army?? Obviously his future and the future of his children (if he has any) are his primary concern. I may be speaking out of turn but I'm fairly sure Yvils concern for his family FAR outweighs his concern for someone else's family - as it should.
Whilst you're entitled to your opinion IO, if you're that concerned about other people's families I suggest you join Habitat For Humanity
This is where ethics and morals come into the argument - if making money means buying a house that some young family wanted for their first home....count me out. Especially when a person already has their own home - why do you need another?
We live in a primarily Christian based society. One of those key teachings was to do with 'love thy neighbor' and 'give and you will receive'. Instead landlords think its 'turn thy neighbor into a rent slave' and 'take and you will receive'.
If you think the quality of society will improve by being greedy - well you're going to have to think again.
I don't claim to be better than anyone - nor have I. I'm simply point out what ethical actions might look like and what they might not look like as well. We each reap what we sow when the time comes. And if you want to take advantage of a situation at the detriment of others within your society you can but it does come with consequences.
IO
According to a previous post of yours you have been predicting housing bubble burst now coming up to six years.
If that has been your view for holding-off buying - in which time houses have increased considerably - the that was your decision. 50,000 young FHB have purchased in the past year - you appear not to be one so that is fine, your decision and so accept the consequences.
Wear it and stop the seemingly envy based slagging others who have come to a different decision, have acted and have done well.
Cheers
"We live in a primarily Christian based society. " - wow, you are seriously misinformed. Thankfully I don't live a "Christian based" life where humanity has the ultimate right to constantly debase, degrade and destroy it's natural environment. I do however believe humans are the current resource. Some can farm them, some get farmed. That's why Capitalism was invented.
Just another day off. I'll enjoy the sunrise and I'll give the bulls a scratch behind the ears (They like that,If they don't run me over), take the dogs for a run. Probably feed the local hawk with a rabbit, listen to the tui's and the thrushes singing their hearts out. Just another day in paradise. TBH I do feel some sympathy for urban dwellers - I long ago turned my back on that dysfunction
Guess you're right - but I'm just trying to remember what other holidays we in the anglosphere have for people who were born and died/resurrected (supposedly...) 2000 years ago? And that its the year 2020, not the year 143355453132421342342351345132423412341. Don't we swear oaths on the bible in relation to law and governance?
Tbh I'm not sure there's too much relevance for most of NZ Holidays. Most of them are a holdover from colonial origins. Guy Fawkes always gives me a chuckle - celebrating a failed terrorist attack on a largely irrelevant Parliament (in the NZ context). ANZAC should have pride of place (IMO), followed by Matariki. Easter is a usurped pagan festival which is actually out of sync with our seasons.
IO, your "skin in the game" thing is ridiculous, you're trying to infer that some of my comments are made to influence others for my own gain, That's exactly what you're getting at. Actually skin in the game means that I have deep knowledge of RE since I've been dealing with it, day in day out for 25 years and that I know what I'm talking about
. . . and IO you continue to hold on to this housing bubble burst for the past five plus years.
Mmmm . . . . not sure as to who to date doesn't know anything and can't see the forest for the trees and has been wrong.
Cheers :)
P.S. As to the future; if betting, the odds are at least slightly stacked against a bubble burst. Rightly or wrongly after all the actions Orr has taken it appears he will likely be doing his best to try to ensure that there is not considerable correction undoing all actions to date.
Every action they take to delay a correction only leads to a larger correction, this article is yet another warning sign showing imbalances continuing to build, and the rate now they are building.
Orr has already overextended himself, there is going to be mounting pressure on the reserve bank now to stop making the problem worse.
Not interested in 'take advantage' or 'getting ahead'. I'd rather just be a beneficial member of society who contributes and pays my taxes and leave the place in a better state than I found it - but when so many people are 'taking advantage' and 'getting ahead' they forget who they are leaving behind - their brothers, sisters, children, nephews and nieces. We need a collective approach - not I'm going to get up at 5am so I can turn my neighbors home into a rental property.
From earlier IO posts... he told us he worked in the USA and witnessed the credit crunch first hand then came back to NZ in 2013 and started looking for a house but refused to pay the 'exhorbitant' Auckland prices. He has been grizling ever since. In between trading stocks and precious metals after he read some Ray Dalio spruiking. Not exactly the honest taxpaying benevolent citizen he wants to make out as now
How does any of the above point to me being a benevolent (or other type of) citizen? In either the good or bad sense?
Can you remind everyone how many rentals you own HW2 so we can be clear where you stand on the discussion around lending to housing? If non - well great. If multiple, then you probably have a bias that everyone should know about.
"by Independent_Observer | 29th Nov 20, 3:51pm
Not really sure how anything further than that is needed on a website like this. And besides, an online persona appears to lose its charm if people know too much - I'd be a fool to share much more. If I wanted people to know everything about me - I'd be on the stuff.co.nz or FB comments sections."
Gee, conflicted??
Really curious why you spend so much time commenting here if you are so well off.
Gee, I would be travelling, eating out, going to films and concerts...
Genuine question - why are you here?
I am here because I am angry about what this country has become, especially the greed and inequality that all this housing nonsense of the last 20 years has fostered.
I would like to think you might be here because you genuinely think housing ownership and investment is a way for people to improve their lives. Unlike some other spruikers here, you do seem to have a smidgeon of humanity.
You do seem to miss a major point though as to how hard it is to get on to the property ladder now, primarily in terms of getting a deposit together.
I read the articles to keep informed.
I comment in the hope I can help someone just as someone helped me understand Real Estate when I was in my 20's. Unfortunately I find it really hard, most commenters are more interested in arguing rather than learning anything. If I can successfully convince a few people to buy their own homes rather than keep renting and being scared that the market is going to crash, then I'd be very happy
You mean I don't gloat when I sell a house and make a million dollar profit? Is that what you mean by not sharing personal information?
I have owned property in the past (never been in the rental game, nor will I ever while young people can't afford a first home) but have been some what nomadic work wise jumping around the globe and cities in NZ. Currently renting. Have worked public and private sector.
Not really sure how anything further than that is needed on a website like this. And besides, an online persona appears to lose its charm if people know too much - I'd be a fool to share much more. If I wanted people to know everything about me - I'd be on the stuff.co.nz or FB comments sections. Perhaps I am and have talked to you there? ;-p
IO
No sympathy or not interested in helping those who sit back and don't have initiative and critical of those who do.
Simply a philosophy for self-appeasement as part of reality denial.
P.S. If you want to use the sloppy argument that investors are leaving people out of housing - then by the same poor logic, property investors are providing some housing for the otherwise homeless. :)
If you want to become wealthy or happy learn to work harder on yourself than your job as personal development lasts a lifetime. Getting and becoming are two sides of the same coin as you have to learn to handle the responsibilities that come with greater income and wealth or you go backwards. Example if an impoverished person was handed a million bucks would they really know how to handle it well... so they have to 'become' a millionaire as well
In terms of personal development - I think you're stuck at the independent/interdependent growth stage. You think your actions have no implications on other people. When you realise we live in an interdependent society and what we each do impacts other people, then you might see that landlording in a time when young people are struggling to buy isn't a particularly virtuous trade - you might then question 'what are my morals and values'? Is taking rent from people or buying that rental property at a price that that young person can't afford a very nice thing to do?
So yes you are right - personal development lasts a lifetime. Some can see past themselves though in that process. Being on a website like this with a name such as 'flying high' and talking up property investment to some people who can't afford to buy is hardly a sign of great personal development (FYI)
Right now I am in my weekend bach lakeside in the city. Is that fair, absolutely it is, or have I taken a home off someone else who wants a home for themselves. You speak like there is a finite number of homes which means some people have to miss out. Flying High refers to my love of international flying which I am not able to do until the virus has been killed, I also used to be a pilot. High is just a pisstake for those who voted in the referendum. I realized later that FH also refers to First (but not last) Home, a very topical issue you would agree. Much like yourself IO could be a reference to IOU or Interest Only take your pick.
How do they sleep at night? They are leaning heavily over a cliff and Orr is holding their hand keeping them from falling 100 meters to their death. I am starting to wonder if Orr gets a weird kick out of taking the banks to the brink so that he has total control of their destiny.
Respectfully disagree " The New Zealand economy is more of just a housing market than ever "
Stats NZ provides wonderful infographics relating to both GDP/ economic growth nationally and regionally . In the past two decades it is clearly not so
http://infoshare.stats.govt.nz/datavisualisation/gdp.html#53
All ready built, bank leveraged residential property speculation is a non-GDP qualifying transaction. Hence, a minor fraction of bank lending (credit creation) is underwriting GDP qualifying economic endeavour.
The Business Loans are well understated due to the fact that many Housing Loans are used for Business purposes and that isnt recorded by Banks... in a study undertaken by one of the Banks a few years ago, followed by a big push to ensure that the correct loans were underwritten, as much as 5-10% of Housing loans $ amounts are used for Business purposes...not to mention Personal purposes (ie new car, boat, etc).
A historical note. Nothing new.
Ten years ago .... Back in 2010
Bernard Hickey produced a daily column here on interest.co.nz called 90 seconds at 9:00 am - on property
There was a regular contributor with the nickname of Chris_J who wrote informatively on property. He was the manager of a family investment company investing in properties. While he never disclosed how many properties they controlled, his posts indicated they had a substantial portfolio. My guess at the time would have been in the vicinity of upward 50 houses, possibly nearer 100. In one post, while discussing numbers, in an oblique attempt to deflect, he revealed there was a Christchurch family who owned more than 1000 properties in Chch. This was in 2010. Chris_J was in the process of rotating out of Chch and into Remuera and St Johns. They took all their earthquake insurance proceeds and re-investing into Auckland. He went quiet around 2013 and hasn't been back
Auckland Property Investors' Association President David Whitburn was a regular periodic commentator, in 2010 and 2011, spruiking how he doubled and quadrupled his equity. He also has gone quiet. Disappeared around 2014. Those interested can apply the search function using his name
Recently we have seen the emergence of details more property empires being published in the news. Young bloke in Taranaki with 20 houses, 2 of them trashed by tenants, two Aucklander's claim portfolios, one of 60 homes, another of 70 homes. No trouble. Last week was the occasion of a member of Auckland Property Investors Association announcing knowledge of 4 Auckland based Portfolio Owners, each with over 200 homes.
Then there was the 20 year old Princeling who arrived in NZ as an international student and within 6 months had acquired a portfolio of 5 properties in up-market Takapuna worth $10 million
Such investors are in business and should be paying business interest rates. RBNZ Graeme Wheeler wanted to do that but was squashed by PM John Key. Such businesses of this magnitude are creating a David and Goliath Market. How private individuals wanting to buy a single home can compete against such financial muscle defies logic
This is the way - and so it continues
Ditto, I don't criticise the prediction as "wrong" either, because that's what "should" have happened in any recession caused by the economic lockdown. But Govt/RBNZ as part of the "Washington consensus" to help markets also massively distorted markets. As Bernard explains:
“No-one could have predicted this boom" is only true "in a limited and short-term sense. If the Reserve Bank had not cut the OCR from 1% to 0.25% and then embarked on a $100b programme of money printing and bond-buying then there would not have been the fall in mortgage rates to around 2.5% that triggered the latest boom."
https://www.stuff.co.nz/business/opinion-analysis/300168640/heres-why-y…
Rod Oram added:
"The RBNZ’s overly-generous and economically distorting support for bank lending is at odds with its assessment of the financial health of banks and businesses"...and "its efforts now to drive bank lending up and interest rates down are doing more harm than good."
https://www.newsroom.co.nz/pro/rod-oram-awash-with-money
Iconoclast
I never bother reading of those who have considerable portfolios especially if they have acquired these in quick time.
They are generally very, very highly leveraged and as soon as advantage conditions for achieving their “empire” change (e.g. rise in interest rates or slight correction) they go under.
I recall being in the PIA during the boom 2000-8 and talks from these high fliers at meetings who were also featured in the PI magazine. The GFC wiped them out never to be heard of again. A small group of us - some who had been in the association many years - gave up as members of the PIA around 2005 smiling in amusement and had a small informal group who meet monthly for coffee which was far more productive. Some continue today while others such as myself retired by choice.
Great article David. May I suggest we look at it from the lender's perspective? Say you or I have $1 million to lend, are we going to lend it to:
1) A start up business who has a 20% chance of doing well and lose our $1 million in the other 80% case ?
2) Someone to buy a house and if they can't repay us we have the comfort to take over the house ?
The answer is quite obvious...
No one is disputing what you're saying Audaxes but Yvil has plainly laid out the reason banks aren't lending to Business, although he did miss the point that Business (generally) isn't interested in borrowing anyway, but are more interested in shoring up balance sheets or paying down debt. I'm sure you're aware many normally regular dividend paying companies have either reduced or suspended dividends recently.
Indeed - Banks extend ~60 % of their lending to one third of already wealthy households to speculate in the residential property market because the RBNZ offers them a RWA capital reduction incentive, to do so.
Tbh, I doubt many so called "specialists" actually have much of an idea about small or startup businesses so it's really up to the borrower to put a well researched and costed Business Case in front of them. Included in that should be some form of qualification regarding Business Management. Even with all that provided, due to the risk profile, most banks would still require security over housing. The failure rate of startups is far too high to be anything but a gamble with an unsecured loan.
Perhaps some of them fail because they didn't have sufficient funding & cashflow? Perhaps they didn't have the right help or guidance . I don't think a business specialist would pick 100% right, just like a homeloan specialist doesn't - mortgagee sales. There's always going to be risk and allowance for bad debts/right offs. Down right avoiding business lending like Kiwibank, seems like a bad move if sh*t hits the fan in the residential property market.
Nifty1, look my post was very simple and straightforward, so please answer, if YOU have $100K of your own money to lend, would you rather lend it to a business with an 80% chance of failure or would you rather lend it to a person who wants to by a house knowing that you can get the house if he defaults ?
Please answer the question
How many businesses are there in NZ and what proportion of NZ businesses are property investors - anyone have the stats?
Given that about every second baby boomer you talk to appears to own a rental or two and will have tax deductions on that rental property - there must be hundreds of thousands (or closer to a million or more?) property businesses in NZ - and none of them fail because they aren't allowed to.
So how then do 4 out of 5 businesses fail if the most common business practice in the country - property investment, never fails because its not allowed to by vested interests including banks, the central bank and the government? Wish all other forms of small business had such protections.
IO you're using unsubstantiated assumptions to further your arguments. I don't know the % of Property Investment businesses vs "other" businesses actually are but just because your impression of "every second baby boomer you talk to appears to own a rental or two" fits your narrative, it doesn't change the fact that lending to startups and small enterprises is extremely risky and prone to failure
Not lending to them is equally risky as that is where innovation and productivity gains come from.
Its not like we've got the dotcom bubble on our hands here in NZ - but we do have a property bubble. Yet we think lending more to something that is already exceptionally highly priced is less risky than lending to something that might improve our GDP - well there's one of our issues.
Haah, the real world. NZ is not the real world. It is just a scruffy version of the Truman show with a bloated, red faced fat man with a head shaped like a turnip and funny glasses on doing all of the directing. I find it hilarious that you think any part of NZ is anything like the real world. Not been many places then?
Remember SCF Nifty1? Hubbard did exactly what you're advocating and took a serious bath, as did Hannover, ALF (for a time), Blue Chip. Even MARAC didn't do that well and was sold (to ANZ I think?) Watch Harmoney's fortunes going forward, the next few years will be telling for them.
Aren't you a business owner Yvil? Sure you've had frustrations with the hurdles of borrowing from a bank for business purpose?
Let's not forget, the banks aren't lending for free. There's good profit to be made with the correct risk assessments made and investment in specialist staff. As stated above, it's in the too hard box. Housing loans are clearly the easy the option. It's a business decision not to diversify, as such banks shouldn't be bailed out.
The banks are happy because you own multiple properties, that derive an income of their own and are now mortgage free. Edit* you said earlier that you're mortgage free but now you've said you have business loans secured against your property?
Not everyone has the luxury of owning a home to borrow against. How'd you get started in the motel industry - where'd the funding come from?
You missed the possibility of the whole housing market turning to crap along with the economy and people lose their jobs, can’t service the mortgage, and no one wants to buy their house. Of course the bank CEOs are happy to gamble on that as worse case they just lose their job (and pretend they didn’t think it could happen)
JimmyJones, the RBNZ and the government have made it quite clear that while "they are concerned how fast house prices are rising" they do not want to let house values drop. Your or my opinion matters little, the RBNZ & the Government will make sure there's no housing crash, they made that very clear and they have the power to make sure house prices won't crash
It's hard to see the situation improving when those in charge (Orr, Robertson, Ardern) can't even see the problem, as indicated by their frequent comments. They tend to think that if the rate of house price increases, slows down somewhat, then all will be well. But I read recently (forget the source) that it would take 45-50 years of a housing price freeze in order for incomes to attain the level at which housing becomes affordable for median earners. So is the time ripe for a new political party (The House Party)? : ), whose primary platform is to tax property speculators, at punitive amounts, say, 20% if sold within the first six months, 40% in the next six months, etc. The party spokesmen could go on RNZ and proudly declare that his or her main qualification is that they are not an economist (whose inflation-targeting policies of the last several decades created this mess). If the idea resonated with enough people, it could serve to influence the major parties. Ah well, a man can dream...
We don’t have as many of those one policy parties as you would expect under MMP. Even the greens are not just an environment party. A party as you discussed could easily hold the balance of power. Although if that happened and the tax was implemented then it’s the end of the party so unlikely to get much financial backing.
TOP party already exists, no need for another one. They would transform the tax system and dramatically change the economy towards productive businesses instead of speculation. The idiots of NZ however all believe it could never work (i.e. they are trapped by tribalism/comfortable life (if they own property)/populist thinking). Most simply think they have an "anti cat" policy (despite Gareth Morgan having nothing to do with the party anymore) and have eaten up the idea that if they vote for something different, it will be wasted.
Great article, DC. I've always idly wondered why the RBNZ does not gently nudge the regulatory settings towards a higher RWA on resident housing (perhaps differentiated by usage: home versus rental etc) in order to (again, gently and with perhaps a considerable lag) rebalance things.
Perhaps later this decade, after a nasty episode or three?
Here's something for all the "equality" crowd. If you have your "ad blocker" turned off you'll notice a constant ad promoting some sort of clothing - it's worn by a reasonably attractive white girl - not an Eskimo. If the clothing was relevant and effective you'd expect an Eskimo to advertise it - the fact it's some sort of girly who's probably never been near the snow (unless Daddy paid for it) but she gains exposure says it all
That would be a very judgemental thing to say! ;-P (can you not see that you have judged me with equal amount - and can you not see how that would make a person a hypocrite? To claim someone is judgemental, but in the process of doing that, you are judging them)
https://i.pinimg.com/originals/fa/08/53/fa08537fdd7342ec6f6600179865d9a…
So true even for residential building banks are running scared. I got a response back from bnz who were potentially my clients best option for servicing to build a new investment property except they want a 20% higher servicing capacity to alow a build vs investment purchase. Previously the rbnz was incentivising new builds which would help economy growth and the housing shortage - but this seems to have been thrown out the window now
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