By Olly Newland
Hopefully all of you were untouched by the recent events surrounding South Canterbury Finance - let alone all the other finance houses that have collapsed over the last few years.
These events are a nightmare, even to witness.
As details painfully slowly emerge it quite takes your breath away to learn of the shonky lending and the unbelievable decisions made by these supposed leaders of finance.
Despite the unending use of high-powered computers, and access to top accountants, economists, lawyers coupled with bottomless pockets, they still got it wrong.
I have had to deal with many clients who have been caught by the fall-out of some type or other, either directly or indirectly, and upon hard examination we almost always find that something that can be done to lessen or sometimes completely solve any unintended consequences.
Dealing with a problem directly and not burying your head in the sand, will almost always find the solution. Life has taught me that the thinking is almost always worse than the doing.
Taking control of your future
Now is the time to take responsibility for your own financial future and stop relying on others taking your hard earned money and making crazy decisions with it.
The last five decades full time in the property business has proved to me one thing for sure:
Investing in land and buildings are, in the long term, the only sure way to go.
I take comfort from the fact that what worried me five years ago doesn't worry me now - so in five years I won't be worrying about what is happening today.
You too can take this attitude and derive some comfort from the thought - but action is still required. The alternative is to remain sitting - staring at the wall - doing nothing and letting events roll over you.
Developers v investors
Just to be make myself clear: I am referring to investment in existing income producing real estate and NOT development projects.
Many people get the two confused.
Property development is the highly risky speculation of digging a hole in the ground and erecting a building on it in the fervent hope that maybe one day it will sell for a profit.
This notion was the Achilles heel of finance companies and the prime reason for their collapse and subsequent massive financial losses.
To learn about the loony dreams of property developers makes one gasp and one's eyes to widen.
You would think that New Zealand has the population of China, with millions seeking homes when in reality, as I have said before, New Zealand is only Fiji on Steroids.
We must accept that fact and make the best of it and instead enjoy the benefits of living in a clean green country where every one can go to the beach and the air is fresh all year round. (Those of you who have been to main urban centres overseas will know what I mean.)
Property investment, on the other hand, is the almost risk free art of carefully researching and purchasing an existing income producing asset - in effect buying a business supported by bricks and mortar.
Land and buildings do not run away.
They cannot be stolen.
They will generally be under your total control.
Nobody can cheat you out of them.
They provide the hope of capital growth over time.
And better still they will produce a secure, albeit modest income 52 weeks a year, mostly, every year, forever.
Now is the time to consider buying sound income producing, property whether residential or commercial, to secure your future and that of your children and grandchildren. I'm serious ( and I'm not trying to sell you a property!)
The heady days of buying anything and watching it shoot up in value are over. Now you must create your own wealth.
To do this successfully requires some learning. I have been educating and advising people on the subject for decades and derive enormous pleasure when I still get Xmas cards and greetings from people I helped over 30 years ago.
My first book on property investment was 'The Coming NZ Property Boom' (1978) remains a collector's item to this day.
This was followed by a few more books on the subject all of which were very successful, some out of print, sadly.
Why The Reserve Bank has got it wrong
While I respect the credentials of the Governor of the Reserve Bank Dr Alan Bollard, I do believe he has got it wrong in putting up interest rates while the economy is still so fragile. (On its knees, some say, gasping for breath, like a punch-drunk boxer.)
He is equally wrong when he extorts us to save more and spend less (the Minister of Finance Bill English says the same).
The problems with this theory are:
a: The vast majority of us can't save because we are a low wage economy.
It only needs a set of tyres for the car, and urgent dental job, or new clothing for the kids to blow any chance of saving out of the window.
b: If everyone saved, hundreds if not thousands of businesses would immediately go out of business. It is spending by us that keeps businesses going.
If we don't spend all we do is to put ourselves straight into the unemployment queue.
c: To take it to its logical conclusion if savings are the answer, then banks will become stuffed with money and borrowing will stop resulting in a threat to the banks of going broke.
If no one borrows because they do not want to spend then what other outcome can there be?
Banks make their profit by taking in money and then lending it out again for a profit.
(d: Buying houses contrary to what Messrs Bollard and English say - provides jobs and work to tens of thousands of carpenters, plumbers, painters etc.
It is no wonder that unemployment is rising as these gentleman and some myopic cheerleaders run the property market down.
People being frugal is a sure fire way of creating joblessness. We can see this happening before our very eyes right now today.
While it is heartening to learn that exports are growing well, does that mean the 'trickle down' effect will benefit us all? Somehow I doubt it.
Time and again we have seen the disconnect between farming and exports and the rest of the economy. Many times we have seen farming on its nose while the rest of the economy is booming, and vice versa.
And even if exports do help, will they replace the financial losses that tens of thousands of Kiwis have already suffered? Will exports bring back the thousands of legitimate businesses that have gone under or gone offshore? Will those who lost their homes through mortgagee sales or the leaky homes disaster, suddenly be given new homes?
I doubt it. The scars will remain for decades whatever exports manage to achieve.
While I derive great heart from the good export story, too many times have I seen it fizzle out through the effects of drought, floods, exchange rate distortions and politics.
Let us hope this time it will be better -- but the jury is still out.
A developer's story
Much as I think that all developers are out of their minds doing what they do, I do concede that developers are necessary to build homes in an orderly manner to house the increasing population and replace houses that have worn out or been demolished.
One of my developer friends (who by the way, is irritatingly sane) has just had an experience with a bank - the ANZ to be precise - that shows quite clearly how skewed the market has become.
My developer friend had a very large sum of cash on deposit after 20 years of successful developing.
He found an ideal section on which to build two good homes in the $1.5 million dollar range (for Auckland that is nothing unusual). He approached his bank with whom he had been from the very beginning seeking a small mortgage to complete the task.
He was putting up $1.5 million of his own cash, and needed a mere $750,000 from the bank to get started. The ANZ turned him down.
Why?
Because he needed a 'take-out' - in other words a 'pre-sale' before he turned the first sod. The Bank would only lend if he had a buyer lined up before hand.
My friend turned the bank down as this method of developing was not his style and he has now 'retired' for the duration.
In one blow the bank deprived the market of millions of dollars that was going to spent on timber and house building materials, and further deprived the market of scores of jobs for the suppliers and work force.
Instead they now pay him interest while he does nothing.
Now you know why we have a recession and why getting out of it will take such a long time so long as this sort of mind-set prevails.
A speculator's story
Just to show you that millions can still be made out of the market, this story comes from my recent files - and I must say I am mouthwateringly envious -- especially as I helped a client pull off a great deal as his advisor.
My client was a tenant in a large building from which he ran his business and was paying $150,000 pa. in rent - making the building worth a notional $1.75 million or thereabouts.
Some months before his lease came up for renewal, his (understandably) nervous landlord approached him seeking confirmation that his lease would indeed be renewed.
Under my guidance, my client refused to commit himself one way or the other citing the recession and business nervousness in general.
The landlord got very nervous indeed as the thought of losing $150,000 a year loomed ever closer.
My client then found another investor who was looking for a good property, so my client entered into a deal with that investor that said in essence that if that investor bought the building for $2 million then he, my client, would re new his lease for a further term.
Then my client went back to his landlord and said that he was seriously thinking of vacating, but if his landlord would consider selling the building he would buy it for $1 million and become his own landlord.
Faced with the threat of an empty building and no rent the landlord sold out at $1 million and my client promptly on-sold the property to the investor and picked up a cool $1 million profit during the process.
A nice little earner if you can do it and more importantly if you have learnt how to do it.
Alternative investment
If you study the history of the super rich one thing stands out. Almost without exception they all made at least a great part of their fortunes by investing in property. And that has always been the case.
We may never reach the giddy heights of these major players but we can earn a valuable lesson. If they think that property is a good part of their portfolio so should you.
We are constantly extorted to invest in a business, especially export. That's all very well but what are we to export?
New Zealand's main export is grass in one form or another and some among us are 'experts' in the cultivation of grass or its downstream products, such as meat and dairy.
Alternative investment is fine and should be a part of everyone's portfolio but grass is not every ones cup of tea.
It doesn't hurt to invest a little in the share market -- but do it yourself. The so-called experts are no better than monkeys throwing arrows at a dart board in a undisciplined guessing game.
Maybe a little more in local government stock or treasury bonds -- but be prepared for dismal returns and maximum taxation.
Then there is always gold, antiques, art and collectibles which are enormous fun, can make huge profits and you can sit and look at them, and enjoy the experience. Much better than a computer-generated summary and even better have no definite value and can often turn out to be bargains.
Watch this video on YouTube and ask yourself: 'Now doesn't that beat dry-as-dust investments?'
And as I said in one of my previous books, buy a little gold and put it away for the future.
When I wrote that, gold was around $400 US an ounce. Now look at today's chart here.
The maximum of your portfolio in alternative investment shouldn't exceed 10% to 15% because of its speculative nature. But, as the saying goes: 'If you don't speculate you can't accumulate.'
I can give you some hints on these subjects having been an avid collector for just as long as I have been in property and I am even considering writing a book on the very subject - aimed at investors and collectors who wish to diversify and have fun and make profits at the same time. Don't say I didn't warn you when art and valuables skyrocket as governments print more and more worthless money, debasing their currencies down towards zero.
The Latest Statistics
Despite the best efforts of the media and biased commentators the property market stubbornly refuses to buckle .
While it is true that sales have slowed, prices for houses in the most centres remain solid with the median price gently bobbing up and down within the margin of error.
A year ago empty headed analysts and sundry 'property gurus' were predicting massive falls in prices, catastrophic losses for investors and general mayhem all round.
They continue to be spectacularly wrong as predicted by me 18 months ago when I said that the market would stay more or less flat and would remain so for a year or two longer yet.
I confidently predict that that the market will remain flat until the shortage of houses in the main centres reach crisis point (hardly any one is building new houses remember).
You cannot have a moribund building sector and a growing population at the same time without something giving in the end.
And then the shortages (read: 'rising prices') begin:
Smaller towns and villages will have to wait a little longer -- as will the cheap noddy boxes in Nappyville pushed by the spruikers to the unsuspecting.
Even as early as now we can see the early effects of a shortage in housing with rents increasing - and this is only the beginning.
Rents have hardly moved for years and were well overdue for a catch up.
Invest for the future in nice inner city or suburban homes or popular bite-sized commercial properties and you will come to little harm.
We are creating the perfect storm with a witches brew of slow economy, a slower building program and even slower politicians who hearken to the Reserve Bank pointy heads instead of the experts.
Sooner or later we will see a repeat of 1979-81, 1984-87 and 2002-2007 as to everyone's surprise (and the mortification of the analysts) prices begin to move up again.
Hard to believe as it is, the next boom is not that far away.
Olly Newland
September 2010
www.ollynewland.co.nz
© 2010 Olly Newland. Used with permission.
63 Comments
What a WOLLY! So you say the price of property's still rising as are the costs associated with them... everything's rising except one thing Wolly!
You say there's no correction neccesary and that property prices will continue to rise as will the costs associated with ownership... So how the hell is anyone gonna pay for any of it when you state the obvious below!?! To quote you!!
a: The vast majority of us can't save because we are a low wage economy.
WOLLY! So if no-one can afford to save, who's buying the overpriced property's?!
Public debt is high already, do you really think kiwis are gonna borrow more to buy all the over priced property or rather sit on the side lines until they see property prices are realistic compared to income and associated costs.
Well I kick off for the weekend Olly.
Let us examine a poorly thought out piece you placed for inspiration to remain in property.,
By your own hand.
Land and buildings do not run away....... unless flood.. or landslip.
They cannot be stolen...... but parts(specially copper fittings) can and are!!
They will generally be under your total control............I told Auck City Council that ..they laughed..
Nobody can cheat you out of them........ boy I don't even need to respond to that....but I will...how many divorce court lawyers do ..YOU know. .
They provide the hope of capital growth over time..........The hope....and I can get that in Church for a fraction of the cost.
I reckon it's time the toy makers put out an "Olly"....one of those wind up jumping things that goes..."chucka chucka chucka chucka until the spring has wound down. ....... a complete bloody waste of space and money, but funny eough to keep the attention of the mindless.
and the funny thing is Carl .........we all go home at night....!
It's not property as a long term investment or home and secure shelter I have a problem with Carl .
It's the frenzied hysteria whipped up by greedy bas%$drs in the industry who support the notion that anything is ...Actually Worth.....what some one is prepared to pay for it.
And it's that notion that led us to a point where the coming generation were being systematically disenfranchised from what was once an achievable goal.
To own their own home............. it was getting well beyond them.....so I say Bravo to a correction in overpriced property.
That is not anti property..........and many share this opinion.
Seems a new phrase has entered the lexicon on the RE's down Nelson way, if the listings in this Friday's property rag are to be believed.
First we had 'Price Reduction''.
Then we had 'New Price'.
Now they give us 'Price Adjustment' - this gem from Harcourts.
Chortle.
There were an awful lot of the 3 examples above in this Friday's mag, and precious few 'Solds'.
I find the discussion regards the developer friend and the ANZ Bank interesting. The borrower has a 2/3rds deposit - wants to borrow the other 1/3rd of the development cost. I'm guessing however, that the borrower has no regular self-employed or salaried income and hence, if the developments don't sell, then regardless of the deposit... the borrower can't make repayments on the loan.
Had all banks and finance companies followed ANZ's example on lending criteria, we wouldn't have had the problem we now find ourselves in... that being developers defaulting en masse due to the slowed market in terms of sales to end user/purchasers.
Such prudence in lending does indeed deny the labour market those jobs, but there is little sense in the banks propping up the labour market through taking unnecessary risk on lending. To take such risk is speculation - not responsible lending on capital development proposals.
Isn't Ollie a beaut? So many points here to address, I don't know where to start. Let's start with return on investment. When financing the house and keeping it in trim, costs you more than what the going rental rates will cover, you know you have a bubble and painful adjustments are coming. It is the same as when the P/E ratio on the sharemarket goes insane. Investors are anticipating capital gains rather than "income".
"10% capital gain per annum" is a phrase we hear again and again, often used by people who simply should know better. 10% per annum, represents a doubling every 7 years. What is the difference between this and any Ponzi scheme? Why would it, too, not run out of liquidity, or "greater suckers", somewhere along the line? We often hear Wall Street scapegoated; the fact is that a wide range of cheerleaders are implicated in this madness everywhere it has occurred. There is a recent OECD Report, "A Bird's-Eye View of OECD Housing Markets", in which they make the following observations: 13 of 17 OECD nations surveyed, have had a housing price bubble simultaneous with "The US" one. There had never been more than 4 OECD nations experiencing simultaneous housing price bubbles previously. Furthermore, all 13 nations current price bubbles exceeded in severity, the single biggest one previously recorded. Lastly, this is the first time that housing bubbles have de-linked from the "business cycle", and continued to inflate through recessionary cycles in the rest of the economy. This last factor, the sustained length of the housing price inflation, far longer than anything experienced before, is what has led to the forming of unreasonable expectations regarding capital gains. Modern monetary policy has widely been assumed to have solved the old problem of economy-wide serious boom and bust cycles, so that apparently no crash like the Great Depression can happen again. These assumptions might be reasonable to an extent, but have been less reasonably transferred onto the recent unprecedented bubble phenomenon in property. This bubble phenomenon is obscured somewhat by its being referred to everywhere as a "housing" bubble. Actually, the realistic depreciated prices of dwellings have barely changed - almost all the increase is in the land. These increases are in the vicinity of hundreds of percent - a far more glaring phenomenon than "100% increases" in "house prices". There IS a connection whether Ollie likes it or not, between the implosion of property developing and the coming implosion of property prices. It is the anticipation that the "land", either under development or with an existing house sitting on it, is going to inflate by some insane rate, annually. Not "10% per year" as in "house price" expectations, but several times this much, perhaps a doubling every 2-3 years. See my comments above about "Ponzi" schemes and their sustainability. The few local property markets in the OECD that ESCAPED these bubbles, (all in the USA and Canada, by the way) give analysts evidence of its cause. The property markets that escaped these bubbles, all had low regulation of new development, or urban growth boundaries wide enough that "land banking" did not occur. It seems that around 20 years supply of zoned developable land is necessary to forestall "land banking", although there are other fiscal incentives and disincentives to councils regarding whether or not they will allow development to take place, that are relevant too. In parts of the USA, some of the highest metro area population growth rates have been accompanied by the most stable house prices, because supply of new homes was able to keep up and the price of land remained low. NEW Townhouse type dwellings have been typically $20,000 for the fully serviced land, plus $70,000 for the dwelling; right through both the boom and bust experienced in the bubble markets even in the same country. Nice family homes that would be half a million dollars in NZ or Australia, are typically $30,000 for the land plus $110,000 for the dwelling.Older homes frequently sell for less than these trend-setting new prices; this depends on location as well as age. But a typical price premium reflected in the land value, for convenient location, might be $200,000 - and the old, depreciated dwelling on it might be worth $50,000. In NZ and Australia, the dwelling might be worth $50,000 to $100,000 but the land value might be three quarters of a million or more. (One irony of this is that FEWER people have the choice of buying a conveniently located home or even an apartment on this kind of overpriced land. This is exactly the opposite effect to what the urban growth regulations are supposed to achieve). Even adjusting for exchange rates, it is clear that a massive rip-off of those NZ-ers and Aussies entering the property market for the first time, is taking place - and then there are all the other consequences for the wider economy, investment patterns, productivity, and so on. Imagine the difference between an economy where Joe Average pays off his house in 7 years - as in Texas - and in economies where Joe Average is a mortgage slave for 30 years. What has Joe Average in Texas been doing with 23 years of disposable income meanwhile? THIS, my friends, is "WEALTH".
Seeing Britain enacted similar highly restrictive limits on urban growth in 1947, we can see the result in the long term. They have a cycle of bubble and bust in land values that takes 13 to 16 years to run through. At NO stage, not even during the peak of the price "bubbles", does construction of new homes reach a level that is remotely "adequate" to cover population growth and replacement of dilapidated old homes. Construction drops from "inadequate" to "non-existent" through the "bust" phases.
At no stage, not even the bottom of the "bust", do property prices reach a level that is "affordable" by comparison with the lightly regulated markets in the world, or historical norms prior to the tightening of regulatory nooses. These phases, furthermore, are accompanied by high unemployment and tight credit, making fresh difficulties for first home buyers who have waited out the inflationary phases of the cycles.
Counter-intuitively, even in economic disaster zones with high unemployment for decades, property prices remain unaffordable as a consequence of actual definable shortages - the proportion of housing that is "social" is high and waiting lists for such housing remain long - and the burden to the taxpayer is high because of the sheer cost even to the agencies of government, of land and properties.
The amount of floor space per person in Britain today is the lowest in the OECD, lower than Japan. The average age of a first home buyer is 38 years.
Ollie, is this where you want to see NZ headed? This is very much a political issue, not just an issue of the financial decisions and attitudes of individuals. I suggest that the recent gains for investors, from, say, 1999 to 2006, were ONE-OFF and never to be repeated; as our property markets moved from a relatively free, affordability-promoting model to a strangulated "planned" model along British lines.
I suggest that the dramatic "crashes" that have occurred in the bubble markets in the USA, are because of the USA's "non-recourse mortgage" laws. I suggest that if NZ-ers, too, could walk away from their underwater mortgages leaving the lenders to carry the loss of equity, we too would have had a dramatic crash by now. The same applies to Australia and other markets with slower-deflating bubbles. A task force inquiry has taken place in NZ, a report presented to the National-led government, and an official statement is due out this month. Arrayed against the possible political reforms and the mutual interests of the young, oncoming generations of home buyers and the wider economy; is a toxic alliance of land banking investors and utopian "stop urban sprawl and save the planet" activists and planning types. Not to mention the perversely engineered interests of all existing home owners and mortgage holders.
The "costs of urban sprawl" are a completely invalid pretext for these utopian planning regulations, as the costs of inflated property prices (and the numerous social and economic consequences) are demonstrably and quantifiably many times more severe. Even the odd bit of "over-building" is only fractionally as destructive of capital. This case can even be made in 15% urbanised Britain - let alone 1.4% urbanised New Zealand or 0.8% urbanised Australia.
Oliie insinuates that property development is in trouble because these people were anticipating Chinese-style population growth. Rubbish. Build rates in NZ have been dropping as the land values escalated like crazy, and the developers unreasonable expectations were that they built these escalations in land value into their sums. We are now moving into the same sort of phase as Britain experiences again and again. We will alternate between serious underbuilding and catastrophic under-building, while canny investors will be looking at speculative bubble returns, not at making honest money building things for people. The jobs that Ollie refers to in building, are gone forever thanks to the urban planners, not just gone temporarily thanks to Bill English and Allan Bollard.
As for Ollie's complaint about Bollard's interest rate setting; the OECD Report I refer to above stated that these property bubbles, thanks to the land racket, seriously reduce our ability to control our economies by monetary policy, because the property market becomes a monster that is independent of all other business activity and cycles. The property bubble becomes a monster devouring all the investment that should go into more productive activities, while nothing the central bank does with interest rates has the slightest effect unless the whole economy is killed off in the process. It is like a seriously virulent cancer and overdoses of chemotherapy. The OECD is merely repeating what the Aussie Federal Reserve's Governor Glenn Stevens has been saying for years, along with Anthony Richards from the same organisation; and our own Owen McShane and Don Brash as Governor of the RBNZ were saying this back in the early 1990's; which puts them well ahead of the rest of the world's experts, most of whom have not woken up yet.
quick question PB - if folk aren't to spend on housing, how is your 'productive economy' going to exponentially expand? Where will they store/consume the sfuff? That's quite a quantum displacement.
as for land, I refer you to Mark Twain "they're not making any more of it".
That which isn't mountain, poor, special, is in contention. That is why planning and regulation were invented.
What do you do, that makes it so important?
Do you mean "PB"? Instead of dragging out the ideological labels, how about engaging with my specific analysis of the consequences of regulations that restrict housing development? I am not trying to pick a "regulation versus deregulation" fight here, there will be other times and places for arguing the merits of each regulation and deregulation. (I venture here that total deregulation of public transport would be a massive improvement from the point of view of resource consumption and emissions - but global warming alarmism is a curiously selective thing about where it mandates sacrifices to be made. Public Transport Unions are clearly a sacred cow not to be sacrificed; suburban living is not).
I have pretty much established that the recent international epidemic of property price bubbles was the result of planning mania consequent on global warming alarmism. NOT Greenspan's monetary looseness; NOT Mortgage securitisation; NOT capital gains tax treatment; NOT any of the other scapegoats trotted out monotonously by all the people who cannot see past their own pet hobby horses. OK, I seem to have a pet hobby horse too. The difference is that all the evidence is in favour of MY argument and not the others.
Argue the point, please.
certainly, PB.
The point is, you cherry-pick what information suits you, and slither away from the rest.
Not an uncommin human reaction, but a flaw, nonetheless.
In this instance, you point to one tiny microcosm of one nation, and say: "this is how it should be".
You fail to notice, that the nation as a whole is underwater, permanently.
So the question is not whether all houses should be this cheap, but whether not only those houses, but ones much dearer, have not been accounted properly.
You show us the back left-hand wing-nut on a deckchair, and we cannot disagree, it is indeed a fine wingnut.
Look around though, PB, and you may notice the deck is sloping.
Meaning the whole 'economy' you seek to compare, is so out of whack, that comparison is a nonsense. Sure, there will be 'cheaper' housing. Ireland comes to mind, but everywhere. Trouble is, if energy underwrites income, then in relative terms they may not be any more affordable.
The times, they are indeed changing, better start swimming, or you'll sink like a stone.....wall.
Oh, for Pete's sake, Powerdownkiwi, we've re-run this argument again and again.
If the human race was running out of land, food prices would be so high that farmland would cost just as much as urban land. The fact that there is such a massive difference between the 2 is evidence that we have hardly even started to get halfway there yet.
http://www.project-syndicate.org/commentary/shiller65/English
Furthermore, there is abundant land worldwide that is nowhere near its potential production, especially in Africa. If Africa got its cultural issues sorted, it would be "bye bye" NZ and Aussie and Argentina and all the other "first world" countries that rely on low value agricultural exports that have been dropping in real value already for decades - another pointer to the fact that humanity has not even started to run out of land.
Only about 1% of all land is so unique that it deserves conserving for the sake of it. The rest of it is a question of repugnantly perverted anti-human values that make ANY hill, valley, river, plain, forest, or snail species more valuable than the human race.
I don't say folk shouldn't spend on housing, I say they should not play Ponzi games with the land that houses are built on and should yet BE built on. By the way, I think NZ could easily cope with about 40 million population, and SHOULD aim for this, as our climate is so temperate it will allow people to live more sustainably than if they stayed in less temperate parts of the world. This is another of the great ironies of planning that has the opposite effect on the world ecosystem than intended. All those people who could have lived in California, driven to Texas where they have to run aircon 24/7 year round.
I also say that abolishing corporate tax would do wonders for NZ-ers patterns of investment in productive versus non-productive assets. Abolishing tax on interest would help too. We happen to have a "tradables" sector that shrank 12% while Clark and Cullen were running their anti-business economic program for NZ. I suggest that adding another week of annual leave to be paid for by employers, adding parental leave, ditto, imposing an employer contribution to Kiwisaver, punitive employer-employee relationship laws, etc etc etc are all part of this problem. I wager that a disproportionately high number of "once were employers" are among the last decade's drain of the best and brightest from NZ.
Then there is the RMA and the LGA and the councils permit processes. Oh, brother.
Oh, for Pete's sake, Powerdownkiwi, we've re-run this argument again and again.
If the human race was running out of land, food prices would be so high that farmland would cost just as much as urban land. The fact that there is such a massive difference between the 2 is evidence that we have hardly even started to get halfway there yet.
http://www.project-syndicate.org/commentary/shiller65/English
Furthermore, there is abundant land worldwide that is nowhere near its potential production, especially in Africa. If Africa got its cultural issues sorted, it would be "bye bye" NZ and Aussie and Argentina and all the other "first world" countries that rely on low value agricultural exports that have been dropping in real value already for decades - another pointer to the fact that humanity has not even started to run out of land.
Only about 1% of all land is so unique that it deserves conserving for the sake of it. The rest of it is a question of repugnantly perverted anti-human values that make ANY hill, valley, river, plain, forest, or snail species more valuable than the human race.
I don't say folk shouldn't spend on housing, I say they should not play Ponzi games with the land that houses are built on and should yet BE built on. By the way, I think NZ could easily cope with about 40 million population, and SHOULD aim for this, as our climate is so temperate it will allow people to live more sustainably than if they stayed in less temperate parts of the world. This is another of the great ironies of planning that has the opposite effect on the world ecosystem than intended. All those people who could have lived in California, driven to Texas where they have to run aircon 24/7 year round.
I also say that abolishing corporate tax would do wonders for NZ-ers patterns of investment in productive versus non-productive assets. Abolishing tax on interest would help too. We happen to have a "tradables" sector that shrank 12% while Clark and Cullen were running their anti-business economic program for NZ. I suggest that adding another week of annual leave to be paid for by employers, adding parental leave, ditto, imposing an employer contribution to Kiwisaver, punitive employer-employee relationship laws, etc etc etc are all part of this problem. I wager that a disproportionately high number of "once were employers" are among the last decade's drain of the best and brightest from NZ.
Then there is the RMA and the LGA and the councils permit processes. Oh, brother.
Phil, none of the points made about urban development (zoning) limits/restrictions, explains however the bubble prices for land in outlying areas, say for example in NZ's Thames-Coromandel District.
Throughout this boom stage, there has been an oversupply of bare land, yet prices have (and continue to remain) wildly inflated. If you search TradeMe in that region, there are more than 700 bareland/sections for sale ... with the lowest price for a section being a shareholding in a campsite for $48,000. What an absolute joke! Even a full size section in Matarangi shouldn't cost $48,000.
What inflated the coastal land price bubble was simple:
access to easy credit and speculative development rules ... i.e. put a small deposit on the section now, before we break ground and get consent, and then (hope for) a capital gain once subdivision consent is granted and roads go in.
Nothing to do with urban development limits.
With stress situation and unhappiness accumulating in many western countries, people are looking for better alternatives. New Zealand/ Australia are certainly countries, where 100’000 of people like to immigrate. So, the Real Estate market does certainly well, in case the immigration department is generous.
just because someone seems to have their head screwed on the right way does not mean they have any content inside.
olly is known for making and losing millions, but mainly for losing other peoples millions
however nasty tactics to one side i think he is right about positioning oneself with a property portfolio for a long term benefit
however anyone that mentors for a fee is not a real mentor in my view, a mentor is someone you look up to.
the most amazing thing out of all of this is is BH having a differing viewpoint published rather than feedback on his own site - must be a sign of the times
olly is right, but what most fail in is not getting the point of the benefits of postponing instant gratification for long term goals, and that is not just generation Y it is generations A thru Z
in the meantime my mentoring is free.........................................................................
the lesson is always the return of your money not the return of it, hence you get a return on it too...
Olly says "Life has taught me that the thinking is almost always worse than the doing." Wrong Olly. The thinking part is what stops situations like SCF getting you. Think before you invest, in anything, then do ( or don't in the case of property at this juncture), but think ( and do the sums!), before acting. It really isn't the 'worst' bit!
I couldn't help spilling my guts at 5.16PM, Matt. Among that screed, I said THIS:
".......the recent gains for investors, from, say, 1999 to 2006, were ONE-OFF and never to be repeated; as our property markets moved from a relatively free, affordability-promoting model to a strangulated "planned" model along British lines......"
I don't know if that's the sort of thing you have in mind by saying there won't be another such boom. You're one of the smartest on here - do you have any comments to make about my analysis?
Matt, didn't you say last year that Tony Alexander was wrong wrong wrong about immigration reaching 20,000 by last Xmas?!!
You and PhilBest say the last boom won't ever be repeated - do you not remember people saying exactly that around 1990 and 2000? People have short memories...
I heard it so much 10 years ago that I started to believe it, but then there were properties for sale yielding 10% - after a bit of a tidy up they were yielding 15% - so we bought them anyway expecting there would be no capital gain. Bought some last year yielding 11%, bit of a tidy up and they now yield 15%, I'm not expecting any capital gain... sound familiar?
One thing Olly is absolutely correct on - "You cannot have a moribund building sector and a growing population at the same time without something giving in the end"
Investment in new rentals is also virtually non-existent at the moment. Something will eventually give, and it won't lead to cheaper rents or houses....
I suspect that all the illogical bullshit and vague contradictory nonsense that Olly's been spewing is a deliberate scattershot strategy. A few years down the track, if he's still pushing his advice business, he can cherrypick and publicise any correct predictions he's lucky enough to make, and hope that everybody forgets about all the wrong, self-serving and idiotic stuff that he's come out with.
Interesting stuff! I agree with Ollie that real estate that gives a reasonable return is a good thing. The problem is that a lot of it does not. He is a cantankerous old coot though, I'm sure he wrote this to provoke a bit of outrage.
Don't feed the trolls, in this case Ollie.
It is quite possible he is right of course, all it would take is a bit of inflation at 15% for a couple of years. Say, China has a wobble and stops buying iron ore and coal from the Aussies, their housing market collapses by 60% US style and their currency likewise. Our beloved NZD would follow and, voila, inflation of 20% with oil at USD 200 a barrel because of trouble in the Middle East. Unfortunately it is not so far fetched. Strikes bring down the government and we get air heads running the place as usual. Crikey, I'm starting to believe it!
Whether Olly entertains, infuriates or inspires you, he has observed human nature for a lot longer than most. And while the new religion of thrift combined with a not optional belief in a coming catastrophic world financial crash currently infuses our collective souls, the old git has seen a number of such phases before. None as severe as this one, but enough to know they eventually pass and also what happens next - that we humans quickly revert to our base acquisitive instincts once it is safe to emerge from the bunker. So the housing virus, while dormant now, could easily spring back to its mutating rampage given a period of warm rain and sunshine. Look at the Aussies piling back into cars, restaurant meals and other consumables the moment a glimmer of recovery appears. You think we'll be any different once people start believing winter is over ?.
Of course, this time it's different ............. isn't it . People and bankers really have learned their lesson and we'll never revert to past behaviour patterns ...... will we?
Interesting isn't it, the example that Ollie salivates over? When it's a personal, or near personal, double cross it's obnoxious or possibly illegal as Christopher Wingate's example I read about last night.
Sorry Middleman, no inspiration here, a spiv is a spiv. A world of difference to real trade, and could currency speculation ever be regarded as such?
Olly says: "Sooner or later we will see ... prices begin to move up again. " I'm sure we will. But not from here. The base is still far away. And as Olly knows very well, 'you realise your profit on sale, but make it on purchase'. The time to purchase is a long, long way off.
i've run across ollie a couple of times in the past and he's got quite a good sense of humour..so i think he's just playing with our minds a bit.
he's more to be treated as a curiousity than a credible commentator or even a potator for that matter.
can't blame an old dog for trying to crank a bit of spin from a dying flame so he can flick off that garage fall of Olly books on how to get rich from real estate ?!
Yes, which is amazing seeing we're just a few kms away from the epicentre (Oxford). We inspected the house this morning and didn't find a crack. One door of the display cabinet (with all the glasses) in the kitchen got opened and that's it. In the garage hubby had stacked various stuff on top of each other (think boxes, snowboard, surfboard, windsurf board) and nothing seems to have even moved. At least, it was a good test...but we failed. Ran down the stairs like crazy to get to the kids, didn't take time to grab clothes and left my contact lenses + my cell phone (which turns out to be tied to my keys so that I don't lose them too often) by the bed. Will know better next time I hope.
But I've never felt anything like it. It was terrifying. Admittedly, I'm not brave but it felt like some giant was holding the roof of the house shaking it and the roaring noise was so loud and scary. There were a good number of significant aftershocks till around 8am. I made updating the emergency bags with the kids our Sat morning activity! All our friends in Chch seem to be OK but there's been lots of damage there. No TV for us and internet was down so tried to catch news on the radio first. Just seeing photos of Chch now and it looks pretty bad.
There is bright side to this . Builders and other tradesmen will be busy for years repairing the damage with payment guaranteed by the Governments Earthquake and War Damage fund or other insurers. Values will rise and so will rents cos there will be so much new stuff and a not enough to rent. while the repairs are done.
Woah there Elley...big daddy is only pointing out the truth...enough work for the building and trade sector to last 5 years at least...huge spinoff for Canterbury and all on the insurance...well most of it. Look on the bright side....I thought you had been out here long enough to have been all shaken about before!
Oh yeah, been shaken about alright Wolly. Where did I say what he said wasn't true? The builders & tradesmen will likely be kept busy for a while indeed. But calling the "values will rise and so will rents" a bright side??? Well, I suppose if you're a landlord it is. But that some people's reaction would be to stop and think whether a natural disaster is going to have a positive impact on their bank account does make me sick. Sorry to disappoint but I clearly don't have the same values. To me the bright side is that there were no reported casualties.
And regarding the "excited exaggeration" and "hysterical people" below, I haven't heard or read any comparison to Haiti in the media. From what I read however this is the worst quake in NZ since 1931, which might explain why people in hit areas have been a wee bit shaken. I have been in touch with a number of friends in Chch, some who didn't feel a lot, others who had lots of stuff (books, glasses etc) smashed all over depending on the suburb they live in. Sure, you may not see the damage from the outside but that'd be a bit traumatising I reckon. Although of course, I forgot how tough Kiwi guys are so maybe not after all. Must be just me aye.
Couldn't agree more. Just felt a big jolt now. Not sure if it is my imagination or what (didn't feel like it) but my legs are all wobbly and I'm pretty scared. Been reading on earthquakes and history of large quakes for about 2 hours and don't think I'll get any sleep tonight.
What's your point anon... "few hysterical people"....! I am not hysterical and I came from wgtn. Count yourself lucky it hit at 4am and not 11am!
Now count the cost of complying with what will be revised EQ building codes demanding major multi million dollar reinforcing for most buildings over one story in the whole of Chch. None of it covered by insurance.
Well, Matt, you're good to concede easy credit had a place to play. The way I've always seen this is that had it not been for "easy and cheap-ish credit" the boom would never have inflated to the degree it has. Yes, land prices closer to the city would have risen faster than those on the periphery - a trend already evident many years prior to the start of the boom in the early 2000s. For as long as I can recall - location. location, location has always been a catch-cry where realestate was concerned. Zoning laws have always been with us - supply was even more restricted under the old Town & Country Planning Act.
But, the reason land prices inflated on the periphery and in the country, on the coasts and in the provincial centers (indeed everywhere) during this most recent boom was largely due to that "easy and cheapish credit", as you say. Banks started allowing all the existing homeowners to borrow on the basis of unrealised capital gains on the properties they owned closer to the centre of the main centres. A valuation could be obtained for any property at any price you were prepared to pay. And the home-owning population bought rental properties in locations they would never consider living in (on the periphery), and they bought baches for the family and so on an so on with the leveraging on these unrealised capital gains increasing at exponential rates.
The main reason for the land price inflation over such a short period of time was cheap credit - that fed the unrealised capital growth which legitimated further borrowing - which drove prices ever upward.
And that opinion has nothing to do with where I've worked. More to do with having been a player in the residential housing market since the late 1970s.
Agree Marc, why even argue about this?
People like Olly represents the one extreme, people like Wolly the other.
The reality usually is about half way in-between, but you are not going to get highly opinionated people to change, they always come up with some justification.
Bollocks Muzza...I think property is an ok investment if there is no debt loading and it's not bought in a bubble. Some are happy dealing with tenants others not. Commercial is OK if you have your numbers right and the market is with you. The same rules apply to farms. I just happen to think Olly is out to sell Olly. I also think noddyland is nothing much more than one fat property ponzi scheme run by the banks and the govts with the full support of the RE mob and munny hungry media.
'' I think noddyland is nothing more than the one fat property ponzi scheme run by the banks and the governments with thr full support of the RE mob and munny hungry media" (Wolly)
' We are creating the perfect storm with a witches brew of slow economy, a slow building program and even slower politicians who hearken to the Reserve Bank pointy heads instead of the experts" (Olly)
Seems to me both are highly opinionated statements reflecting like the flip side of the coin.
Well I for one am not convinced that the Super fund does know what it's doing.The major oil companies were all trying to get rid of their shares in the NZ refinery, who were the dumbasses Shell unloaded their shares on?
We are past peak conventional oil. Good time to buy petrol stations and oil refineries?
They should have been buying into oil/gas wells and productive capacity, but of course they aren't for sale - hmmm...wonder why.
another disciple. You can see how religions took hold.
You need to do some homework, there's a real world out there.
Your imaginary one just ran into it.
Just like pie-in-the-sky-when-you-die did.
It's no coincidence that religion and free-marketeering/no limits cross sub-sets.
You are all whinging losers. Ollie is 100% right ad u cant admit it.
"www.trumprealestateschool.com"
Quote : “90% of the world's millionaires made their wealth in real estate.”
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