Is residential property a good investment?

Property

Join us today at 1 p.m. for a live-web interactive where we'll talk residential property investment with long-time finance writer and adviser Martin Hawes.

26th May 11, 4:33pm by Amanda Morrall

Residential property is a cherished New Zealand investment but are the yields really what they're cracked up to be? And in a softening and still over-heated market, does it really make sense?

New Zealand investment adviser Martin Hawes doesn't think so and he joins us today at 1 p.m for a live-interactive on interest.co.nz to explain why and also to answer your questions.

The event will occur in real-time and to participate you'll have to be a registered user on our site which is free and only takes a few minutes. See below to register.

To make sure your questions get answered, we invite you to email them in advance of the discussion. Inquiries can be sent to personal finance editor Amanda Morrall at amanda.morrall@interest.co.nz with the subject line Martin Hawes.

Readers should be advised that Martin, whilst a Authorised Financial Adviser, can not by law give personalised advice on individual circumstances in this kind of format. The information discussed is meant to be of a general nature only. Regardless, we're expecting a lively discussion.

Don't miss this opportunity to be a part of it as the success of this experiment could be pivotal to future virtual guests at interest.co.nz.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

25 Comments

by JD | 26th May 11, 5:25pm 1306387556

Oh goody, Queen's Birthday, I can come.

by Amanda Morrall | 28th May 11, 12:54pm 1306544057

Note change in date of event! I am clearly not a monarchist. Tuesday now, same time as before.

Cheers,

by Gummy Bear Hero | 28th May 11, 1:02pm 1306544540

The Gummster has finally joined the dots , penny-dropped , as to why Queenie is hanging onto the throne for dear life ........ Because her Chucky has as much charisma as our own clown prince , Phil Goof .

...... Even to the gullible sheep who vote in NZ , there is a ruddy limit ......

by JD | 7th Jun 11, 12:10pm 1307405431

Hmm, well. I happen to be (a rare occasion) working at home today so if I'm not in the middle of something I'll take a look. Not sure where/how this is happening exactly though.

by Wolly | 28th May 11, 1:07pm 1306544854

Is it the Queen's birthday......she had one last year..!..

by PhilBest | 26th May 11, 5:25pm 1306387557

Down in real terms 15% since the 2007 peak; and the OECD tells us we are still 15-25% over-valued. I look forward to some hearty doses of honesty on this. It is not as if inflated land prices are "wealth" to ANY participant factors in the economy that actually "produce" anything. In fact, to THOSE factors, inflated land prices are a COST.

That's why the day of reckoning has to come eventually. The cancer eventually stops the vital organs functioning, even if of itself it didn't automatically mean death for the patient.

by philthy | 27th May 11, 7:00pm 1306479615

Well with extremely favourable tax treatment, rampant inflation around the corner, ridiculously low interest rates, and a government unwilling to seriously take on the problem of property way out of balance as an investment choice, I would probably say it probably is a good investment.

This government wanted to encourage very low interest rates, but has done basically nothing to balance it in any way to keep people as savers rather than borrowers.

So guess what, surprise surprise they are going to be borrowers, and the country will be forever paying the rent to our overseas owners, who have actually been given incentives to save money by governments much more intelligent than our own.

by steven | 27th May 11, 8:42pm 1306485739

I have to agree with Vera....there isnt much in the way of meat for a PI IMHO....and that means property participation will decrease.....

Rampant inflation, no, not without wage increases and I see no signs of that in the wings, and consider how high un-employment is..... So without wage increases, inflation in one sector has to be matched with deflation in another.... Interest rates are where they should be to keep businesses functional.

Why hope for "decent" interest rates, if you are a saver better hope for deflation instead then cash is king and worth more every day....and that IMHO is far far more likely that inflation...

Savers should be saving because its the sensible thing to do, Govn shouldnt be overly encouraging ppl to save eg put money in deposit accounts....but other more productive ways, yes sure.

regards

by philthy | 27th May 11, 10:25pm 1306491911

You don't need wage increases for inflation, massive increases in the money supply will do that, like what we are seeing now.

Saving will never be the sensible thing to do, when other countries are printing massive amounts of money, and our government rather than stopping it flowing in here, actually encourages it.

You make it sound like we have a problem saving too much, I'd be encouraging people to save with the amount of debt we have.

We're getting up there with Greece and Ireland and you still don't think saving should be encouraged? you're joking aren't you?

by DeathToTaxes | 6th Jun 11, 11:20am 1307316008

Good call - remember that the US dollar is underpinning ALL of the money - It is being printed at the rate of 1.5 Trillions a year - thats an increase of $1,500,000,000,000 dollars created out of thin air in the last year alone.

This money is chasing the stuff Governments can't print - food and fuel..At the same time, business and individuals are being squeezed by higher input costs, so business can not afford to pass on the costs to the consumer because the consumer can not afford to pay because they are maxed out on debt already.

The housing market can not grow without some help from the banks - as people have hitting peak credit, the only way to keep the housing bubble inflated is to do one of 3 things - reduce deposit requirements, lower interest rates, or extend mortgage durations.

Net result of these factors is that the housing market is sailing into very stiff headwinds, and is not a place I would be comfortable investing in.

by Vera Fayed | 27th May 11, 7:24pm 1306481049

Do tell us about this "extremely favourable tax treatment" philthy. I've asked other fellows who rambled on about this but in the end they could not point to a single tax law that favoured property over other asset classes. Turned out to be know-nothing tossers. I'm sure you're not, so inform us; what are these differences?

by philthy | 27th May 11, 9:44pm 1306489490

Um when did I mention other asset classes?

Extremely favourable over savers, those people the government said they were so concerned about getting more of, obviously it was just lip service and they will not be the slightest bit interested in getting people to save more.

So we will always be a poor indebt country paying the rent to overseas landlords effectively.

by Vera Fayed | 27th May 11, 11:19pm 1306495140

What is Kiwisaver if not an incentivised saving scheme? Kick-start, tax credits count as incentives don't they. Ten of thousands signing up per month. Maybe it's not perfect, but from where I stand it is a creditable effort and still early days.

by philthy | 28th May 11, 12:38am 1306499935

Did you see how much they fleece off savers every year in witholding tax?

After going backwards with inflation, that stuff all is being done about to stop, you're happy to still pinch a third of the meagre return savers get.

Yet property owners go off to their accountants and make it look like they made a big loss and get a big fat cheque at the end of the year.

Why should property investors or anyone else for that matter get anything back if you made a loss?

Just don't do it if it's such a bad investment that you make a loss, it's the process of natural selection not being allowed to work.

Don't come cap in hand to the government expecting money. Most other businesses are out there trying to make profits, but not property investors, they want to fleece the taxpayer for all they can.

Year after year pumping up the losses as much as they can, no other businesses anywhere are doing that, year after year aiming for losses, it's the biggest rort ever, and a massive waste of money for this country.

by steven | 28th May 11, 8:22am 1306527737

"a big fat cheque"

I thought the National Govn stopped and ring fenced this?

In terms of deposit savings it is in effect a no risk rate of return...ie its extremely unlikely you will lose money...so therefore it shouldnt carry a huge interest rate IMHO......just like a business it should be productively used....and then you get a better return, with risk of course.

Housing on the other hand has lost $ value and value again when you adjust against inflation for 3 years? now....so thats a risk/cost PIs are taking....so they should get a better return than a deposit account.

Oh and kiwisaver in effect pays quite a high return when you consider the Govn's input.

regards

by philthy | 28th May 11, 9:39am 1306532340

Then why don't you go back and have a good look at the changes they made, all they did was make a change to LAQC's, which basically makes them not worth having for most property investors, because their aim is to make a loss and get money back.

But low and behold they have another thing called a LTC which will basically allow you to the same thing as what you did with your LAQC (bar a few very minor things that probably won't affect 95-99% of most investors).

It didn't matter whether you had the property in an LAQC or your own name anyway, you could still claim just as much back either way. The only advantage with the LAQC was it just helped to seperate your assets.

All the governent did was make it look like they were doing something, when they basically weren't, a cunning plain, and by the looks of it, it's taken a few people in.

If they actually ring fenced, property investors would still be crying today, no one takes away their right to rort the tax system.

Personally I think if they are going to pursue this thing where you are allowed to claim back against your personal income, it should only be for a maximum of 2 years, and if you haven't got your venture or business making a profit by then, give it away, but don't expect everyone else to keep subsidizing you indefinitely.

If you want to adjust the value of housing against inflation and say it's lost money because it hasn't gone up by the value of our out of control inflation, what about people that have cash, they have lost money in real terms.

Not hypothetical terms, when soemthing just hasn't gone up quite as much.

by bob | 7th Jun 11, 1:11pm 1307409111

"Yet property owners go off to their accountants and make it look like they made a big loss and get a big fat cheque at the end of the year"

Firstly - they don't "make it look like a loss" it is a loss.

Secondly - the "big fat cheque" is a reduction of taxable PAYE income so you still need to lose a dollar to get 39c back if you are in the top tax bracket.

Thirdly - ringfencing would only stop PAYE earners claiming business expenses against their incomes - companies still would. Therefore it would favour those able to arange their affairs so their incomes are from companies not PAYE (i.e. the wealthier).

Fourthly untaxed capital gains is what most people here rail against, however they also constantly go on about the impending fall in property prices so there will be no capital gain meaning this is irrelevant.

The concept that people intentionally make a loss to get richer is nonsense - if you make a loss you get poorer.

by Basel Brush III | 30th May 11, 11:02am 1306710159

It is the only investment class that favours gearing and gearing at current very low cost.

by President of P… | 7th Jun 11, 11:14am 1307402055

The best things in life are free.... but i want money....whooo hooo, hooo, hooo, that's what i want, doink, doink, doink doink

if he talks property down we might have to check to see if it is Bernard in disguise and some trick photography. unless of course he is quietly building up his own property portfolio on the side.

i am personally considering buying multiple second hand dwellings soon, i am currently in talks with de bank.

please save so i can borrow more, yes banks have being told to go out there and sell money, and i just can't wait to go ease some dough from them... no fixed terms though.... Cause I want Money, whooo hooo...etc

President of Property

by Anon good nurse | 7th Jun 11, 12:18pm 1307405938

"if he talks property down"

Nobody does, and he doesn't need to.

Property spruikers claim that property prices rose "because prices had to rise", while pretending those who discuss the fact that the property bubble is dead are "talking the market down".

But property was relentlessly talked up; Against economic gravity and financial equilibrium.

That was completely unsustainable.

Now the property bubble is collapsing in order for the market to fall back to where it should be, which is in line with fundamentals.

There are still plenty of desperate spruikers around trying to hype the property bubble back to life, but they have lost the battle and the war with fundamentals.

by President of P… | 7th Jun 11, 12:31pm 1307406686

I'm no spruiker, i just speak for myself from experience, and share my opinions with others, what they take is a measure of their own success.

by SimonP | 7th Jun 11, 1:03pm 1307408619

Experience....

A turkey knows that every morning some nice person will give him some feed. Nothing in his life experience gives him any indication about what will happen on Thanksgiving Day. :-)

by President of P… | 7th Jun 11, 1:15pm 1307409331

more to the point, how do you expect me to soar like an eagle when surrounded by turkeys.

just as well i'm not a bird

by Chairman Moa | 7th Jun 11, 12:15pm 1307405716

philthy: Two things you can do (do something, it's better than whinging!)

1. set up your own political party or

2. you can leave for better future somewhere else.. good luck!

by me | 7th Jun 11, 12:44pm 1307407466

That's pretty unreasonable Moa, many people who blog do so because it gives an opportunity to whinge,or come up with some conspiracy about something (at present the Banks substitute for the role allegedly Jewish financiers used to play) that's why they are attracted to sites like this. You can't tell them otherwise