around 5%. Rarely vacant for more than a week which retains cashflow. Good capital gains too. Tenants are mainly professionals which avoids many of the horror stories of landlords elsewhere.
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around 5%. Rarely vacant for more than a week which retains cashflow. Good capital gains too. Tenants are mainly professionals which avoids many of the horror stories of landlords elsewhere.
Arbitrage how many of these professionals are "P" Lab owners or operators. They need to be able to afford the rent
So yields are about 2% below the 2 year fixed mortage before rates, maintenance, and other costs.
On a 500k house capital gains would have to average approx $15k above inflation to just break even.
Doesn't sound like a great investment but I know I am in the minority on this thread. Property always doubles every 7-10 years right? Regardless of how overpriced it is from the start point.
Gross yields are =/- 2% below mtge rates. Rates, insurance, and the biggie that gets overlooked, maintenance wipe a fair chunk of that out.
'Property always doubles every 7-10 years right? Regardless of how overpriced it is from the start point.'
Nope - it sure doesn't.
You can argue the theory as long as you like. I have been implementing my strategy of leveraged property investment since 1985 with amazing results. I have the numbers on paper in front of me and am starting to look at buying another property in the same radius (5km from Queen St) in the next 6 months.
Their objectives may be capital growth rather than an independent income.
Hi Arbitrage are you looking specifically at houses or considering apartments now?
You doomsayers may have your day.
The tax uncertainty and tightening by China to cool their property market may have an effect on the NZ property market.
I can't see why inflation is such a bad thing. If anything, I believe a period of elevated inflation (5%+) would be good for wiping out the mess the US housing bubble created.
Great points you make there duncan. You are definitely on to something. A few years ago I was convinced that property prices would be hit hard but they have hardly moved at all to my surprise.
We can all see that houses have been expensive for a long time now compared to typical measures of median income, rental yields etc. But that is just looking at the demand side.
The supply side of the equation is being ignored in most cases and will not get fixed until something is done about govt and local council policies. It just makes no sense that we have no oversupply of houses when there is so much land available including urban areas. We should have created an oversupply during the boom years because prices were high and kept going up so there were plenty of incentives for investors to build more houses.
But the only oversupply we have is of apartments, which have been supplied by the market as a cheaper substitute. In the US residential property prices crashed because there was an oversupply of homes, but we dont have that problem here.
Now govt intends to tax property and land owners? Thats just crazy. They should be encouraging prices to go up because that is the only way more houses will be built. Unless of course govt and councils stop telling us how to build houses and remove all of the additional costs they impose on home builders.
I would have thought after the leaky homes scandal councils would be trying to remove themselves from setting and enforcing standards and stop telling people how to build houses.
Inflation is good for some and bad for others. In my own particular experience in the past inflation was my best friend. I bought property, paid through the nose for a couple of years then found the mortgage was at very low levels due to inflation. most working people in my era had long term mortgages at much lower rates than inflation. People got rich with the banks money at least the smart ones did. Similar opportunities today my friends with similar doomsayers bleating the opposite. Inflation is on the way up take long term mortgages today and sit back and pray for it.
Macdunk
Don't know if this should be part of the equation, but from 2012
you won't be able to use your open fire or older firebox.
Waitakere council have a $560 permit fee for a new box and much more
for an older one to check it complies. We will be up for $3000 for a basic
model, 20% of that in council fees - it's legal robbery.
Thought about getting a pot belly but they are only legal in rural
areas and, according to one retailer, council will use planes to fly over
and measure with infra-red if anyone is not compliant, so there goes my
do-it-yrself plan to outwit council.
George
From New York Times
http://www.nytimes.com/2007/09/06/wo...0288.html?_r=1
Possibly apartments in the urban fringe (Parnell, Mt Eden, Epsom, Herne Bay, Ponsonby etc) i.e outside the Auckland cbd.
While perhaps not getting the capital gains of houses, my reasons are they are affordable, rentable, easily maintained, while still close enough to the central city for my target tenant (professionals). In the future they can be incrementally sold down to reduce debt.
If they are a few years old, they will have a track record in the Body Corporate minutes which will show up any defects (such as leaks) as well.
Interesting blog by Mish Shedlock on mortgage stress amongst first home buyers in Australia.
http://globaleconomicanalysis.blogsp...-fools-in.html
The research is interesting. I know most of you think this couldn't happen here, my question would be why not?
Ah - good old Bernard Hickey yesterday saying Oz interest rates were rising and NZ'ers should be looking at depositing in Oz rather than NZ (with a bit of FX risk). Spot on as per usual BH - not!
A couple of differences between here an Oz. Our market wasn't fuelled by a $14 - $21,000 govt cash grant for first home owners. Nor is stamp duty part of our property valuations.
And the relevance would be?
BH would be in the overall majority in picking Australian rates to rise - in fact it appears no prominent economists (not that BH is one) picked it correctly did you?
And why do you suppose the RBA left rates on hold - did you read Mish's post - it suggests why?
I would suggest the same forces are in place in NZ yet we actually have no tightening here (yet).
I'm inclined to agree - but with a proviso.
Some peopel are still up for pain - but there is always some pain in real estate no matter the stage of a cycle.
These are the first home owner people lulled into housing by 90 - 100% mortgages on two incomes. Over the next few years they are up for having families and rising interst rates which will impact on their ability to pay. The stress will be hampered by a lack of saving ethic and a "must have now" approach to life - where they will also have maxxed out credit cards and HP's to buy flash things for their new house.
We also have yet to see a bit more stress from the "rental" market where people bought late into the surging market to have it fall away and with income stress they are going to realise that the rental market isn't as easy money as they thought. They'll be stressed because they also bought the new car or boat or overseas holiday and some will have the holiday home by the sea which isn't creating the income necessary to cover the cost of the debt.
So there will still be bargains to be had in pockets of the market - but the whole market will not be affected long term.
A big chunk of home owners are long timers who have coped with the ups and downs of economic cycles and will survive the next bout of hard times.
quote"" Our market wasn't fuelled by a $14 - $21,000 govt cash grant for first home owners""
true........ we just have housing suppliments and working for families, and numerous other benefits that get transfered to landlords who's tenants receive the benefits.
which of course keeps the price of these investments high.
not with standing the "favourable" way they are taxed.
lets see what or if the new tax reform will do to property prices.
Beakon you are dead right there. What will happen is landlords will flee the market which will lower house prices in the short term, and raise rents simply because of the supply and demand factor. The Govt will lose out long term with higher rent subsides with a greater poverty gap on lower income homeless families.
Lets face the facts.
1, Supply and demand rules prices in this market.
2, Hitting supply only increases demand which ends up in price rises.
3, Some one must own the house in the big picture it dous not matter who.
4, The money shortage in the productive sector is due soley by the public perception of the rip off merchants who feed from the trough while fleecing them from their hard earned savings.
5, This was the safest way the little man in a menial task job could end up rich with limited risk.
6,NZ will end up with the GOVT being forced to build state houses to house the masses then tax the living daylights out of the business sector to support it.
Thats what i think will happen guys its down hill all the way from here on in.
Any educated self respecting Kiwi will end up in Australia where they have a much higher life style so for me it looks like good bye Grand kids hope to visit you occasionaly. Macdunk
The houses will still exist. The demand will therefore not increase. All that may happen is a small % of properties might revert to owner occupiers. And every time that happens there is one rental property removed from the pool - and one tenant also. No change to suppply or demand.
I dont agree on that. What will happen landlords wont build new properties to rent out creating a shortage which in turn will raise the prices due to demand. Supply and demand is controled by new properties coming into the market to an increasing population. if however more people flee the country than come into the country then the demand and prices drop to meet the market. Great blocks of flats to rent out simply wont be built rents will rise the Govt will have to subsidize the needy with you and I my friend footing the bill.
The wisest and best leave leaving the dregs of society behind its natures way of improving the species. I should know coming from Scotland which is about as far away as one can get. Macdunk
Just have to look at Aussie to see what may happen to the NZ property market.
relevant article to the discussions going on in this thread
http://www.nzherald.co.nz/business/n...ectid=10626604
one of the interesting things in that article is :
Shamubeel Eaqub, NZIER principal economist, criticised forecasts saying more houses were needed.
"There is no chronic undersupply of housing. If there was, rents would rise sharply. In the year to December, average rents fell by 0.5 per cent or -2.5 per cent in real terms," he said.
People claiming New Zealand had a severe housing shortage usually relied on declining numbers of people in houses.
But Eaqub said household size had increased in the past year "as usually happens in recessions".
Rents have risen much higher in the Ponsonby Grey Lynn areas.
In the less desirable areas, the rents are still the same.
Listings up 20% now in waitakere since the beginning of this year, 10% in manukau. Empty and for sale houses now beginning to push rents higher. I hope the Government takes notice that a tsunami is building. It is still not to late to reconsider ...
For landlords who were overstretched but kept ploughing in more cash - living in hope that things will get better, the loss in property is just beginning to be crystallised. And this dollar of equity released, if any, is not going to go into the capital markets, as the beaureaucracy expects. Though industry is the wealth creation engine, property provided a temporary store of wealth while industry continued to blunder along. Given the immediate track record of wealth destruction in the capital markets for the uninformed, cash will be used simply to delever unless the Government has a magic wand that will turn Mr. and Mrs. Ordinary into Mr. and Mrs. Capital market gurus overnight ...
Also the impoverishment effect which will emanate from stagnating (at best, or falling) property markets will ripple through to the capital markets. As a nation, we begin our trek backwards, unless the Government stops and takes heed. If it doesn't as is sadly the case most times, the stretched landlord will be left with no option but do what he/she can't postpone/budget for any longer. Hope the Government has a damage control plan, as in a budget for increasing accomodation supplements or for constructing new social housing. Maybe they could help the chronically unemployed with this latter project ...
listings in Waitakere since jan 09 up 20% now
listings in Waitakere since jan 09 up 35% now (M&D and small landlords)
listings in Manukau since jan 09 up 11% now
listings in Manukau since jan 09 up 25% now (M&D and small landlords)
Rents to follow up ... watching this space ... hope the powers that be are noticing the pain and desperation ...
Economics 101. First day - before lunch. Empty houses and an abundance of listings reflect an oversupply, which will lead to falling rents; not rising. Landlords don't sit back and leave properties vacant for long waiting for rents to rise. They meet the market - and quickly. Most of them have such skinny profit margins (if any profit margin at all) that they can hardly just sit and wait even if they are silly enough to want to.
Wake up fp. Your first half at Economics 101 education shows your mind has been wandering. The listings I talk about are "For Sale". Two extra "For Sale" correlates with approx one less house available "For Rent". rents will rise, though prices may stagnate or fall.
you did pick up their skinny margin. So you were paying attention for some time (friendly smile, I can't seem to find emoticons)
In normal conditions, yes. The conditions are not normal. We have a naescent recovery, if at all, and it is reportedly anemic. Credit conditions remain tight. You have increased sellers, but where are the buyers? The market remained robust earlier due to lack of listings, as people held out. For unreasonable expectations, some say. I suspect most of it was due to an understandable lethargy to crystalize loss (regardless of whether the loss of equity was notional or real). Meanwhile, the council rates went up, insurance went up, even fixed term mortgages have been climbing. Repair costs have risen, and will rise post GST increase. Rent arrears have been climbing, and judgements remain unenforcable (Justice delayed is generally Justice denied). More people are living with extended families and rents have been falling in real terms. Then you have the last straw - the cashflow crunch that will be caused by removal of depreciation deductibility.
So I see more "For Sale" houses, meaning maybe more choice for first Home Buyers and a slight improvement in affordability for them.
I see restrained investor buying activity until credit conditions improve, meaning a property market that stagnates or falls, with repurcussions for capital markets.
I see rents rising unless conditions change...
They haven't disappeared. There were only 40 less sales this january compared with last January - and January is typically pretty slow.But those buyers were buying - time on market was less this Jan (43 days) compared with last Jan (59 days) and they were paying 7.7% more than a year ago.
Thanks for the data update minimoke. Both - sales as well as time on market - vindicate my point that the market has held up well so far. Sales and Time on market are lagging indicators, listings are a leading indicator. Its safer driving looking in the windshield than in the rear view mirrors. Hence, my thesis that we may be looking at an upcoming market that while easier on first home buyers may be hard on M&D sellers, smaller investor vendors as well as renters. I see no investor buyer activity because of tight credit.
Looking for lead indicators is a fine idea as long as your windshield is clear and you don't have double vision.
If you are looking at listings as a lead indicator you may be seeing several things.
For a start the statistics may not be clearly showing the number of agent multi-listings - hence you may have a bit of double vision.
And like cardboard policemen on the side of the road - are the listings for real or are they a bit of a mirage. As the economy comes out of recession people will start to have a bit more confidence about their jobs. As they gain more confidence they are more likely to consider their debt position - and part of this might include trading houses. There may be listings out there that are people just giving it a shot to see what happens. If the price is right they'll sell. If its not then they'll hold until there is movement.
What you might want to look out for on the road ahead is the road kill. You might see some Minor birds on the road which you reckon are bound to end up dead - but they are canny bastards and they will be fine. Will changes in depreciation rules create distressed sellers like possums on the road at night. Sure there will be a few of these - there always were - there always will be. What we have to hope for is that the changes don't impact heavily on government and local body housing stock - that would be like sending a cow out on the road as it creates a risk of bringing you down as well (through increased personal taxes and rates to cover the extra costs). And of course the depreciation rules are unlikely to hit that big 16 wheel semi coming towards you - they are in and out your vision before you know it.
When you are looking out your windscreen can you see clearly down to the end of your driveway? One thing’s for sure - you can't see clearly what is two miles down the road. I'm waiting for the government to actually announce its changes to residential investments to give me clarity.
Meanwhile back to credit. This week we've seen Westpac lower two of their rates so that their 5.65% floating is the lowest in the market.
Weren't they there before? Surely, they haven't just started doubling after Government's stated intention to tweak residential property legislation ...
We can speculate on motives and eventual possible outcomes till the cows come home. The fact remains that the number of listings has increased. I'll let the facts speak for themselves ...
These are real people we are talking about - the very "taxpayers" who've sweated and toiled blood and tears, who've saved and sacrificed to build wealth. These are the worker bees who saved and metamorphosed into investors. We guarantee and protect the savers but write off investors as being "greedy", "opportunistic", "canny bastards". Are they really? Who would you nurture instead?
Maybe they are canny, and maybe they are not. The issue is equanimity. Why single them out for punishment? Simply because they are too unorganised as a lobby?
Will hope suffice? We are driving towards an incoming train and hoping there'll be very little damage - literal or collateral. Appropriate timely action has a better chance at averting disaster. Sure, there'll still be private landlords. But they will have to pass on an increasingly bigger portion of their increased costs onto ... tenants. As more private landlords quit this industry, guess who has to pick up the mantle? Was this outcome intended or foreseen by the government planners? Or will it be philosophically written off as minor collateral damage... If so, to what end?
In the hope that capital will migrate to creating national economic wealth. Without building the necessary ground for it? What groundwork has the Government completed to facilitate this? What eductaion has been imparted? Is the NZX now better at communicating company disclosures? Are the property trusts not still charging fees on assets under management and regardless of their mismanagement of assets versus taking their fair share from profit? Are our companies now fairly valued or better managed? Have we put any while collar criminals behind bars yet?Yeah right. And pigs will fly. At best, we will just create an industry that engages in speculation or enforce a transfer of wealth to a fund management industry that's badly let the nation down.
Pardon the vanity, but I am beacon. I am expected to be miles ahead - to look ahead. I profess no special powers or privilege to see clearly what is two miles down the road, but being ahead of some I do see what's ahead a bit earlier than them. I am happy to be a lone voice. (Readers - exercise your own judgement before taking any action based on anybody's expressed views)
You're looking in the wrong place again brother. Forget the headline teasers. Go look at what's happening with LVRs. You'll have a better understanding of what I'm on about.
I'm trying to keep up. To recap: you think that potential tax changes, yet to be made by government, on rental properties held by Mums and Dads will lead to an increase in rent. A side effect is that house values will drop making them more affordable for first home owners. The rental issue probbably belongs on another thread.
As for the tax changes making it easier for first home buyers I'm not so sure. Too much rental stock is held by central and local government - they won't quit that stock on the back of tax changes. A pile of other stock is held by long term investors who will see this part of doing business, they'll adjust and continue holding their stock. So on the whole there won't be more stock coming to market from rentals causing values to drop.
This leaves a few mum and dads who might be on the edge - and tax changes may create more distress. They will have to decide to either take an ongoing few grand annual knock from a lack of cash / tax beifits. Or alternatively do they take a one-off hit and sell at a discount. Some will certainly take this option - but enough to drive values down over the long term I'm not so sure.
If you are right and rents do go up - then this will make it harder for first home owners to save their depsoit - which will leave them out of a market for longer. During which time I reckon there is a risk of property values increasing - even if only a little.
Sound argument again, as usual minimoke. Rents will have to rise for the property market to rise, long term. In the near term, there are few positives that I can see ...
Keep writing. I appreciate your thoughts.
http://www.stuff.co.nz/business/3387...a-set-to-widen
Other factors emerging to drain economy's blood.
Despite that more people prefer to come to NZ than prefer to leave. In todays news:
"New Zealand recorded the highest annual immigration in more than five years as fewer Kiwis headed overseas, providing added stimulus to the housing market and underpinning consumer demand.
The number of permanent arrivals exceeded departures by 22,588 in the 12 months ended January 31, according to Statistics New Zealand. That’s the highest since May 2004."
The residential property prices in NZ just don't add up if you do the numbers, I think they're due for a big hit. I travel a lot and in the USA and parts of Europe the carnage is extraordinary. In Las Vegas for example 70% of all residential property is in negative equity, and prices in parts of Florida and California are down over 70%.
The equity markets are still down 30/40% from 18 months ago, we are on the verge of increasing interest rates, but residential property in NZ seems to have recovered and I read is worth more in some places than before the meltdown. I'm afraid I don't get it.
You can thank increase numbers in net migration of people coming into NZ and wanting permanent accommodation. This is exasperated by the lack of finance to build new houses. So demand exceeds supply for the short term. I tend to agree that the numbers dont stack up and we may see a plateau in prices from here. Watch China and Aust to give directions of our market.
Along with near-record immigration we also have apparently HUGE underinvestment in residential building contruction - value of consents issued sit around half the long term average, residential building construction need to grow 50% to return to 'normal' levels. Surely this will put pressure on supply in the med term?
And when you consider the cost of building is probably STILL higher than the value of the finished house I don't see this changing any time soon.
Bottom line I wouldn't be brave enough to pick any further increase in house prices but I think it would be an even bigger (or ill informed) call to to pick any decrease in house prices over the med-long term.
But 9 Calfornia markets, in the latest Housing Affordability survey, are "severly Unaffordable" - and thats out of 11 in the whole of the USA. If if we look at housing affordability parts of NZ rates well. Bournemouth in the UK is at no 6, San Fransico is at 16th position. Its not till we get to 20th spot do we see Tauranga and then at 22 is Auckland. Australia is a whole lot more unaffordable than NZ - and that will help drive values in NZ. Nationals "closing the gap" rhetoric has to work at several levels.
If you do a few calculations, the gross return on a rental in Auckland for example, is about 5%. After rates, insurance, water, and maintenance (no management fees included) the return is about 3.5%. You can get over 5% at the bank. (All before tax)
Doesn't stack up. ONe of 2 things has to happen, a fall in house prices, or a long period of stagnation as rents catch up.
You seem to think that house prices remain constant doing your sums. House prices double every ten years at least during my life time thats what happened. By placing a deposit large enough so that return equals out going you use the banks money as the fools way to riches. Landlord little empires have been built up with little or no money after the first property is up and running with a similar ammount of fools saying it cant be done. Macdunk
Yep I know it can be done. A woman in Saturdays Herald had 53 houses, did have 65 but sold a few off. I know what you mean about house prices doubling, I've done well out of it myself, but rents haven't caught up. There has to be a day of reckoning, don't know how many land agents, farmers, and other punters have said to me over the years not to worry about anything else but capital gain.
A farmer recently told me the same thing, numbers don't add up. His farm was worth over $2 million but last year after a few bad things happened the net profit was $5000.
Dead right there. Detroit rated as the No 1 most affordable place in the States with a median house coming in at $81,600 - indeed its the No 1 most affordabale place in the States, NZ, Aus, UK, Canada and Ireland. There is one wee drawback - and thats unemployment which is arund 30% with those who are jobless closer to 50%. So while houses are cheap you may not have a job to pay the mortgage.
Chicago though is a different story with median values there coming in at $210,000. On the affordability rankings it drops to 118 in the States and 128 internationally out of 272 markets. Thats closest to Palmerston North which came in at 188 internationally.
What I'm still trying to figure is why do Kiwis head to the east Coast of Oz when this neck of the woods is the worst amongst surveyed countries for affordability. The Gold Coast is pretty much the most unaffordable anywhere. Closely followed by the Sunshine Coast, Sydney and Melbourne.
First home owners might find it hard here - but if they think they can head to Oz for their dream home they have another thought coming.
quote
""House prices double every ten years at least during my life time thats what happened.""
and the public and private debt, borrowings and credit has done what?.............
waiting for the pop
I'm a bit tired of this statement myself. This is based on what - the last 5 decades. So the sample size is five. Anyone using this sort of statistics to predict the future direction of house prices is just foolish. Obviously NZ property has been significantly undervalued in the past, and this has gone through a significant realignment over the course of the past 50 years, of which many people have benefited (at the expense of others, I will add - this is no win/win game).Quote:
""House prices double every ten years at least during my life time thats what happened.""
So lets stop this "property doubles in value every 10 years" drivel...
It only becomes drivel when it ceases to happen. Take it back further if you like, history repeats as every wised up investor should be aware off. Property costs are much higher to replace due to the extra unrelated burden of consent and related costs sky rocketing out of control which ends up sooner or later in a steeper increase than the past. Macdunk
Even if the cost of construction is more than it was a while back it's defying gravity. There will be a day of reckoning, but what will bring it about is anyone's guess. 3.5% return? Residential landlords must be out their minds, the risk/return equation doesn't stack up. Might not be capital gain, might be capital loss.
So Skol, are you saying that in 10 years time, with Auckland's population heading towards 2 million, that house prices could be less than what they are now?
Residential property is a great long term investment. Sure the cash flow returns may vary but at least they are steady (those rental payments every fortnight are great - even through the recession). The media love the short term changes in capital values to create headlines to sell newspapers. Take out the noise and the upward trend in values, especially in Auckland, have created wealth for many canny (eg Duncan) long term investors.
The point is if they have risen only 30% or less in the next ten years, have they been a good investment? Giiven the high maintenance nad management costs of residential, I'd say they would have been a dead loss. So investing in residential real estate has become a gamble on a mix of real and nominal capital gain (inflation). With so many easier opportunities around it beats me why anyone bothers, especially given the 'quality' of some of ther prospective tenants around. It's that last point that finally got me to see the light in res. investment.
If house prices double every 10 years that's 10% a year. Do wages and salaries go up 10% a year-no. Eventually either the rents would be exorbitant and unaffordable or the yield will drop to 3% then 2.5% and so on. That's assuming 100% tenancy. When you can get 5%+ at the bank and housing yields are less, something will happen eventually. Who can afford $1000 (after tax) a week rent, because that's what you'd need to make the numbers stack up?
One of 2 things will happen-house prices will drop to their real value or there'll be years of stagnation.
Fauty mathematics there. Remember the rule of 72. If house prices increase 10% per annum thay will double in 7.2 years, and if they increase 7.2% a year they will double in 10 years.
Not that it matters 'cos it won't happen like that. Existing housing stock will not double in value in the next ten years. Technological advances etc may see replacement costs rise quite a bit - but that might just leave existing stock looking a bit tired and obsolete. In the next ten years existing houses will rise less than inflation, which is unlikely to average 7.2% per annum.
How come house prices have doubled in inner Auckland suburbs since 2001 during a period of low inflation?
Maybe the chickens are coming home to roost. An article in today's Herald says the market is awash with unsold properties and it could take a year to clear the backlog.
The issue isn't so much "unsold" as it is "vacant". If these unsold properties have people living in them then theres no problem. Indeed it seems even though there might be loads of properties on the market there were loads of sales. In Feb sales were up on January. If we compare this Feb with last the total number of sales were down a tad but time on market was a lot less. Median price is up and the average price is up.
The only way the "backlog" will clear is if more purchasers come to market. More purchasers = driving higher values.
If we want to see the backlog cleared with lower values we need to see more vacant posessions - thus giving buyers more choice and more leverage. We would probably also need to see evidence of people "trading down" - but even then these people need somewhere to live (in a more-in-demand lower priced house: which others are chasing thus keeping values up) or into rental accomodation - which again is a supply demand thing.
Leverage is what makes the numbers stack up. Lets presume mortgage at 8pc inflation at 3pc with a 10pc rise in prices like it has been for as long as I can remember. Tie in $200000 dollars in a mortgage which reduces in value each year due to inflation at 8pc and you are on to a winner regardless of house prices. Macdunk
The whole point is that to be a winner the capital gain must exceed the losses. Buying at current low returns, and factoring in management, interest, rates, insurance, vacancies and the real biggie, maintenance, then it is difficult to see a profit over the next ten years. It's not difficult to see losses. I'm not against residential investment having made a living at it for many years along with sufficient $$$$ to move onto better things - but there is a time to jump - and a time to stand back. It's a good start for those with low capital - but only when everything stacks up. At the moment things look disastrous to me.
Lets forget the numbers and concentrate on demand. Auckland at this moment is increasing its population by fifty people each week. It matters very little in the wide scheme of things who owns the extra homes that this extra demand requires. whats the difference between private ownership to Govt ownership, the money required still gets drawn away from the productive sector regardless. It is much safer for individuals to invest in property than get ripped off by the swill at the trough company directors in the share market, that the average Joe Blow has little understanding off. The increased cost of building has increased at a higher level than the increase in the average company share price. The average developer pays extortionate levies and fees compared to even ten years ago before he even gets a nail driven in. Macdunk
The levies and fees you refer to are small in relation to the margins potentially achieved by developers. You will find that these fees still do not cover the true capital costs of providing infrastructure (eg roading upgrades, sewers and water) to new developments. The long suffering rate payer will continue to subsidise developers, even the "average" ones you describe.
Waitakere listings continue increasing, especially in the economic ranges, outpacing increase in listings everywhere else in Auckland. Hope the Government is taking notice that disallowing depreciation is already begining to impact on rents, ala they have begun their rise. Is the extra funding for accomodation supplements ready? Within two years, they'd be needing an extra $50 per week per tenanted household at the very minimum - more because of the flow on effects of GST. This will impact the capital markets adversely too.
Rents are not linked to what the landlord pays in tax. They are set by supply and demand. So unless the owners burn their houses down because they don't like the change there's no reason that the possible tax changes (if any) will affect rents. And what is 'an economic range'?
NZ needs 1,000s of new houses a year. Even if they aren't built as investment properties, investors do buy the house the new builds are upgrading from. They therefore do have an effect on supply. The BNZ (?) modeled that any tax impact would be shared 1/3 increased rents and 2/3 reduced prices. I am not saying they are correct but I do expect some increase in rents, even if it isn't 100% as some suggest.
Herd instinct seems to be alive and well on this thread. Supply and demand is all it amounts to and even if there are 50 immigrants a week moving to Auckland, how will they afford the rent?
Besides, I read just recently that emigration from NZ to Aust. is up again, heaps of jobs for skilled people, vacating homes in NZ.
There seems to be some assumption that rents have to rise because of tax changes, maintenance or whatever, but that's got bugger all to do with what punters will pay for rent.
Skol, What renters pay for rent is topped up by the Govt otherwise we have people living in garages or tents.
When people cant pay the Govt of the day pay either in subsidized rents or in grants to allow them to pay the market price. Nz will atract rich retiring investors and get rid of upskilled young people simply because of the way things are at this moment in time.
To change this trend in the short term seems unlikely so we must look at the likely outcome of what looks like the general trend. The general trend looks like young educated people leaving with rich retirees taking their place simply because of life style. Very few young highly skilled people will remain to buy first homes leaving behind the residue for the Govt of the day to house. That is how I see it the Govt of the day will advertize the lifestyle to attract rich retirees who will subsidize the residue that remains behind. To look at housing as an investment remains keeping an unbiased view point on the reality of what is likely to happen. Macdunk
Interesting to note that the Herald reported to day that in 2008, 15000 of Aucklands 20000 population increase in 2008 was "natural", i.e. babies. Maybe we don't need more houses, just an extra bedroom?
The market rent gets propped up by the GOVT making it a subsidized market rent which you and I pay for. The market rent then is not fixed by a supply and demand level that in normal circumstances would dictate. The number of solo mothers living in high class areas paying high rents with no earned income or savings might surprize you. Macdunk
Social welfare assistance does not make the market. The vast majority of tenants pay rent from their earnings - and at present it's screwing many of the mto death, and you can't get much rent out of dead tenants. The govt. won't ever run a charity for landlords.
I think I've posted this url before but it's a classic illusrration of house prices over a lnog period.
http://www.youtube.com/watch?v=kUldGc06S3U
Only time will tell fungus. By economic range, I meant 3 bedroom houses less than 300,000.
Meanwhile, looks like the Government has been alerted. http://www.landlords.co.nz/read-arti...rticle_id=3675
Will they still press on regardless of collateral damage, postpone changes or abort tinkering with property. There is no shame in recognising a wrong move. Courage and wisdom ... here's to hoping.
My thoughts exactly.
Add By Martin Hawes 4:00 AM Sunday Mar 28, 2010
Housing is not a good investment currently. At present, houses make lousy investments. I am referring to the very low yield houses provide someone buying a rental property.
Yield - the cash that you can take from an investment compared to what you pay for it - is the arbiter of investment value. Yield determines how much wise investors would pay for their investments.
Yield is always calculated as if the purchaser did not borrow. This allows us to compare one investment with others (bonds, shares, bank deposits) without the distortion of different amounts of debt.
It is also done before any capital gain is taken into account - smart investors always make sure their investments stack up solely on the income that they provide and capital growth is regarded as an extra.
So, what is the yield from a typical house? To make this calculation, I have used the same method as I did in this column last year: I have taken the median house price of $350,000 (as provided by REINZ for January) and the median rental for a three-bedroom house of $325 a week (as provided by Department of Building and Housing).
A weekly rent of $325 translates to annual rent of $16,900. I then deduct the investor's costs for rates, insurance and maintenance ($3000) and also assume two weeks' vacancy. This would give a net annual rental income to the investor of $13,250 a year.
Now let's look at this as a percentage to give us the yield:
This yield is worse than when I did this last year using December 2008 figures. At that time, the yield for residential property was 3.95 per cent - rents are now a little higher but values are much higher.
This yield is far too low to give a decent investment return. To properly compensate an investor for the risk and work of owning investment property, the net yield needs to be around 7 per cent.
That means that either rents have to rise or values fall. I suspect both may happen to some degree as yields gradually come into line with what they should be but this will take some years.
It is true that these figures will not be a precise reflection of the market but if they are used consistently they give a fair indication of the direction of yields.
A few investors are speculating on price increases but any astute investor will know that there is little or no value in residential investing.
just to be devils advocate here( because I dont really disagree) , by the same single criteria i.e yield, gold and silver are terrible investments as well and yet gold will have performed well for people over recent years.... by that single criteria Telecom is a brilliant investment now as well.
I think this article is a little simplistic though probably still relatively good advice.