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Key on property investors' menu too?

Friday, May 14th 2010, 1:50PM 17 Comments

by Philip Macalister

Some numbers from Treasury this week show how important housing is to our overall wealth, and why it would be foolish for the government to make too many changes to property investment tax rules next week.

Treasury released its estimates of household assets and liabilities. It showed that houses make up nearly three quarters (74%) of our total gross assets. The actual number is $603 billion verses the $212 billion we have in financial assets (shares, KiwiSaver, deposits etc).

Yes there should be some encouragement to shift the balance so more of our wealth is held in financial assets, but it should be done on a softly, softly basis rather than by using shock tactics.

Plenty of New Zealanders are wary of financial markets and you can’t blame them when you see what has happened to share and bond markets in recent years.

We have seen government’s wipe millions off dollars of savings off New Zealanders before. One of the more recent examples is when the Labour government changed the rules in the telco market and destroyed massive value for Telecom shareholders.

Next week’s budget shouldn’t be National’s version of what not to do to people’s savings.

If it is then Prime Minister John Key could well end up on the menu at the property investors conference.

Housing is an important source of wealth not just in New Zealand, but also across the Tasman. Australia is often heralded as being a nation of sharemarket investors and a country where people own many financial assets because of its compulsory superannuation scheme.

However it still has the majority of its wealth in houses. Figures show that 59%of their wealth is in bricks and mortar, as opposed to our 74%.
« Waiting for the appointmentProperty investors got off lightly »

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Comments from our readers

On 14 May 2010 at 5:25 pm sMiles said:
You are joking.
The only reason the NZ figure is so high is that the prices are super inflated.
Eventually, and the sooner the better, house prices should get to 3 times salary. At present Auckland house prices are 6.1 times salary. The cause is the MUL, easy credit, and the buying public stupidity in believing that house prices are at realistic levels.
The major first effect of getting realistic lower prices is that the over-indebted will need to repay their debt. The next effect will be future house buyers can limit their borrowing and put more into productive investment. [A house never earns a dollar from overseas].
For the good of all the economy, not just your little bit, please take off the blinkers.
On 14 May 2010 at 5:34 pm Jo said:
I am nearly 70 and have seen housing benefit New Zealanders ever since the 70's. Why not when there is no other way to make a buck in this country!
I only have a flat under my house which helps the pitiful pension.I am also still working.
As a person who has brought up my family from ages 8 and 12 when my husband left I have done well with NO handouts from the Government. AND my children would never accept any benefits as they have been brought up to be independent, unlike the many in this country who bleed us dry.
We have had to bring our children up to be resourceful and hard working. Nothing wrong with that.
On 14 May 2010 at 5:42 pm Warren said:
The only impact JK's property tax changes will have is to put rents up for the 37% of people who rent their accommodation. ie higher costs to own a rental = less rentals available = higher rents its economics 101.

Over the medium term it will have no impact on house prices sure prices of investor properties might dip as a few overstressed landlords rationalise in the short term but that doesn't change the fact that we have not been building enough properties to house the population for 2 years now. In the medium term not enough properties to house the population = higher prices, again economics 101.

Hang in their guys, there's good reason you invest in property, its the same reason that the banks will lend you money to buy your renters but not to speculate on the share market.
On 14 May 2010 at 5:53 pm Penny said:
Fewer rentals means more home owners and fewer renters so rents should remain the same.
On 14 May 2010 at 6:51 pm tony said:
The last time I checked rentals in Tawa I noticed they had leapt by $30 to $50 dollars per week asking? doesn't mean they will get it? Except that seems to be the trend, as at the beginning of this week.
On 14 May 2010 at 7:42 pm baz said:
sMiles, you are dreaming if you think you will ever buy an average house for 3x average salary (about $200k). It would cost more than that to build the house alone unless you want a boring brick box with no creature comforts, and someone gives you the land for free, pays all your council fees etc. Why do you people always think things are unreasonably priced - it is all supply and demand.
Warren, you are spot on, and it is even more basic than 101, 4th form economics I think.
Penny, just because rents go up does not mean renters will\can suddenly buy a house without a deposit; if they could, why haven't they already, as everyone knows you are better off owning rather than renting in the long term, thanks to that marvelous and pervasive thing called inflation (again, more 4th form economics).
Baz (M Com Hons)Auckland University
On 14 May 2010 at 8:09 pm Debbie said:
Being a landlord is no bed of roses, the difference is that we take the gamble and a gamble it is. With some tenants out there you wonder why you do it at all. If you want to invest it is not a investment for a quick buck it is a long term investment, and you need to be in there for the long hall but in the meantime we have a lot of cope with collection of rent payments, maintenance issues, tribunals, tenants doing a runner, property damaged, drugs etc etc
So why shouldnt we get a break even if it is only a small tax break
On 14 May 2010 at 9:10 pm Joy said:
Totally agree with Debbie, there are some tenants that really try your patience then you get a really good one that restores your faith so you keep on keeping on.
On 15 May 2010 at 1:47 am Ross Pullan said:
NZ is now part of a global economy. Where anyone in the world can buy into our market,With very few questions asked. I know you will say " what about restrictions on foreign ownership?". Have you ever known any government dept to turn down anyone buying houses who lives overseas? If you do, I think you will find it rear. So you must look at NZ house prices compared to wages of more affluent countries, or should I say those in the mid to high incomes in those countries.
On 15 May 2010 at 4:08 pm Tony said:
Hi, I totally agree with Joy & Debbie,
It's not a bed of roses being a landlord, been there, to get drip feed $5 a week for outstanding rent.
But when you have good tenants you look after them and not put up the rent too often to scare them off.
I would rather keep my two rentals, which I have control of, rather than invest in finance and insurance companies. You have no control, look at all the Mum and Dad investors in their 60s, who are now in debt and have lost their life savings. We must stop boards and Ceos from giving themselves large pay rises, while the results do not warrant this.
On 17 May 2010 at 9:32 am Alec Tod said:
When the government changes the rules as to claiming depreciation - they change the basic economic rationale of investing in property. In which case they must allow those investors who bought property having factored in depreciation to sell property without expecting a claw back of previously claimed depreciation.
If they move the goal posts they are in for a fight from landlords who want to get out because of this change - and get out without penalty.
On 17 May 2010 at 11:07 am John said:
Just to put housing affordability in persepctive, these are the figures from demographia. Note that the lower the number, the more affordable. The rate is medium house price versus income. Auck 6.7, Wgtn 5.8, Sydney 9.1, Melb 8.0, London 7.1, San Francisco 7.0, New York 7.0, Los Angeles 5.7, Toronto 5.2, Vancouver 9.3, Montreal 4.9. NZ does not appear to be fantastically unaffordable relative to other places.
On 17 May 2010 at 11:18 am harry said:
after all the money that the finance companies have lost it is not only stupid but downright callous to ask the mums and dads to divert investment from housing into shares. people don't have thousands to invest. they borrow money to invest in property. if share market is so safe why do you think the banks dont lend money to invest in shares and bonds. i wish the likes of bernard hickey or gareth morgan who are advocates try and borrow money froma bank to invest in shares. they will be laughed out of the bank even by the youngest teller working there. get real. property is the best bet for average kiwis.
On 17 May 2010 at 3:42 pm Linda said:
John should send those affordability figures to the to Mary Holm at the Herald she obviously hasn't seen them. Housing in NZ is very afordable unless you want to live close to the CBD in Auckland or Wellington and that is the same re CBD areas in most countries.
Some young house buyers in NZ need to take their first home aspirations to the outer suburbs, the same as all the generations before them had to do.
On 21 May 2010 at 6:07 pm Rod Philson said:
Having spent the day reworking figures I have concluded that the owner of a brand new $500k investment property,who uses a chattels valuation, and who offsets losses over 10 yrs against an income of approx $100k, will pay on average an additional $50.00 per week to own his investment property.
A contribution of $80k over ten years to earn approx $200k tax free capital gain (Based on an average 5%pa capital Growth) is a great investment.
NB the national average for the last 30yrs is 7% which would equate to $420k tax free capital gain = even better.
Remember its the return OF your money that counts, not the return ON it.
Congratulations to John Key & Bill English for a revamp that will see most people continue to invest in bricks and mortar, rather than the risky sharemarket or finance company term deposit.
On 21 May 2010 at 6:25 pm rob of the north said:
don't hold your breathe, landlords.
english has thrown a few more extra few million in the budget to the IRD with the express purpose of heavy auditing of landlords and investors.
also i heard english on the midday news today talking already about more focus on tightening up any loopholes in the tax /prop.system.
don't be naive enough to believe that this is all that will be happening to discourage prop.investment....they don't want to lose alot of the NAT. voting base overnight as many Nats own prop.
but more adjustment will come!
On 24 May 2010 at 9:22 pm Graham said:
The property prices have been to high for too long. Without ongoing increases in property value it is difficult to justify buying rental property at the current low rental returns.

The price of land in artifically inflated by the councils trying to contain the city boundaries. We are in a country of 4m people. There is plenty of land and it shouldn't be so expensive.
Commenting is closed

 

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
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BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
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Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
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Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
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TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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