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Stop tarring investors with speculator brush

Confusion over the difference between speculators and investors must be addressed before rental property providers are scared out of the market, a property investor advocate says.

Monday, April 10th 2017, 2:30PM 2 Comments

by Miriam Bell

Public indignation about the role of speculators, along with the practice of flipping, in New Zealand’s ongoing housing crisis continues to mount.

In the lead up to the election, opposition parties have been tapping into this vein of discontent and offering up a running stream of anti-speculation rhetoric.

Sometimes this is in conjunction with policy announcements like the Labour Party’s plan to extend the bright line test.

But sometimes it appears to be in response to housing market data or even tales about successful investors.

Now, the Auckland Property Investors Association has come out swinging after comments from Labour’s housing spokesperson Phil Twyford about a young migrant who has built up a three property portfolio since arriving in New Zealand 10 years ago.

Twyford classed Maxim Sherstobitov, who has no plans to sell his properties, as a speculator and said the “speculation-driven housing bubble in Auckland is a social and economic disaster”.

APIA president Andrew Bruce said Twyford was right about the devastating effects speculators have on the housing market, but was wrong in identifying Sherstobitov as a “speculator” rather than an “investor”.

“This mis-characterisation goes to show that even at the decision-making level, there is a fundamental lack of understanding between what a speculator is and what an investor is.

“We think a clear distinction is much needed, especially in an election year, for sensible decisions to be made about the housing and rental shortage in New Zealand.”

The rules and objectives for speculator and investors are like night and day, with the basic distinction comes down to the reason for buying, he said.

“To an investor, a property is an income stream that speaks to the fundamentals of investment (being safety of principal and adequate or satisfactory return).

"It is a long term, low risk undertaking, the profit of which is only realised over time.”

Investors are more focused on yield than capital gain and serve a key social role as accommodation providers for who are either unable or unwilling to purchase a home.

As such, they tend to treat residential tenancy as a business rather than a hobby.

But to a speculator, a property is a commodity that is intended to be resold for a profit – ie: capital gain).

Bruce said speculation is a shorter term, higher risk venture which generates impressive profits at the right point of the market such as where Auckland is at now.

“Speculators are essentially profiteering from being in the right place at the right time.

“This, coupled with the high risk nature of property speculation, means APIA supports appropriate regulations like LVRs and the two year bright line test to slow speculators down.”

True investors are less likely to be buying in the current market, with APIA’s latest survey showing that 88% of members have not bought a property since October 2016.

“We are not out there frantically buying the properties – the market condition hasn’t fit within investment fundaments in particular satisfactory return,” Bruce said.

“The simple fact is, prices are such that the returns are simply not there.”

To this end, APIA warns the habit of interchanging the labels of speculator and investor has to change as it demonises investors who serve a key social function by providing accommodation.

Bruce said it could result in the exiting of investors from the market and that would lead to a rental shortage.

Read more:

Bright line test dents flipping 

Election 2017: what investors need to know 

TOP tax policy criticised 

« NZ’s hottest suburbs: highest yield locations exposedFinal price fixing defendants get $1.5m fine »

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Comments from our readers

On 11 April 2017 at 9:56 am jpaynter said:
Politicians are not all dumb. I bet Phil Twyford knows the difference but as my favourite line from Bolts "A Man for All Seasons" says, "I trust I make myself obscure". It would be interesting for each comment made by a politician there was a note from the Parliamentary Pecuniary Register that stated their asset holdings.
On 15 April 2017 at 12:39 pm Gutz said:
I have been property investing full time since 2011 when I was in a property investment group I have a portfolio of 4 properties with yields of between 8.5 and 10.2% this was achieved by extremely hard work over the last 6 years and the learning I got from being in with a group of like minded INVESTORS. I am not a speculator and in fact have battled with these SPECULATORS the whole time I have been doing this work. I have as well as holding some properties also bought, renovated and sold numerous properties. (not bought let it sit there and on sell hoping the market will rise as many of these SPECULATORS do)I have a registered trading company and registered holding company with which I purchase either a hold property or a trade. So any profits that are made by trading have all gst and income taxes paid, Where as many of the SPECULATORS buy and sell in different names and entities to try to avoid paying these taxes. This has enabled these people to initially pay more for property than I can as many times the taxes are not paid. This practice I believe has been one of the main drivers of the speculatory house price rises in Auckland and it has not been caused by genuine investors. The measures that have now been put in place have certainly curbed a portion of this and I feel this has been a factor in the flattening of the market. because as these SPECULATORS drop out there are less and less "stupid" buyers and as stated in the comment above the smarter ones (who wish to be around long term) are sitting back because the numbers dont work.I believe having these SPECULATORS out of the market is a good thing and eventually will leave us with a more stable investor market

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