Population Growth and Growth in Property Values

[rmbbrave]

The Reserve Bank concurs with rmbbrave

Homeowners warned to save


1.50pm Wednesday September 27, 2006


Many New Zealanders regard their homes as wealth "in the bag" and are leaving themselves vulnerable by saving less as a result, the Reserve Bank has warned.

It said an ageing population could prompt a fall in house prices and recommended the introduction of policies that would encourage wider savings for households.

In a paper Household Savings and Wealth in New Zealand, the bank expressed concern that the household savings rate, as measured by Statistics New Zealand, had declined markedly over the past 20 years.

It said the net worth of the household sector had almost doubled since 2001 and many homeowners appeared to be relying on capital appreciation in order to accumulate wealth.

"For many homeowners, the wealth associated with rising house prices is unrealised," the bank said in a statement.

"However the evidence suggests that many households may view this increase in wealth as 'in the bag' and may have lowered their savings from current income as a result."

The bank said that over the past four years, households had withdrawn an estimated $7 billion from housing by selling properties or increasing their mortgages.

While a "sizeable portion" of the equity withdrawn from houses had probably been reinvested in other assets, it said a significant amount would likely have been spent.

The bank warned there could be an increase in people trying to sell their homes as baby-boomers retired, potentially driving prices down.

"As the population ages and more households attempt to realise wealth built up through capital gains, doing so will require that there be enough willing and able new buyers of these assets at current (or higher) prices," it said.

The bank also said borrowing to support higher asset prices had largely been financed from abroad - which could make borrowers and lenders vulnerable to changes in interest rates or the continued willingness of overseas parties to provide funds.

The analysis paper was prepared as background for a presentation by Reserve Bank Governor Alan Bollard to the New Zealand Institute of Finance Professionals.

- NZHERALD STAFF

[rmbbrave]

My Dad sold a house in for $162,000 in Papakura, in 1996. QV estimates it's worth at $347,000 in 2006.

That's a gain of 7.7% over the last 11 years.

Now we have a sample of 2.

[trackers]

I brought a house for 236,000 in December, 9 months later on QV puts it at 273,000.

Thats 15.7% in 9 months, extrapolated to 20.9% in 1 year.

Previous owners did well too, QV report extract:

26/11/2005 $236,000
09/02/2004 $180,000
15/12/2000 $127,000
25/05/1993 $106,000

Not designed to brag, but the most accurate example I can come up with is my own property. Also worthy to note that if you calculate a 10% deposit, and work out returns based on capital gains (if realised) less interest paid and rates you are looking at more like 200% on capital outlaid in ~1 yr...

Must also mention that your latest example is a gain of 214% over 10 years, looks better that way!

[Snow Leopard]

To take the sample to 5 and try and compare results

<pre id="code">
House From To %pa
===== ==== ==== =====

RMB1 1995 2006 4.77%
RMB2 1996 2006 7.91%
Trak 1993 2006 7.39%
PT1 1990 2006 4.87%
PT2 1989 2006 5.13%
</pre id="code">

PT1 sold for $190,000 in early 1990 and is currently valued by QV at $420,000
PT2 sold for $195,000 in early 1989 and is currently valued by QV at $472,000

[JoeKing]

Sample 6 a little different.
JK buys 2 acre section Rotorua 1999 $158k, spends $240 building, $60 landscaping etc.total $458.
Current CV (Sept 2005) $800K. Mortgage free.
Most recent sale in area 3 houses away CV $ 1.25 sold Dec 2005 $1.9
Neighbors house currently for sale CV $800k tenders starting $1,4.
I guess our property would probably be worth similar.
One of you guys will be better at the maths than me but I think we should be quite pleased?
Cheers
JK

[trackers]

JK, 300% in 7yrs - not too shabby..

I think its important to point out that while these house prices are showing a roughly 7% p.a odd gain, in most cases these are fairly highly leveraged amount, so the ROI is obviously much much higher.

Also the property i showed, roughly 20% gain total from 93 - 00 (ouch...); 250% gain 00 - 06

[duncan macgregor]

quote:Originally posted by rmbbrave

My Dad sold a house in for $162,000 in Papakura, in 1996. QV estimates it's worth at $347,000 in 2006.

That's a gain of 7.7% over the last 11 years.

Now we have a sample of 2.

RMBBRAVE, Lets take your dads house that he sold for $162,000, now worth after ten years $347,000. You made it sound worse saying 11 years not ten as the dates show.
Your figures show a 7.7 pc gain which sounds really mediocre or is it?. Let us presume that it was me he sold the house to for the sake of arguement. I would have financed it with a deposit large enough that the rent covered all the outgoings.
Let us say to give you all the benefits of doubt, that I was forced to go as high as 20pc deposit [normally 10pc] to acheive this.
1, deposit = $34,000
2, Capital gain = $185,000 after according to your figures
Work out your mathematics again only this time include everything.
The figures above are pretty pathetic for the astute landlord who gets the capital gain with the banks money not his own.
Do the sums with my figures which i bent over backwards to lower for the sake of debate.
$34,000 turned into $185000 over ten years or even make it eleven if you want then tell me what percentage my lousey investment acheived.
Macdunk

[Snow Leopard]

Duncan's example
input: $34k
output: $34k + $187k = $219k [rental income is equal to loan interest etc expenses]
period: 10 years

%pa return = 20.47%

[rmbbrave]

1996 to 2006 is 11 years inclusive. You can call it 10 or 10.5 it doesn't change much.

I am well aware of what can be achieved by leverage and then renting a house out to tenants. But my Dad didn't do that he bought his house with borrowed money and lived in it - and that's what I will probably be doing.

Borrowing to invest magnifies gains and losses, and property buyers have been lucky that they have lived in times when the NZ population has been increasing by about 1% per year.

But the rate of population increase is slowing down and before I die it will have started to fall.

I am not counting on property to go up at anything like the rate it has and sometime before NZ's population increase turns into a decrease house prices will fall year after year after year.

Comparing gains on LEVERAGED property with gains on un-leveraged shares is not what I'm looking for. I would like to compare un-leveraged shares with un-leveraged property.

If you would like to do a QV valuation be my guest and feel free to add it to our sample of 5.

No houses that have had extensive capital improvements.

[duncan macgregor]

RMBBRAVE, What you overlook is the fact that most people borrow to live in a house. The fact that you live in the house must be taken into account against renting some where else. The rent that you save paying against the capital gain is no different than collecting rent from a tenant. I have borrowed heaps to buy property, but would never borrow to buy shares. Property as a business must be run with the banks money for maximum gain. Property versus shares, property wins every time for the average joe blow. If you own a property, it only takes three or four years to refinance, then get all your initial deposit back, pay yourself the rent. You can then have a capital gain with none of your initial deposit money involved in the house.
The price of the average house in the area you mentioned doubled in the last eight years according to the REINZ. Next eight years who knows might stall a bit then surge up. MACDUNK