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voltage
30-08-2015, 06:14 PM
Have been around looking at another investment rental. Cannot believe the numbers attending open homes, shortage of stock and the urgency created. Herd instinct concerns. Values are all moving up. Would I be better off gearing into a some NZ dividend growth stocks?

trader_jackson
30-08-2015, 06:58 PM
The average New Zealander because they have never experienced a property market collapse in the last 30 years or so (yes values went down by like 5 or 10% in 2008, but nothing massive), many New Zealanders "hate" shares, and wouldn't consider it an investment after the 1987 crash... because of this many have their money tied up in property, and many more "want there money tied up in property" as it is on a seemingly endless road to success with no downside/risk...

The next paragraph is mainly relating to Auckland... One leading economist described Auckland's property market as "a giant Ponzi scheme" as residents (and investors) pay each other to get in and drive prices up and up, once these new apartment buildings "come online" and unusually strong migration drops off, Auckland property may not have the big double digit increases it has enjoyed, on average, for decades (I am a bit wary of the medium term fundamentals...)
If you are going to do something, do it before the RBNZ new regulations come into affect 1 October (I think?) and this will require 30% gearing instead of the current minimum of 20%... be aware of the new regulations brought in by the government as well (not sure on these or when they are being implemented)

I am not sure either how NZ shares will go over the next year, but as always, on average shares generally make a better return than property, which shares will do better than others is always a better question.

Beagle
30-08-2015, 07:13 PM
If you're talking about Auckland property I suggest you have a look at my recent post in the AIR thread.

Sgt Pepper
30-08-2015, 10:32 PM
Have been around looking at another investment rental. Cannot believe the numbers attending open homes, shortage of stock and the urgency created. Herd instinct concerns. Values are all moving up. Would I be better off gearing into a some NZ dividend growth stocks?

The billionaire Sir James Goldsmith had some very salient advice about a firm rule he had when investing .

" If you see a bandwagon never follow it, its simply too late."

As far as Auckland goes, SELL NOW.

skid
01-09-2015, 12:49 AM
The average New Zealander because they have never experienced a property market collapse in the last 30 years or so (yes values went down by like 5 or 10% in 2008, but nothing massive), many New Zealanders "hate" shares, and wouldn't consider it an investment after the 1987 crash... because of this many have their money tied up in property, and many more "want there money tied up in property" as it is on a seemingly endless road to success with no downside/risk...

The next paragraph is mainly relating to Auckland... One leading economist described Auckland's property market as "a giant Ponzi scheme" as residents (and investors) pay each other to get in and drive prices up and up, once these new apartment buildings "come online" and unusually strong migration drops off, Auckland property may not have the big double digit increases it has enjoyed, on average, for decades (I am a bit wary of the medium term fundamentals...)
If you are going to do something, do it before the RBNZ new regulations come into affect 1 October (I think?) and this will require 30% gearing instead of the current minimum of 20%... be aware of the new regulations brought in by the government as well (not sure on these or when they are being implemented)

I am not sure either how NZ shares will go over the next year, but as always, on average shares generally make a better return than property, which shares will do better than others is always a better question.


Im not so sure either would be a sure winner these days---im just wondering which share if I had put my $64000 in (1984) would be worth 1.3mil now--cant say the cash flow is great though(rent-expenses)---it will still be there in X years though and there is no executives with their noses in the trough

Bjauck
01-09-2015, 06:53 AM
Im not so sure either would be a sure winner these days---im just wondering which share if I had put my $64000 in (1984) would be worth 1.3mil now--cant say the cash flow is great though(rent-expenses)---it will still be there in X years though and there is no executives with their noses in the trough

That is a great return.
You have underlined why NZ has such a small proportion of wealth in financial investments (shares and bonds) compared with residential real estate. When people can get such good (mostly untaxed) returns from leveraged residential housing investment, it is natural that they will tend to park and accumulate their wealth there. It also helps explain why our stock exchange is small in proportion to our GDP and why our houses are expensive in relation to our incomes. NZ is going back to the future of a nation of wealthy landlord families (some absentee and foreign) and inter-generational tenants, who work for foreign-owned companies.

It would take a courageous government with vision to introduce a tax regime which increased the tax take from investment residential real estate, so that the proportion of total returns (capital profit and income) paid in tax equaled the proportion of returns(capital profit and income), from investment in shares, that are paid in tax. The ease at which investment in residential real estate can be leveraged enables large (currently untaxed) capital gains for the owner's equity.

trader_jackson
01-09-2015, 01:24 PM
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11506159

Not surprised...

nextbigthing
01-09-2015, 01:53 PM
Why property or shares? Why not both?

Deep.

voltage
01-09-2015, 02:37 PM
agree gearing into both does make sense, shares more volatile, however in nz we are fixated on property

Deej5
01-09-2015, 03:17 PM
If you are thinking of property why not have shares in property? PFI ARG GMT PCT all good returns.

voltage
01-09-2015, 04:08 PM
i suppose it is easier to borrow 500000 to buy an investment rental, but to do the same with shares even property shares isn't it higher risk.

beetills
02-09-2015, 07:46 AM
If you are thinking of property why not have shares in property? PFI ARG GMT PCT all good returns.

Another property investment with good returns is The Mutual Superannuation Fund.There returns before tax for the year ending 30/6/14 was 9.11% and for 2013 5.7%.
I think they own freehold 5/6 commercial buildings in the Auckland area and all are tenanted.
May not be suitable for everyone but it's quite inexpensive to invest into.

nextbigthing
02-09-2015, 08:58 PM
Here's an interesting stat that may prove useful, in the 24 months following Black Tuesday, the market cap of public property companies in NZ fell by nearly four fifths!

skid
03-09-2015, 12:07 AM
That is a great return.
You have underlined why NZ has such a small proportion of wealth in financial investments (shares and bonds) compared with residential real estate. When people can get such good (mostly untaxed) returns from leveraged residential housing investment, it is natural that they will tend to park and accumulate their wealth there. It also helps explain why our stock exchange is small in proportion to our GDP and why our houses are expensive in relation to our incomes. NZ is going back to the future of a nation of wealthy landlord families (some absentee and foreign) and inter-generational tenants, who work for foreign-owned companies.

It would take a courageous government with vision to introduce a tax regime which increased the tax take from investment residential real estate, so that the proportion of total returns (capital profit and income) paid in tax equaled the proportion of returns(capital profit and income), from investment in shares, that are paid in tax. The ease at which investment in residential real estate can be leveraged enables large (currently untaxed) capital gains for the owner's equity.

Your right its a great return,although there has been no return,except managing tenants--It started out as our family home and something I could put my energy into--I didnt leverage as some do--and agree with some of your points,but so far Ive been taxed just like with shares--but the market HAS gone a bit crazy and it cant continue --Thats why at this point its a much harder decision(although at the time we didnt know this was going to happen with prices)--It could also crash as well..who knows.
I got lucky with prices ,but if you saw the house before ,you wouldnt recognize it --there are still places where houses are relatively cheap,but you would have to adjust your lifestyle to be in a different area....well..gotta go ..Ive just lost a tenant,and the other one doesnt knoiw how to change a light bulb.

kiora
03-09-2015, 05:20 AM
Im not so sure either would be a sure winner these days---im just wondering which share if I had put my $64000 in (1984) would be worth 1.3mil now--cant say the cash flow is great though(rent-expenses)---it will still be there in X years though and there is no executives with their noses in the trough

By my rough calculation it works out out at 20% compounding return/yr
Infratil is close to that

BlackCross
03-09-2015, 05:31 AM
I'm amazed that the government (or councils) make bugger all from property sales. Imagine how much a graduated stamp duty tax would bring in! Starting at 2% at $500,000 and over and gradually moving up to 5% on $1,000,000 .... Auckland could have that new harbour crossing paid for in weeks ;o)

Bjauck
03-09-2015, 07:10 AM
I'm amazed that the government (or councils) make bugger all from property sales. Imagine how much a graduated stamp duty tax would bring in! Starting at 2% at $500,000 and over and gradually moving up to 5% on $1,000,000 .... Auckland could have that new harbour crossing paid for in weeks ;o) very little tax is made from residential property investment as most gains are untaxed capital gains. Even when tax is paid in the form of rates, they are often paid grudgingly,,,At the very least perhaps, stamp duties could be paid on investor and foreign purchases.


By my rough calculation it works out out at 20% compounding return/yr
Infratil is close to that IFT is definitly one of my better investments, However it was floated in the 1990's whereas Skid bought his house in 1984. It would have been interesting to see how IFT would have coped with the 1987 meltdown.


Your right its a great return,although there has been no return,except managing tenants--It started out as our family home and something I could put my energy into--I didnt leverage as some do--and agree with some of your points,but so far Ive been taxed just like with shares--but the market HAS gone a bit crazy and it cant continue --Thats why at this point its a much harder decision(although at the time we didnt know this was going to happen with prices)--It could also crash as well..who knows.
I got lucky with prices ,but if you saw the house before ,you wouldnt recognize it --there are still places where houses are relatively cheap,but you would have to adjust your lifestyle to be in a different area....well..gotta go ..Ive just lost a tenant,and the other one doesnt knoiw how to change a light bulb. A great investment and amazing that you could do it without leveraged finance. You put in hard work to turn it around - and have got a good return for your efforts. Most of that return has added value - mostly capital value - to your property, which will not be taxed when you sell. Similarly you have enjoyed periods of increasing land values. Other people work hard and their effort is rewarded by earning a high income, all of which is taxed. Society needs to determine if that is fair.

As you say maintaining a rental property, if you do it yourself, does require hard work and there can be periods when you do not have a tenant.

As property has increased in value so much more than inflation and incomes since 1984, I wonder if people could do what you did, without needing to borrow.

Certainly unleveraged landlords could pay more in the way of income tax as they do not deduct interest charges from rental income. However rental returns would still be a minor part of their total investment returns and the expectation of capital appreciation must be a dominating motivating factor especially in a market like Auckland where average gross rental return is about the same as a 1 yr term deposit interest rate.

Zaphod
03-09-2015, 07:21 AM
I'm amazed that the government (or councils) make bugger all from property sales. Imagine how much a graduated stamp duty tax would bring in! Starting at 2% at $500,000 and over and gradually moving up to 5% on $1,000,000 .... Auckland could have that new harbour crossing paid for in weeks ;o)

In much the same way a financial transaction tax that imposes a fraction of a percentage point could yield the Government billions? ;)

voltage
03-09-2015, 08:00 AM
it is so easy to buy shares and so difficult to buy an investment property in this market. Everything is up for auction and you are competing with so many competitors.

voltage
03-09-2015, 08:00 AM
it is so easy to buy shares and so difficult to buy an investment property in this market. Everything is up for auction and you are competing with so many competitors.

nextbigthing
03-09-2015, 08:33 AM
Everything is up for auction and you are competing with so many competitors. But that sounds like just like the sharemarket :)

warthog
03-09-2015, 08:49 AM
it is so easy to buy shares and so difficult to buy an investment property in this market. Everything is up for auction and you are competing with so many competitors.

Mistakenly you posted this twice, but the hog thinks that's just perfect as your observation is correct and merits being stated at least twice. :)

Bjauck
03-09-2015, 10:54 AM
it is so easy to buy shares and so difficult to buy an investment property in this market. Everything is up for auction and you are competing with so many competitors. With real estate, all your purchases are for sizeable sums as you cannot accumulate small parcels in the same way you can with shares. Comparative transparency of pricing is an advantage about buying publicly listed shares over property, especially houses sold "by negotiation" or "auction". Buying a house through an auction is a nightmare, when you have to put in so much "due diligence" prior to making a bid, which is all wasted when you are out-bid on the day.

However, with property, if you have deep pockets and are prepared to pay "top dollar", you will get the property. By definition, all bids under the winning bid are "at below market price". Just like if I put an offer with my broker to buy Share "A" for $1.00, when the market price turns out to be $1.05. The difference being that I would be able to see (more easily) the change of market price for the share, provided I had an account with access to immediate pricing and provided I was glued to my computer....

GTM 3442
03-09-2015, 01:40 PM
And, of course, shares in (say) Fletcher Building are traded daily, whereas the houses you want to buy are traded infrequently.

Which makes price discovery for Fletcher Building quite easy. And which makes price discovery for 56 Grantham Road quite difficult.

Especially when coupled with the need to physically inspect the property.

GTM 3442
03-09-2015, 01:46 PM
And, of course, shares in (say) Fletcher Building are traded daily, whereas the houses you want to buy are traded infrequently.

Which makes price discovery for Fletcher Building quite easy. And which makes price discovery for 56 Grantham Road quite difficult.

Especially when coupled with the need to physically inspect the property.

skid
04-09-2015, 12:38 AM
very little tax is made from residential property investment as most gains are untaxed capital gains. Even when tax is paid in the form of rates, they are often paid grudgingly,,,At the very least perhaps, stamp duties could be paid on investor and foreign purchases.

IFT is definitly one of my better investments, However it was floated in the 1990's whereas Skid bought his house in 1984. It would have been interesting to see how IFT would have coped with the 1987 meltdown.

A great investment and amazing that you could do it without leveraged finance. You put in hard work to turn it around - and have got a good return for your efforts. Most of that return has added value - mostly capital value - to your property, which will not be taxed when you sell. Similarly you have enjoyed periods of increasing land values. Other people work hard and their effort is rewarded by earning a high income, all of which is taxed. Society needs to determine if that is fair.

As you say maintaining a rental property, if you do it yourself, does require hard work and there can be periods when you do not have a tenant.

As property has increased in value so much more than inflation and incomes since 1984, I wonder if people could do what you did, without needing to borrow.

Certainly unleveraged landlords could pay more in the way of income tax as they do not deduct interest charges from rental income. However rental returns would still be a minor part of their total investment returns and the expectation of capital appreciation must be a dominating motivating factor especially in a market like Auckland where average gross rental return is about the same as a 1 yr term deposit interest rate.

I have real doubts that it could be done today,especially in Auckland --which makes the original question hard to answer--The fairness of it all is another debate (Ive just been a lucky bystander in many ways)--to me the whole capital gains thing would most likely work better if they determined the value of props when the law came into affect and work from there--trying to go retrospective would just be to hard and most likely wouldnt work--so at the moment Ive got big gains on paper--not a very big cash flow--high rates-and tenants--and then perhaps a tax to come--9Ive been pretty much buy and hold---those that flick are a different animale.
Im also perfectly aware that this (what I believe)crash thats coming to the share market may well spill over to the housing market and reset values(but not rates)

I still cant figure out why they dont use the existing tracks to Huntley and Hamilton for a decent commuter train into Auckland(thus opening up lots more affordable properties in those areas for those working in auckland.

kiora
04-09-2015, 04:39 AM
I have real doubts that it could be done today,especially in Auckland --which makes the original question hard to answer--The fairness of it all is another debate (Ive just been a lucky bystander in many ways)--to me the whole capital gains thing would most likely work better if they determined the value of props when the law came into affect and work from there--trying to go retrospective would just be to hard and most likely wouldnt work--so at the moment Ive got big gains on paper--not a very big cash flow--high rates-and tenants--and then perhaps a tax to come--9Ive been pretty much buy and hold---those that flick are a different animale.
Im also perfectly aware that this (what I believe)crash thats coming to the share market may well spill over to the housing market and reset values(but not rates)

I still cant figure out why they dont use the existing tracks to Huntley and Hamilton for a decent commuter train into Auckland(thus opening up lots more affordable properties in those areas for those working in auckland.

There was a commuter train Hamilton - Auckland that was shut down 5? years ago due to lack of patronage.It may be better patronized now & be time to bring it back.
https://www.facebook.com/HamiltonCommuterTrain

Bjauck
04-09-2015, 12:31 PM
There was a commuter train Hamilton - Auckland that was shut down 5? years ago due to lack of patronage.It may be better patronized now & be time to bring it back.
https://www.facebook.com/HamiltonCommuterTrain

The distance from Hamilton to Auckland, would be commuting distance for many people going into London. If Auckland does not get its act together to meet demand, a fast motorway and train service to Hamilton (and not forgetting potential development of Mercer and Huntly en route) may be a solution.

beetills
09-10-2015, 12:51 PM
Just recieved the annual report for year ending 30/06/015 and the return before taxation is 9.30%.
A return of 8.29% if you are using 28% PIR.

trader_jackson
09-10-2015, 01:13 PM
The distance from Hamilton to Auckland, would be commuting distance for many people going into London. If Auckland does not get its act together to meet demand, a fast motorway and train service to Hamilton (and not forgetting potential development of Mercer and Huntly en route) may be a solution.

Its a good idea, but they can't even get a train to the North Shore (which is just a few km from the CBD), which is in desperate need of one, and has been in desperate need for several years... so I doubt they can build one to Hamilton

skid
09-10-2015, 03:03 PM
There was a commuter train Hamilton - Auckland that was shut down 5? years ago due to lack of patronage.It may be better patronized now & be time to bring it back.
https://www.facebook.com/HamiltonCommuterTrain

Probably the key to that would be an efficient and relatively rapid train(which is probably no easy feat)

Just a note on my earlier post about property--When I said I didnt do it like some investors (over leveraged) I did have mortgages,but just made sure I had a high amount of equity--(none of this 95-100% of value borrowing)

I think the whole thing would work better these days in a place more like Hamilton or somewhere out side Auckland where the prices were more affordable--unless of course there is a crash.

BeeBop
09-10-2015, 04:35 PM
By my rough calculation it works out out at 20% compounding return/yr
Infratil is close to that

My historical past 5 yr return on sold shares is between 15 - 20% annualised depending on which market (UK, US or NZ). This does include the down years. Overall, as I run both property and shares, on a straight non-leveraged return my shares do better but as I am only leveraged for property, wealth comes from good property. I keep a portion of money in the sharemarkets and when I deem my investment to be over my fair value, I sell it and put it into property principal reduction.

fungus pudding
10-10-2015, 07:57 AM
Here's an interesting stat that may prove useful, in the 24 months following Black Tuesday, the market cap of public property companies in NZ fell by nearly four fifths!

The property companies of that time were carrying on as though there was no tomorrow. Landmark and RJI were prime examples. And anything called a share reached absurd levels, therefore a long long way to fall.Current LPTs are quite different

beetills
10-10-2015, 09:39 AM
In my opinion their are 2 main problems for a commuter train from Hamilton to Auckland.
It would have to leave Hamilton around 6am which is when a lot of freight trains are arriving in the area from south and freight would get preference.
2nd the Whangamarino swamp has only 1 line so thats where all the hold ups would be.

Bjauck
12-10-2015, 08:15 AM
In my opinion their are 2 main problems for a commuter train from Hamilton to Auckland.
It would have to leave Hamilton around 6am which is when a lot of freight trains are arriving in the area from south and freight would get preference.
2nd the Whangamarino swamp has only 1 line so thats where all the hold ups would be. It would cost a lot of money to make the line into a higher speed double track. However it could be worth it, if Auckland prices remain high and new builds remain below what is needed.

Harvey Specter
12-10-2015, 08:17 AM
Overall, as I run both property and shares, on a straight non-leveraged return my shares do better but as I am only leveraged for property, wealth comes from good property. Why are you allocating your debt against propety? Just because thats what it is secured over?

Consider it different way.

You have property worth $X, and shares worth $Y. Deduct from that portfolio debt of $Z (which just happens to be secured over property to give you a low interest rate).

My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

Bjauck
12-10-2015, 08:28 AM
...
My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

That is the advantage of (real estate) property...you can easily borrow money against it...so I guess you could argue that the profits derived from shares bought with the mortgage moneys should be allocated as being derived from the real estate.

The current NZ tax system plus ability for investors to leverage all add up to owner occupiers being gradually priced out of the residential property market in NZ (esp Auckland).

Harvey Specter
12-10-2015, 08:45 AM
The current NZ tax system plus ability for investors to leverage all add up to owner occupiers being gradually priced out of the residential property market in NZ (esp Auckland).Its not the Tax System!!! Its the banking system which allows for much lower interest rates for property.

I have debt secured over shares and it is treated exactly the same as debt secured over property, the only difference is the interest rate is 1.2% higher and the loan to value is much lower (and not even allowed on some shares).

Bjauck
12-10-2015, 08:54 AM
Its not the Tax System!!! Its the banking system which allows for much lower interest rates for property.

I have debt secured over shares and it is treated exactly the same as debt secured over property, the only difference is the interest rate is 1.2% higher and the loan to value is much lower (and not even allowed on some shares).

It's both. You have to pay more in interest because shares can individually be more risky and prices fluctuate more.

You are able to more easly get amortgage against real estate for a greater percent of capital value which coupled with the tax system means you can become negatively geared and end up getting an income tax refund whilst earning leveraged capital profits on your real estate investment.

skid
12-10-2015, 09:28 AM
Why are you allocating your debt against propety? Just because thats what it is secured over?

Consider it different way.

You have property worth $X, and shares worth $Y. Deduct from that portfolio debt of $Z (which just happens to be secured over property to give you a low interest rate).

My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

that depends on whether you are going for absolute maximum profit or more of an element of saftey(in terms of more equity in your properties)
Its hard to see what the economic future is atm but there is certainly real chance that things could get ugly and that is not an environment you want to be over leveraged in--even with low interest rates,paying off a greater % of your debt on property is not a bad place to be.


Meanwhile --Train to Hamilton--Is a rush hr delay for freight more important than helping to solve the housing crises? (especially considering some of the massive housing projects in all ready overcrowded Auckland to solve the housing crises ,but at the same time ,add to the traffic crises.---no easy answers --I wonder how a rail upgrade compares to a major road work (like the Northwest motorway extension incl tunnel)
Hamilton is pretty well equipped with the hospital and all--train line would also incl. Huntley.

Nasi Goreng
12-10-2015, 12:37 PM
If you are wanting a train from Auckland to Hamilton, I would imagine it would need new lines. For it to be a goer, I think it would have to be a pretty fast train around 200 kph, something in the region of 30-40 minutes.

It would be awesome for Hamilton and I'm pretty sure that Hamilton would do quite well out of it with businesses considering being based in Hamilton. However, given all of the half arsed kiwi infrastructure projects that have been done over the last 100 years, I don't see this anywhere on the horizon.

macduffy
12-10-2015, 01:21 PM
Its not the Tax System!!! Its the banking system which allows for much lower interest rates for property.

I have debt secured over shares and it is treated exactly the same as debt secured over property, the only difference is the interest rate is 1.2% higher and the loan to value is much lower (and not even allowed on some shares).

That's true. The capital that banks are required to hold in respect of their loans for property is much lower than that required for loans for "riskier" purposes. Makes sense - except perhaps when property bubbles develop!

:ohmy:

Bjauck
12-10-2015, 04:36 PM
If you are wanting a train from Auckland to Hamilton, I would imagine it would need new lines. For it to be a goer, I think it would have to be a pretty fast train around 200 kph, something in the region of 30-40 minutes.

It would be awesome for Hamilton and I'm pretty sure that Hamilton would do quite well out of it with businesses considering being based in Hamilton. However, given all of the half arsed kiwi infrastructure projects that have been done over the last 100 years, I don't see this anywhere on the horizon. The current government does seem to be reactive rather than proactive. However given current immigration / upper North Island pop growth demand for housing and transport will grow and perhaps at some stage there could be a private public partnership to provide a modern rail service Ham-Auck. May an IFT-Super-Govt partnership...

BeeBop
12-10-2015, 04:53 PM
Why are you allocating your debt against propety? Just because thats what it is secured over?

Consider it different way.

My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You have property worth $X, and shares worth $Y. Deduct from that portfolio debt of $Z (which just happens to be secured over property to give you a low interest rate).

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

Absolutely fair comment and well worth me including in my tracking.

So even if I subtract my current WACC (5.21%), the returns are still good 10% to 15% with the 10% being my NZ portfolio (which has a LVR of 35%). And yes, I am well overweight in property, running an overall share portfolio of between 5 and 10% of the property (excluding our Kiwisaver untouchable). The problem for me is, I have no "professional" financial/investment training (but have been investing for more than 20 yrs) and am working totally solo due to location and situation. The time I need to put into the shares is very very high as I need to ensure that my overall return is better than the mortgage rate (I don't include capital gains for properties). The shares give me international reach and better liquidity. When the portfolio gets larger I sell and reduce debt. So far the process has been working and I don't feel confident enough to put more money into shares - someone can live in a house when everything goes wrong but when a share goes "belly-up" it merely goes to a $0 value (Aero Inventory case in-point as one of my early zeros due to accounting fraud!).

skid
14-10-2015, 02:56 PM
If you are wanting a train from Auckland to Hamilton, I would imagine it would need new lines. For it to be a goer, I think it would have to be a pretty fast train around 200 kph, something in the region of 30-40 minutes.

It would be awesome for Hamilton and I'm pretty sure that Hamilton would do quite well out of it with businesses considering being based in Hamilton. However, given all of the half arsed kiwi infrastructure projects that have been done over the last 100 years, I don't see this anywhere on the horizon.

I used to take the train from Kyoto to Osaka (japan) it was nowhere near that fast --took about an hour---If you were starting from scratch though you would want an express and local--if you live at one of the less used stations you simply get off the express at the nearest big station and transfer to the local for your stop----1 hr would be perfectly acceptable from Hamilton to AK and back(while you read the paper or do your computer work)

artemis
11-11-2015, 12:58 PM
In today's Herald - What offers higher returns for less work, but has trouble winning Kiwi investors over? You guessed it ...

Worth a read. A fairly even handed article by Mark Lister, and pretty much once over lightly, though in the end he has a bob each way. One thing not covered is that many people are more familiar with property than with annual accounts and the sharemarket. There is a natural inclination to stick with what you know. And again, having some else pay for part of your asset (tenants) is usually rather more attractive than paying it yourself.


"Some property people will never touch shares. Likewise, some share investors see property as too much hard work for relatively modest rewards. The NZX50 gross dividend yield of 6.5 per cent from shares certainly stacks up well against rental yields. Shares and property have many fundamental value drivers in common, but they are also very different. I'm not sure there is a clear winner. I also suspect the more astute investors don't waste their time having this debate, but rather acknowledge the pros and cons of each, and simply own both.

voltage
11-11-2015, 08:26 PM
Agree, good article. What makes the difference with property is the ability as mentioned to leverage easily which increases further returns in a rising market.

beetills
29-01-2016, 02:44 PM
Just recieved a letter from MSF(MUTUAL SUPER FUND) to say that they are winding up the scheme effective 31/1/16.
So ends my foray into commercial building investment which was preceded by the ending of my farming investment when NZ Farming Systems Uruguay were taken over.What's next?

fungus pudding
29-01-2016, 03:05 PM
Just recieved a letter from MSF(MUTUAL SUPER FUND) to say that they are winding up the scheme effective 31/1/16.
So ends my foray into commercial building investment which was preceded by the ending of my farming investment when NZ Farming Systems Uruguay were taken over.What's next?

There's still the Listed Property Trusts if you like commercial and industrial property.

macduffy
29-01-2016, 03:31 PM
There's still the Listed Property Trusts if you like commercial and industrial property.

Or the listed retirement village (property) companies. Or AIA (airport/commercial property).

Lewylewylewy
04-02-2016, 02:25 PM
Since chatting with FP in another forum, I've changed my strategy. I've been investing in LPTs and shares whose value is close to NTA, where their revenue is related to the property they hold. I have a few other rules, such as they must have an OK div % return and consistent growth. I have a few exceptions to this, where I think there are exceptionally strong companies (monopolies) and I also trade (rather than invest) in companies that fluctuate due to economic or company specific winds.

I'm currently working towards making my portfolio look like this:

Invest in LPTs, VHP, SUM, POT, AIA, with a preference for the non LPTs
Small holding in IFT, TME, SPK, ANZ, SCL, SEK, MMH, SPN, RBD, ANZ and WBC

I also have a $10k fund for "fun", profits from which get invested.

voltage
15-02-2016, 08:22 AM
An interesting article.
Australian shares

Down 2.2 per cent in 10 years

House prices

Up 92 per cent in Sydney and Melbourne

voltage
15-02-2016, 08:25 AM
forgot to post the link from the herald
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11589538
Christopher Niesche: Lost decade as Oz shares go sideways
Statistics show market failing to produce solid and consistent returns for investors as property prices soar.

unhuman
15-02-2016, 01:57 PM
That would be clouded by mining stocks one would imagine.

Corleone
15-02-2016, 07:20 PM
Looks about right if you use Barramundi as a gauge

voltage
15-02-2016, 07:55 PM
and no wonder everyone invests in property in NZ.

Yoda
02-06-2016, 07:35 AM
Does share trading have an impact on investment property I own ? ie if I trade shares, does that taint my investment rental sale in the future at taxable too ?
Is there a forum for tax questions ?
I will be discussing with my Tax accountant any way , but wanted to ask around ..........

fungus pudding
02-06-2016, 08:15 AM
Does share trading have an impact on investment property I own ? ie if I trade shares, does that taint my investment rental sale in the future at taxable too ?
Is there a forum for tax questions ?
I will be discussing with my Tax accountant any way , but wanted to ask around ..........

I doubt it. It is your intent when purchasing the property that determines the status of any profit outside of the initial 2 years where the bright line test applies.

artemis
02-06-2016, 08:40 AM
Does share trading have an impact on investment property I own ? ie if I trade shares, does that taint my investment rental sale in the future at taxable too ?
Is there a forum for tax questions ?
I will be discussing with my Tax accountant any way , but wanted to ask around ..........

Propertytalk site has a forum for Finance / Legal / Tax. it would be a good place to ask your question.

Harvey Specter
02-06-2016, 09:03 AM
Does share trading have an impact on investment property I own ? ie if I trade shares, does that taint my investment rental sale in the future at taxable too ? No it doesn't.

Rules for property are stricter and more tainting applies but that only effects other property, not other investments. Share trading does not taint other investments per se but in theory, they could use as evidence of your mindset.

Yoda
03-06-2016, 04:48 PM
Thanks for all your replies . Much apreciated. Hope your year is a good one.

Valuegrowth
13-09-2016, 11:33 AM
Both have risk and returns. Intelligent investors know how to pick great winning stocks and property before the major cycle. Buying property at the wrong time could end up with becoming bankrupt. Only experienced investors and traders will have edge over others in both types of investments. Some are good at stocks and some are good at property.

beetills
24-01-2017, 01:31 PM
I heard from a mate today,that some people are buying homes and then renting them back to themselves.
Is this even possible?

artemis
24-01-2017, 02:09 PM
I heard from a mate today,that some people are buying homes and then renting them back to themselves.
Is this even possible?


Certainly, quite common with trusts and companies owning houses. And with family buying and renting to other family - also common. In those cases, the tenant can effectively be the owner as the property will eventually pass by sale, gift or inheritance. Not exactly what your question was, but more likely than personal ownership renting to the owner.

There are tax implications. If expenses are claimed against rent, IRD require market rent to be either paid or deemed to be paid. If that doesn't happen, IRD will consider it tax evasion.

I rent a property to family, and make sure the rent is within the range on the Tenancy Services site market rent page.

Harvey Specter
24-01-2017, 02:50 PM
I heard from a mate today,that some people are buying homes and then renting them back to themselves.
Is this even possible?If you do this from the outset, I would say this is tax avoidance, even if you use a company/trust. Is there any other reason than to avoid tax?

To family members is different, especially extended family members (just ensure it is a market rent), or if situations change and you move into property (but if it is long term, you should really do a change of use from 'business' to 'personal').

Basically it screams tax avoidance unless you have a good reason. The IRD will probably shot first, ask questions later if they became aware of it.

fungus pudding
24-01-2017, 03:06 PM
Certainly, quite common with trusts and companies owning houses. And with family buying and renting to other family - also common. In those cases, the tenant can effectively be the owner as the property will eventually pass by sale, gift or inheritance. Not exactly what your question was, but more likely than personal ownership renting to the owner.

There are tax implications. If expenses are claimed against rent, IRD require market rent to be either paid or deemed to be paid. If that doesn't happen, IRD will consider it tax evasion.

I rent a property to family, and make sure the rent is within the range on the Tenancy Services site market rent page.

If the property is run at a loss it is not likely to create a deducible loss unless you can come up with a damn good reason for the structure. Any scheme with no other purpose than avoiding tax is not recognised by IRD. Otherwise we would all move out and swap with our neighbours.

Aaron
25-01-2017, 08:55 AM
I heard from a mate today,that some people are buying homes and then renting them back to themselves.
Is this even possible?
It is possible but you might want to check this page first
http://www.ird.govt.nz/property/
http://www.ird.govt.nz/resources/1/8/183605804358bfcf96fa964e9c145ab7/ir361.pdf
The second link is hopefully to an IR361 booklet check out page 17.
It might pay to talk to an accountant before you do this as it will most likely be considered tax avoidance.

troyvdh
25-01-2017, 07:15 PM
Hey guys...I say again..check out..the differences between wealth ..and money...just saying.,.

NeverQuestion
17-12-2017, 10:33 AM
Something I have come across recently is something call "Mark to Market accounting". It works well in the derivative world but apparently gets applied to banks with assets and liabilities reviews every quarter . If the house prices ever crashed in NZ does anyone know if this would get invoked and cause foreclosures like what happened in the states?

macduffy
17-12-2017, 03:39 PM
Not so long as individual mortgagors continue to meet their repayments. Foreclosure is usually a bank's last resort to secure repayment - in whole or part - and mortgagee sales would act to further depress house prices. Market to market accounting requires "live" market prices for the securities being valued.

troyvdh
09-06-2018, 11:35 PM
Ok ..property or shares....you can have both....who can name the most profitable property company listed over the last 2 decades.

macduffy
10-06-2018, 09:09 AM
Ryman Healthcare?

troyvdh
18-06-2019, 11:26 PM
No cigar sir...have a wee peek at 5 year chart ..PFI

cammo
21-10-2019, 05:23 PM
with the recent changes to the tax situation regarding rentals and more and more legislation coming on; the rental side of things is a poor choice. An indexed share investment would be much better proposal. Government keen on hitting landlords and kissing tenants. Im getting out of rentals almost totally as I see them as only an enforced savings plan( why pay off capital on a mortgage that the tenant pays the interest? ) too many defaults, bad tenants, idiot damage, costs not claimable, kitchen/ bathroom replacements and paint every 8 years etc. Shares have none of these and you can build from zero adding as much as it compounds.
Government has now gone too far the other way and we will see mums and dads exit the market over the next while. The capital gain promise doesnt offset the continual costs they are now burdened with. This is all without a property management ticket clipper.
Commercial may be better, but have two of these, one sat empty for 9 months, another one had a tenant go under in, all losing propositions for the landlord. And the roof needs replacement, water leaks, etc,etc,etc.

artemis
21-10-2019, 06:03 PM
with the recent changes to the tax situation regarding rentals and more and more legislation coming on; the rental side of things is a poor choice...... .

Don't disagree with you, but two things to consider ...

First - leverage. Easier with property, less risky for banks. Speaking generally of course. Secondly - if the rental pool shrinks, and it looks like it is, higher rents and good tenants are on the cards. Of course those higher rents are needed to pay for the tax and compliance changes, but think of it as getting the tenants paying to upgrade your asset.

Also, it is at least possible we will have a different government next year, and National is yet to announce its housing policy. They may walk back some Labour initiatives, esp if landlords let them know how much their rents are going up to pay for those policies. (National has already said they will take the bright line test back to 2 years from Labour's 5.)

SBQ
21-10-2019, 08:16 PM
Don't disagree with you, but two things to consider ...

First - leverage. Easier with property, less risky for banks. Speaking generally of course. Secondly - if the rental pool shrinks, and it looks like it is, higher rents and good tenants are on the cards. Of course those higher rents are needed to pay for the tax and compliance changes, but think of it as getting the tenants paying to upgrade your asset.

Also, it is at least possible we will have a different government next year, and National is yet to announce its housing policy. They may walk back some Labour initiatives, esp if landlords let them know how much their rents are going up to pay for those policies. (National has already said they will take the bright line test back to 2 years from Labour's 5.)

As for mom & pop rentals it is tough and the experience i've seen is the risk is very high if you're going in the game with just only 1 or 2 houses. A wise landlord told me the key reason is econmies of scales ; when you have 1 house and it sits empty, you've essentilally lost 100% of your return on the investment. In his case, he owns a 25 dwelling apartment complex which is fully tenanted most of the time. But don't take my word, just look at the large pool of seminars going around NZ getting the small mom & pop investors into the real estate game. They pool the investors $ together to buy real estate all over NZ and work out the projected returns etc. and managing (again, on economies of scales).

As I mentioned before, there's good reason why one can leverage into buying real estate. It's because the banks like it. But when you ask them for a loan to buy equities they'll gladly show you the door. The risk levels are entirely different because banks want low risk loans. Go to a NZ broker and ask what their margin lending rates are and the fees they tack on for borrowing $.

Either 2 or 5 years, the brightline test does not worry me. Where I came from (Canada), any 2nd or 5th purchase of a house will always have CGT or straight income tax rates. The compelling issue in NZ is there's a huge inequity on investments between NZ real estate and foreign share holding equities because the former can be 100% tax free while the latter attracts FIF. So any person that looks to do index ETF investing needs to determine 1) do I pick NZ shares because they're exempt from FIF and have tax free capital gain like on a house? (of course book value rarely rises on NZ shares as they're mostly dividend paying focussed) or 2) buy real hard assets like houses because the bank knows that houses & land does not walk away and maintains their value unlike share holdings in a pooly managed company.

Cricketfan
23-11-2020, 08:45 AM
It's been a while since this was discussed. What are people's thoughts now that we've gone through an election and Covid? If you had $200-300k cash, the same amount in shares, 15+ years from retirement, would you consider using some of that cash as a deposit on a property in Auckland?

artemis
23-11-2020, 10:16 AM
It's been a while since this was discussed. What are people's thoughts now that we've gone through an election and Covid? If you had $200-300k cash, the same amount in shares, 15+ years from retirement, would you consider using some of that cash as a deposit on a property in Auckland?

Are you thinking of a rental? If so the current and soon to be in place rules are quite ridiculous and carry big potential fines for non compliance.

Check these docs with new rules for a start, not forgetting the Residential Tenancies Act with a few hundred more rules. I have a pretty good understanding of the rules and no way would I be putting money, time, effort and risk into (more) rentals now.

This one only has 52 pages LOL.

https://www.hud.govt.nz/assets/Residential-Housing/Tenancy-and-Rentals/Residential-Tenancies-Act-Reform-Frequently-Asked-Questions-Update-September-2020.pdf

Haven't counted the docs at this site but there are many links to excruciating detail.

https://www.tenancy.govt.nz/healthy-homes/

Cricketfan
23-11-2020, 11:13 AM
Are you thinking of a rental? If so the current and soon to be in place rules are quite ridiculous and carry big potential fines for non compliance.


Yeah was thinking of a rental. The new rules do sound quite involved, and I guess the risk of non-compliance is still very real even if using a property manager. Still, the way the prices are going at the moment, other investors don't seem to mind taking on those risks. I'll probably leave my cash alone though :)

dobby41
23-11-2020, 11:22 AM
Yeah was thinking of a rental. The new rules do sound quite involved, and I guess the risk of non-compliance is still very real even if using a property manager. Still, the way the prices are going at the moment, other investors don't seem to mind taking on those risks. I'll probably leave my cash alone though :)

The new rules aren't that hard to comply with - just do it.

artemis
23-11-2020, 11:37 AM
The new rules aren't that hard to comply with - just do it.

You might be correct in relation to some of the new rules, provided the tenants are pretty good and the owner has funds available to upgrade, often many thousands. Of course it is the tenants paying for the upgrades through rent increases, and landlords will be terminating risky tenants while they can. Same as other businesses.

One of the first new rules brought in 3 years ago was banning letting fees paid by tenants to property managers. What then happened is that property managers charged owners and put the rent up to recoup the fee. Who'd have thunk it?

artemis
23-11-2020, 11:48 AM
Yeah was thinking of a rental. The new rules do sound quite involved, and I guess the risk of non-compliance is still very real even if using a property manager. Still, the way the prices are going at the moment, other investors don't seem to mind taking on those risks. I'll probably leave my cash alone though :)

The number of investors borrowing each month is not far off the average for the last few years, and will decrease when LVRs are back next year, going by the spike this year post lockdown and post LVRs.

dobby41
23-11-2020, 12:45 PM
One of the first new rules brought in 3 years ago was banning letting fees paid by tenants to property managers. What then happened is that property managers charged owners and put the rent up to recoup the fee. Who'd have thunk it?

The landlords are in a better position to challenge the PMs on their fees than the tenants were.
The PMs came up with several different approaches on how to charge LLs - from just charge a flat fee per new let to increase the management fee to cover (one I had worked out that they worked on an average 2 year turnover).
Where that fee is on-charged is up to the market and the rent is not cost-plus but rather 'what the market will bear'.

Norwest
23-11-2020, 01:45 PM
It's been a while since this was discussed. What are people's thoughts now that we've gone through an election and Covid? If you had $200-300k cash, the same amount in shares, 15+ years from retirement, would you consider using some of that cash as a deposit on a property in Auckland?

You'll probably have to use all that cash for a deposit for a half decent place and I don't bother with apartments you won't get the capital gains like you will on land.


The new rules aren't that hard to comply with - just do it.

Yep, exactly, I just increase the rent for each of these new rules that cost me, the tenants always end up paying for it... its a business for me not a hobby.

artemis
23-11-2020, 01:49 PM
....Where that fee is on-charged is up to the market and the rent is not cost-plus but rather 'what the market will bear'.

For the time being the market is coping with record rent increases in many locations. Trademe's monthly rental price index does show West Coast rents falling. Other areas not so much, and that is in a very low interest environment.

dobby41
23-11-2020, 02:17 PM
For the time being the market is coping with record rent increases in many locations. Trademe's monthly rental price index does show West Coast rents falling. Other areas not so much, and that is in a very low interest environment.

Exactly - West Coast falling though their costs haven't changed (or have gone up).
That's how the market works.

artemis
23-11-2020, 03:06 PM
Exactly - West Coast falling though their costs haven't changed (or have gone up).
That's how the market works.

So what happens next when rentals start reporting a rental loss that cannot be offset against other income so is being funded from tax paid income. Umm, it's the market working so options are considered by the asset owner. Because they can.

fungus pudding
23-11-2020, 03:18 PM
So what happens next when rentals start reporting a rental loss that cannot be offset against other income so is being funded from tax paid income. Umm, it's the market working so options are considered by the asset owner. Because they can.

Owners have the option of selling if it becomes unprofitable to let it. Because they can. And if enough landlords choose that option the rental prices will rise. Because they can.

SBQ
23-11-2020, 04:51 PM
Yeah was thinking of a rental. The new rules do sound quite involved, and I guess the risk of non-compliance is still very real even if using a property manager. Still, the way the prices are going at the moment, other investors don't seem to mind taking on those risks. I'll probably leave my cash alone though :)

Yep - people have worked it out that gains on housing prices go tax free and the NZ gov't won't address housing inequality (affordability - or whatever people call it).

New rental rules means, newer houses will fetch for higher prices while old dumps will go un-tenantable or will incur costly renovations.

fungus pudding
23-11-2020, 05:25 PM
Yep - people have worked it out that gains on housing prices go tax free and the NZ gov't won't address housing inequality (affordability - or whatever people call it).

New rental rules means, newer houses will fetch for higher prices while old dumps will go un-tenantable or will incur costly renovations.

Gains may be tax free, and losses are not deductable.

artemis
23-11-2020, 06:04 PM
Owners have the option of selling if it becomes unprofitable to let it. Because they can. And if enough landlords choose that option the rental prices will rise. Because they can.

Quite so. AKA the Golden Rule. The ones with the gold might not make the rules these days but they sure can make their own decisions.

dobby41
24-11-2020, 07:11 AM
Yep - people have worked it out that gains on housing prices go tax free and the NZ gov't won't address housing inequality (affordability - or whatever people call it).

New rental rules means, newer houses will fetch for higher prices while old dumps will go un-tenantable or will incur costly renovations.

That's the way it should be in a working market.
Unfortunately the market doesn't work properly at the moment because there is a shortage of housing - old dumps are rentling for far more than they should.
They don't get upgraded to a decent standard voluntarily hence the new regulations.

dobby41
24-11-2020, 07:12 AM
Gains may be tax free, and losses are not deductable.

not initially but they can accumulate.
If held long term they do eventually make a profit - mine did.

dobby41
24-11-2020, 07:13 AM
So what happens next when rentals start reporting a rental loss that cannot be offset against other income so is being funded from tax paid income. Umm, it's the market working so options are considered by the asset owner. Because they can.

What happens?
The person wears the risk they took on.
Some take it on with rose tinted glasses and get caught out - tough!

SBQ
24-11-2020, 08:07 AM
not initially but they can accumulate.
If held long term they do eventually make a profit - mine did.

A fair assumption is only a small handful get caught out on paying taxes on the capital gain. I've heard of some cases in Queenstown developments etc. But for the individual, only a fool or some uncertain circumstance will have IRD taxing the gains.

How else does the middle class move up and make retirement savings? Kiwi Saver won't do it because of the lack of leveraging. Yet there's so much advertising in KS giving the illusion that the working class is missing 'better?' investments by not having a KS when the fact is, it's owning their own home by using the bank's money, will provide the largest nest egg net of taxes.

dobby41
24-11-2020, 08:51 AM
A fair assumption is only a small handful get caught out on paying taxes on the capital gain. I've heard of some cases in Queenstown developments etc. But for the individual, only a fool or some uncertain circumstance will have IRD taxing the gains.

How else does the middle class move up and make retirement savings? Kiwi Saver won't do it because of the lack of leveraging. Yet there's so much advertising in KS giving the illusion that the working class is missing 'better?' investments by not having a KS when the fact is, it's owning their own home by using the bank's money, will provide the largest nest egg net of taxes.

With an average KS balance of $17k (https://www.junokiwisaver.co.nz/you-money/you-money-article/whats-the-average-kiwisaver-balance) they aren't going to get much house. (I know averages lie a lot and I wrote that just for effect.)
Owning their own home puts them into a good position for retirement (it is well known that your pension goes much further if you aren't paying rent) but it doesn't give most people a lot of cash to play with.
To make property really work you need a second (or 3rd, 4th etc) house to be able sell it and recover all the capital.
Property gives capital gain (leverage and free) and shares give good income (sell a bit of the capital to spend if you need to - you can't sell a bit of a house and rent return is very low).

SBQ
24-11-2020, 10:53 AM
With an average KS balance of $17k (https://www.junokiwisaver.co.nz/you-money/you-money-article/whats-the-average-kiwisaver-balance) they aren't going to get much house. (I know averages lie a lot and I wrote that just for effect.)
Owning their own home puts them into a good position for retirement (it is well known that your pension goes much further if you aren't paying rent) but it doesn't give most people a lot of cash to play with.
To make property really work you need a second (or 3rd, 4th etc) house to be able sell it and recover all the capital.
Property gives capital gain (leverage and free) and shares give good income (sell a bit of the capital to spend if you need to - you can't sell a bit of a house and rent return is very low).

From that junokiwisaver link:
Why aren’t people contributing?

Hartmann says the main reason people aren’t contributing is they’ve taken a break from contributing, called a 'savings suspension'.

Hartmann says a lot of the people not contributing are self-employed, because it requires a bit more effort to manage contributions to your KiwiSaver account when you work for yourself. :huh:

The minimum in KS is 3% of one's income annual income which doesn't get you much despite employer matching of 3% (and in most cases, 3% is all that employers are willing to contribute if the employee wants to contribute more like 8% or more). Where I grew up in Canada, contributions can go up to 18% of one's income and many businesses do give the full matching to get the full tax deduction. However in NZ's case, the 3% is ineffective for those that want to max their mortgage. I mean the emphasis should not be KS 1st but rather, it should be get into your own home first. I recall reading 1 advisor saying "Get the MOST expensive house you can afford before you consider KS". The reasoning is you don't use KS for income - because that's what your day job is for and if income is an issue at retirement age (when NZ pension isn't enough), then what I see with seniors in retirement is they 'downsize' their home to unlock their equity. But of those that own a 2nd or 3rd home into retirement, well they're doing exceptionally well and i'm afraid no amount of contribution to KS will match that.

And after all if KS was such a great investment then the banks would be encouraging it instead of lending on houses.

As for the lack of participation by 'self employed' people in KS. Their answer is far from my experience. The business owners I deal with don't dabble in KS but instead, deal in buying houses. But don't ask me, why doesn't JunoKS go ask any bank manager this question? The banks have all this data and know what their clients are doing.

All in all i'm not impressed with NZ's marketing around around KS because I do believe they're only telling half the story. They make no mention of taxation comparisons, they make no mention of risk assessments, and as Warren Buffet touts, "all the incentive is for the financial advisers to tell people they need to be in some managed fund (so they can collect mgt fees and the NZ gov't / IRD collects all their taxes EVERY year), but they will never tell you to just sit on your rear end and buy an index ETF or the S&P500" - or in NZ's case, buying a house. In Jacinda Ardern's case, I was most disappointed when 3+ years ago she proposed NZ to have a "more fair & equitable tax system". Wasted all that money on a 'tax working group' when they recommended some sort of tax on NZ residential properties ; to only say NO after the TWG announcement. I recall Ardern saying "I will not pursue CGT for as long as i'm in politics"

and we wonder why houses are not affordable in NZ? Why Kiwi Build has been a disaster? Is this the NZ Kiwi ingenuity ? We can fix environmental problems but not 'real' problems like housing affordability. :(

Bjauck
26-11-2020, 09:46 AM
...
And after all if KS was such a great investment then the banks would be encouraging it instead of lending on houses.
..
Kiwisaver is the poor person's retirement scheme with few crumbs of enticement. Even then it can be used as a boost for raising a deposit to try to get into NZ's richer person's pension scheme (residential real estate). Certainly For those that can afford it, the scheme with historically less tax per $ return (income plus capital) is leveraged residential housing - owner-occupied housing followed by investor housing.

stoploss
26-11-2020, 10:14 AM
Kiwisaver is the poor person's retirement scheme with few crumbs of enticement. Even then it can be used as a boost for raising a deposit to try to get into NZ's richer person's pension scheme (residential real estate). Certainly For those that can afford it, the scheme with historically less tax per $ return (income plus capital) is leveraged residential housing - owner-occupied housing followed by investor housing.

Not too sure what SBQ means when he says "if KiwiSaver was such a great investment the banks would be encouraging it " The largest 3 KiwiSaver providers by funds under management are ANZ $16.4 Bio,ASB $ 12.5 Bio,WBC $ 8 Bio, they get plenty of fees .....https://www.fma.govt.nz/news-and-resources/reports-and-papers/kiwisaver-report/
So they are all over it .........

SBQ
26-11-2020, 10:52 AM
Not too sure what SBQ means when he says "if KiwiSaver was such a great investment the banks would be encouraging it " The largest 3 KiwiSaver providers by funds under management are ANZ $16.4 Bio,ASB $ 12.5 Bio,WBC $ 8 Bio, they get plenty of fees .....https://www.fma.govt.nz/news-and-resources/reports-and-papers/kiwisaver-report/
So they are all over it .........

The banks are not going to lend you $1M to buy shares in a managed KS fund. But go show them a house valued at $1M and the door is wide open. Specifically a mortgage rate at 2% with no deposit.

Banks today aren't in the game for taking high risks. They only want the for sure deal knowing houses always go up in prices. But that's not the way KS has been marketed. The middle class workers are thrown into this investment scheme without asking some real basic questions. A) What are the tax outcomes? and B) Who are the other players benefiting in this scheme?

Sorry i'm being too critical about this because where I grew up in Canada, their gov't has shifted the balance of the scale towards the lower income and middle class in terms of investments. They don't bribe them like NZ does with a $520 credit. They start with a heavy taxation limit and remove them; such as Disability Savings Funds, Education Savings Funds - for those groups of people that are disadvantaged, will get the tax free benefit. Anotherwords the complete opposite of what NZ is doing.

arekaywhy
26-11-2020, 11:33 AM
Not too sure what SBQ means when he says "if KiwiSaver was such a great investment the banks would be encouraging it " The largest 3 KiwiSaver providers by funds under management are ANZ $16.4 Bio,ASB $ 12.5 Bio,WBC $ 8 Bio, they get plenty of fees .....https://www.fma.govt.nz/news-and-resources/reports-and-papers/kiwisaver-report/
So they are all over it .........

providers aren't in it for us...they are absolutely creaming it from a captive feed, being us and our future

kiora
30-11-2020, 04:13 AM
Old news but.....
"Yet - if given a simple tweak - it could be turned into an effective capital gains tax targeting the profits investors made when buying and selling homes, Michael Rehm and Yang Yang said in a new research paper."
https://www.newstalkzb.co.nz/news/national/new-zealand-already-has-a-capital-gains-tax-you-probably-just-didnt-know-it/

kiora
30-11-2020, 04:41 AM
Kiwisaver is the poor person's retirement scheme with few crumbs of enticement. Even then it can be used as a boost for raising a deposit to try to get into NZ's richer person's pension scheme (residential real estate). Certainly For those that can afford it, the scheme with historically less tax per $ return (income plus capital) is leveraged residential housing - owner-occupied housing followed by investor housing.

Kiwisaver would be a far better retirement saver IF the default was for growth & not these so called low risk funds. Low risk for serial underperforming more like it with 20-100% held in interest bearing funds. They so underperform by 5-10% compounding yearly its NOT funny.

artemis
30-11-2020, 04:57 AM
Old news but.....
"Yet - if given a simple tweak - it could be turned into an effective capital gains tax targeting the profits investors made when buying and selling homes, Michael Rehm and Yang Yang said in a new research paper." ....

Old news, certainly, and the 'intention test' is still there. As is IRD's difficult job determining evidence of intention, possibly years ago, even though IRD would place the burden of proof on the owner. No reason it would not apply to any property, including owner occupied, and might be a slight pushback from homeowners on that LOL.

The researchers miss a very important point, that rental property owners seldom start our being cash flow positive but reach break even point in time and start paying tax on rental income*. Using recent purchase prices and expense levels misses the whole point of rentals as investments. This appears to be a major flaw in their argument.

* This point in time changed with the introduction of ring fencing of rental losses. Now that rental losses can no longer be offset against other income, they get carried forward to be used once profit begins. The losses could be very substantial, so it is 'jam today' for the government but not for future governments. And for owners paying some expenses from tax paid income there is a strong incentive to look for ways to reduce liability.

Bjauck
30-11-2020, 08:43 AM
... No reason it would not apply to any property, including owner occupied, and might be a slight pushback from homeowners on that LOL.
... I think it would apply to most first home buyers. The Kiwi way, in today's high priced property market, is to work your way up the property ladder to be able to end up with a family size home in a good neighbourhood. In fact trading your way up the property ladder is the only way for most (without wealthy families) to be able to get a family sized home.

As there is obviously no intent to earn income behind an owner-occupier's decision to buy a home, most must purchase with the intent to sell to leverage their capital to use for their progress up the property ladder.

However it is another very subjective matter to actually prove intent in individual cases at time of purchase.

dobby41
30-11-2020, 09:48 AM
Kiwisaver would be a far better retirement saver IF the default was for growth & not these so called low risk funds. Low risk for serial underperforming more like it with 20-100% held in interest bearing funds. They so underperform by 5-10% compounding yearly its NOT funny.

The default funds were supposed to be a holding point until a 'real' fund was chosen.
People should take just a little responsibility for what they do.

iceman
30-11-2020, 10:35 AM
The default funds were supposed to be a holding point until a 'real' fund was chosen.
People should take just a little responsibility for what they do.

Bearing in mind that new KS members today are overwhelmingly young people starting out on their life's journey, I agree with kiora that the default should be a growth fund. People can then "take a little responsibility for what they do" by lowering the risk profile if they so desire

artemis
30-11-2020, 10:46 AM
.... However it is another very subjective matter to actually prove intent in individual cases at time of purchase.

Experienced buyers, or those getting knowledgeable advice, can demonstrate intent readily enough. Often by documenting intent in emails to solicitor or accountant at the time. That would normally work unless it is clearly incorrect.

A friend bought a small place and rented it to a family member. Next minute that household changed from 1 person to 3! Sold and a bigger place bought. Easy enough to prove intention that time if asked. No request from IRD so far.

dobby41
30-11-2020, 10:47 AM
Bearing in mind that new KS members today are overwhelmingly young people starting out on their life's journey, I agree with kiora that the default should be a growth fund. People can then "take a little responsibility for what they do" by lowering the risk profile if they so desire

I don't disagree but I think it is set where it is so that the Govt has less accountability for putting a person into a fund that goes down and Growth fund will go down more often.

kiora
30-11-2020, 01:49 PM
I don't disagree but I think it is set where it is so that the Govt has less accountability for putting a person into a fund that goes down and Growth fund will go down more often.
"Growth fund will go down more often"
It may have higher volatility but go down more often?

If the right one is picked it is more likely to go up more often and by larger amounts than so called "low risk" funds. In my view the default funds are have a likely outcome of leaving the investor poor at retirement

dobby41
30-11-2020, 01:58 PM
"Growth fund will go down more often"
It may have higher volatility but go down more often?

If the right one is picked it is more likely to go up more often and by larger amounts than so called "low risk" funds. In my view the default funds are have a likely outcome of leaving the investor poor at retirement

Volatility - goes up and down.
So yes goes down more often - but has greater volatility would have said it better ;-)

And I agree that the default funds are a poor choice for most users.

Bjauck
30-11-2020, 03:56 PM
Experienced buyers, or those getting knowledgeable advice, can demonstrate intent readily enough. Often by documenting intent in emails to solicitor or accountant at the time. That would normally work unless it is clearly incorrect.

A friend bought a small place and rented it to a family member. Next minute that household changed from 1 person to 3! Sold and a bigger place bought. Easy enough to prove intention that time if asked. No request from IRD so far. So in that case the house if the house was never intended to be owner-occupied in the first place, wouldn’t the brightline test apply in that situation?

kiora
30-11-2020, 08:26 PM
"Inland Revenue is cracking down on residential property investors who have sold without paying tax on the profits."
https://www.stuff.co.nz/national/300171522/ird-cracks-down-on-residential-property-investors-shirking-bright-line

dobby41
01-12-2020, 07:17 AM
So in that case the house if the house was never intended to be owner-occupied in the first place, wouldn’t the brightline test apply in that situation?

The brightline applies if it isn't owner occupied basically.
I don't see how renting it to family members who then increased changes that - the key word is 'rented'.

artemis
01-12-2020, 09:00 AM
So in that case the house if the house was never intended to be owner-occupied in the first place, wouldn’t the brightline test apply in that situation?

Probably, depending on dates, but the post was about the intention test which is not date specific.

artemis
01-12-2020, 09:02 AM
The brightline applies if it isn't owner occupied basically.
I don't see how renting it to family members who then increased changes that - the key word is 'rented'.

Intention test, not bright line. But the bright line test only potentially applies to purchases after two specific dates.

SBQ
01-12-2020, 10:05 AM
Last year we bought the house 4 doors down from our principal residence. With the conveyance person filling out the forms, she queried us on 'intent' if we were really buying that house as a 'personal dwelling' knowing she had previously changed title of our house to our names. I thought this was quite interesting but she accepted our reason for purchasing that house last year. The full intention for buying was to provide a home for wifey's parents. Their financial situation did not permit them to buy the house outright in their name so we wanted it on our name. She accepted but informed us that IRD can check on that ; apparently they must of accepted.

I find it interesting as in Canada, there is only ONE house that is a 'principal residence' ; you can not have 2 places with that designation on the tax filing. So if IRD is really cracking down on people selling homes, at best, they're only after those that buy into as a business, renovating, flipping, etc. Clearly in our case we collect no rent, the inlaws use the place as their own and maintain it as their own. Their mail goes to there. etc. Should we feel guilty because such a move could never be done abroad?

and after all, bright-line tests really don't mean much in the realm of retirement planning. Everyone buys a house and treating it as a long term investment (no different to Kiwi Saver), is not going to sell within 5 years.

dobby41
01-12-2020, 10:29 AM
Last year we bought the house 4 doors down from our principal residence. With the conveyance person filling out the forms, she queried us on 'intent' if we were really buying that house as a 'personal dwelling' knowing she had previously changed title of our house to our names. I thought this was quite interesting but she accepted our reason for purchasing that house last year. The full intention for buying was to provide a home for wifey's parents. Their financial situation did not permit them to buy the house outright in their name so we wanted it on our name. She accepted but informed us that IRD can check on that ; apparently they must of accepted.

I find it interesting as in Canada, there is only ONE house that is a 'principal residence' ; you can not have 2 places with that designation on the tax filing. So if IRD is really cracking down on people selling homes, at best, they're only after those that buy into as a business, renovating, flipping, etc. Clearly in our case we collect no rent, the inlaws use the place as their own and maintain it as their own. Their mail goes to there. etc. Should we feel guilty because such a move could never be done abroad?

and after all, bright-line tests really don't mean much in the realm of retirement planning. Everyone buys a house and treating it as a long term investment (no different to Kiwi Saver), is not going to sell within 5 years.

I don't think you can have multiple primary residences here either.
The house you brought in your name for someone else will not be your principle residence and will be covered by the brightline test.
Will mean nothing if you don't sell or if you sell after the brightline because the brightline is just a very strict interpretation of the intention test.
We don't have a CGT (exempting PPOR or not) whereas Canada probably does so the PPOR test is even more important there.

SBQ
01-12-2020, 11:26 AM
I don't think you can have multiple primary residences here either.
The house you brought in your name for someone else will not be your principle residence and will be covered by the brightline test.
Will mean nothing if you don't sell or if you sell after the brightline because the brightline is just a very strict interpretation of the intention test.
We don't have a CGT (exempting PPOR or not) whereas Canada probably does so the PPOR test is even more important there.

In Canada there is no test. The rule is clear - 'primary' = one
There is no exemption of tax on the gains when selling a non-principal resident home either which means, there's not point of any bright-line holding period ; it's irrelevant.

If IRD wants to be greedy, they can do what the CRA does in Canada. If a portion of the principal resident home is rented out, then THAT % portion of the home will not have tax free capital gain. So if the basement works out to be 33% of the rented area of the entire house, then the owner of the house when it comes to selling (and if the place is still being rented), will have to pay CGT on that 1/3rd of the value of the home. The rental income from the suite is taxable income too. So there are many things that the NZ gov't can do to churn in more tax revenue. It all depends on the NZ politicians willingness to pay taxes on their property investments.

As far as IRD's concern, there is a key difference when you report your 'intent'. If I said we bought the house as an "investment" (and there is a tick mark box that describes what the purpose of buying the house was), then a brightline test would be less meaningful. Even after 5 years IRD can still come back to say you 'bought the house as an investment' and therefore, there is intent for profit, and therefore, taxes should be paid. People do not make 'investments', just like investing $ into a business, without the expectation of making a profit.

How about this distinction? The individual person buying shares is expecting a gain on their investment. Then why is it, the capital gains from buying NZ shares are tax free when buying foreign shares, are not tax free? IRD uses 2 kinds of measuring sticks for the same asset class but when it comes to investing in houses, it doesn't matter if they're NZ residential homes or foreign homes.

dobby41
01-12-2020, 11:41 AM
In Canada there is no test. The rule is clear - 'primary' = one
There is no exemption of tax on the gains when selling a non-principal resident home either which means, there's not point of any bright-line holding period ; it's irrelevant.

If IRD wants to be greedy, they can do what the CRA does in Canada. If a portion of the principal resident home is rented out, then THAT % portion of the home will not have tax free capital gain. So if the basement works out to be 33% of the rented area of the entire house, then the owner of the house when it comes to selling (and if the place is still being rented), will have to pay CGT on that 1/3rd of the value of the home. The rental income from the suite is taxable income too. So there are many things that the NZ gov't can do to churn in more tax revenue. It all depends on the NZ politicians willingness to pay taxes on their property investments.

As far as IRD's concern, there is a key difference when you report your 'intent'. If I said we bought the house as an "investment" (and there is a tick mark box that describes what the purpose of buying the house was), then a brightline test would be less meaningful. Even after 5 years IRD can still come back to say you 'bought the house as an investment' and therefore, there is intent for profit, and therefore, taxes should be paid. People do not make 'investments', just like investing $ into a business, without the expectation of making a profit.

How about this distinction? The individual person buying shares is expecting a gain on their investment. Then why is it, the capital gains from buying NZ shares are tax free when buying foreign shares, are not tax free? IRD uses 2 kinds of measuring sticks for the same asset class but when it comes to investing in houses, it doesn't matter if they're NZ residential homes or foreign homes.

We don't have a CGT so what Canada with theirs is moot.
We have an 'intent' test which can turn your gain into income.
We also have a more specific form of the intent with the 'brightline'.

People do invest with the expectation of making a profit but that profit could be capital or income (the intent).
A person buying shares may be expecting a 'capital' gain - or they may be expecting dividend. Capital gain isn't taxed if you are expecting dividend (which is taxed as income).
The FIF rules came in because overseas dividends are so low (mostly) that you must be expecting a capital gain - so they made a rule as such.
With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them.

artemis
01-12-2020, 12:09 PM
... With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them.

It could be said and plenty do say. But do they take into account the fourth dimension, plus changes of rules, laws and compliance since purchase.

More than 60% of rental property owners declared a profit in tax year 2018. The only rational explanation is that the intention was income not capital gain. Right?

With ring fencing of rental losses now in place, it is likely that more landlords will reduce rental losses by increasing rents and keeping maintenance to essentials. As otherwise they are dipping in to their own tax paid pocket to the tune of over $8000 average (tax year 2018 again). And of course the faster they get to break even point the faster they can use up their carried forward losses and consider exiting the sector.

I am sure those consequences were completely expected by the government.

dobby41
01-12-2020, 12:17 PM
It could be said and plenty do say. But do they take into account the fourth dimension, plus changes of rules, laws and compliance since purchase.

More than 60% of rental property owners declared a profit in tax year 2018. The only rational explanation is that the intention was income not capital gain. Right?
I wouldn't say that that was the 'only' rational intention - so no, not right.


With ring fencing of rental losses now in place, it is likely that more landlords will reduce rental losses by increasing rents and keeping maintenance to essentials. As otherwise they are dipping in to their own tax paid pocket to the tune of over $8000 average (tax year 2018 again). And of course the faster they get to break even point the faster they can use up their carried forward losses and consider exiting the sector.

I am sure those consequences were completely expected by the government.
You get to decide how much rent to charge up to a point - just because you want to make more money doesn't mean that the market will bear it!
Rent isn't a 'cost plus' thing - it is 'what the market will bear' for most landlords I have come across (and being in the 'game' I have come across many).

Bjauck
01-12-2020, 12:24 PM
...
The FIF rules came in because overseas dividends are so low (mostly) that you must be expecting a capital gain - so they made a rule as such.
With property, it could be said that for many properties the expectation of making a rent profit is so low that the only rational explanation for buying the 'rental' was for capital gain and therefore that must be your real intent - and tax them. Actually I think the NZ dividend yield was the outlier being quite high. That is probably for a variety of reasons including a high payout ratio of profit. This helps result in underinvestment in business, lack of productivity growth and many NZ businesses ending up being foreign owned (Last company please turn off the lights at the NZX?)

With interest rates on term deposits less than 1%, the net rent yield on investor housing is not looking so puny!

artemis
01-12-2020, 12:39 PM
I wouldn't say that that was the 'only' rational intention - so no, not right.

Wasn't that your argument? Low rental return so owners must be in the game for capital gain? So, if making a rental profit owners must be in the game for income?


You get to decide how much rent to charge up to a point - just because you want to make more money doesn't mean that the market will bear it!
Rent isn't a 'cost plus' thing - it is 'what the market will bear' for most landlords I have come across (and being in the 'game' I have come across many).

The market is bearing quite a lot at the moment in many locations, due to costs, risks and shortages. One bedroom flats in my suburb renting fast at $500 pw or sometimes more. Crazy, and definitely cost plus. At least the one next door to me is.

dobby41
01-12-2020, 01:00 PM
Wasn't that your argument? Low rental return so owners must be in the game for capital gain? So, if making a rental profit owners must be in the game for income?



The market is bearing quite a lot at the moment in many locations, due to costs, risks and shortages. One bedroom flats in my suburb renting fast at $500 pw or sometimes more. Crazy, and definitely cost plus. At least the one next door to me is.

I see what you're saying - I didn't say that if you buy to rent at a loss the 'only' rational reason is that you are looking for a capital gain but it is certainly a strong argument, and one that IRD may look much closer at (something that they could do without any policy changes).

Have a chat to the owner of the place next to you and check that they have worked out their costs, expected profit and turned that into a weekly rent figure - irrespective of whether someone can afford it or not.
People have many (or more) of the same cost issues on the West Coast of the Sth Island but the rents are going down - cost plus isn't working there because people aren't willing to pay the rents (because of supply they don't have to).
I put my rents up in-line with local changes even though my houses already met the Healthy Homes standards etc.
Shortages drive the price much more than costs.

artemis
01-12-2020, 02:46 PM
.... People have many (or more) of the same cost issues on the West Coast of the Sth Island but the rents are going down - cost plus isn't working there because people aren't willing to pay the rents (because of supply they don't......

Trademe's October rental price index does show West Coast rents (asking prices) reducing - down 6.7% yoy, not that much in dollar terms. Every single other region is up, several close to or even well over 10% yoy. (Gisborne region unknown.)

Increased cost, compliance and risk will not encourage people to stay in the sector, or build new.

Sgt Pepper
01-12-2020, 03:22 PM
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??:)

arekaywhy
01-12-2020, 04:16 PM
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??:)


HA! film that

Norwest
01-12-2020, 04:17 PM
Last year we bought the house 4 doors down from our principal residence. With the conveyance person filling out the forms, she queried us on 'intent' if we were really buying that house as a 'personal dwelling' knowing she had previously changed title of our house to our names. I thought this was quite interesting but she accepted our reason for purchasing that house last year. The full intention for buying was to provide a home for wifey's parents. Their financial situation did not permit them to buy the house outright in their name so we wanted it on our name. She accepted but informed us that IRD can check on that ; apparently they must of accepted.

I find it interesting as in Canada, there is only ONE house that is a 'principal residence' ; you can not have 2 places with that designation on the tax filing. So if IRD is really cracking down on people selling homes, at best, they're only after those that buy into as a business, renovating, flipping, etc. Clearly in our case we collect no rent, the inlaws use the place as their own and maintain it as their own. Their mail goes to there. etc. Should we feel guilty because such a move could never be done abroad?

and after all, bright-line tests really don't mean much in the realm of retirement planning. Everyone buys a house and treating it as a long term investment (no different to Kiwi Saver), is not going to sell within 5 years.

With what you have written I guarantee you that the IRD did not accept this property being your PPOR or "personal dwelling", your declaration is irrelevant and if you sell this property within 5 years the brightline test will apply to the sale of this property.

"Did you live there for at least 50% of the time that you owned the property?" - this simple question determines if you need to fill in an IR833 form or not.

If you don't believe me - check with your chartered accountant.

fungus pudding
01-12-2020, 06:40 PM
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??:)

Banks generally don't care what you do with the money. In fact they often grant an overdraft facility without detailing the purpose intended for using the funds. What they do care about is the security you are prepared to give them. A mortgage over a residential property is their preferred security.

Jay
01-12-2020, 08:15 PM
Banks generally don't care what you do with the money. In fact they often grant an overdraft facility without detailing the purpose intended for using the funds. What they do care about is the security you are prepared to give them. A mortgage over a residential property is their preferred security. and your ability to repay as well.

JBmurc
01-12-2020, 09:36 PM
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??:)

Yes you can and I've been doing exactly that for many years ..first I used a debt free section as security .. then equity in home ...funds loaned to my personal trading company first with SBS then ASB ,ANZ and now Westpac... at present l just over 250k ... mostly fixed 2.59% small amount floating ... with these low rates hardly an issue and my small vending business (also held by the same company ) pays all outgoings like bank interest

As to how much the bank values shares ...very little 5% (=95% risked value) is want I've been told (Vs Res property 80%) ... so even if you own the banks shares they still don't give any value to the investment which IMHO is crazy ... till you see why ... its all about security... ie you can't just get-up and take your house to some far off land ... but you could transfer all your shares into a foreign holding company and take-off over to some beach on the other-side of the world then cash out and gone..etc

kiora
02-12-2020, 06:06 AM
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be?As They could hardly say sorry buying shares in your bank is too risky??:)

As confirmed by JB they will extend revolving credit or OD secured over property for investing for income which may include shares, managed funds or ....
Interest rate will/likely be higher than normal mortgage.

Bjauck
02-12-2020, 08:05 AM
Wow, so should we steer clear of all houses?

Stuff have not lost their skill for click baiting as many readers as possible. When you click through to the actual article, the story changes somewhat!

Maybe they should package climate change as another "mea culpa" theme along with their pieces on Their contribution to racism in NZ.

After all, the adverts in their publications, which are fed by their click-baiting screaming headlines have helped foster a culture of planet-affecting mass consumerism.

https://www.stuff.co.nz/environment/climate-news/123560377/homes-to-start-losing-access-to-insurance-within-15-years--report

fungus pudding
02-12-2020, 08:21 AM
As confirmed by JB they will extend revolving credit or OD secured over property for investing for income .......

Or a new car, trip overseas, gifting to someone....etc.

SBQ
02-12-2020, 09:00 AM
With what you have written I guarantee you that the IRD did not accept this property being your PPOR or "personal dwelling", your declaration is irrelevant and if you sell this property within 5 years the brightline test will apply to the sale of this property.

"Did you live there for at least 50% of the time that you owned the property?" - this simple question determines if you need to fill in an IR833 form or not.

If you don't believe me - check with your chartered accountant.

The person that did both of our houses insisted yes, IRD can contest having both places as listed personal residence. However, my argument is this (as I tried to explain before). How is it in NZ there is a silly 'Bright Line Test' of 5 years which entirely proves ineffective to taxing any of the capital gains when the houses can be sold every 5 or 10 years? It again as I explained before, goes back to the "intent" of buying the houses (as 'investment'?). From my Cdn experience and understanding, the definition of an investment (which the Cdn Income Tax Act does define); derives income and or gains ; and therefore is subjected to taxation. When I see the word "Investment" on the IRD declaration form as one of the reasons for buying the house, again, that tells me IRD can some day in the future tweak the rules and subject 'investment' in residential properties as taxable income. You have to questioned the whole framework when you fill out these declaration forms and what possible future changes could occur.

Therefore the accountant doesn't care if you've held the house for longer than 5 years unless you've indicated 'intent' that the house was acquired purely for financial gain.

SBQ
02-12-2020, 09:04 AM
Banks generally don't care what you do with the money. In fact they often grant an overdraft facility without detailing the purpose intended for using the funds. What they do care about is the security you are prepared to give them. A mortgage over a residential property is their preferred security.

Bank definitely do care where the funds are going!! It's all tied to the interest rate. I see mortgage rates at 2% for the 1st year on homes, yet I know 1 person that had equity in their current home but was unable to get a mortgage on a more expensive home because he had 'no reliable source of income'. So in the aspect of security, generally the bank takes a MUCH higher priority on "how you're going to pay it back" and little care on what equity you have.

As I mentioned before, go ask the bank to borrow funds to invest in the share market @ near mortgage rates and they'll gladly show you the exit door. After all, that's why brokerage firms charge much higher margin rates.

dobby41
02-12-2020, 09:19 AM
Bank definitely do care where the funds are going!! It's all tied to the interest rate. I see mortgage rates at 2% for the 1st year on homes, yet I know 1 person that had equity in their current home but was unable to get a mortgage on a more expensive home because he had 'no reliable source of income'. So in the aspect of security, generally the bank takes a MUCH higher priority on "how you're going to pay it back" and little care on what equity you have.

As I mentioned before, go ask the bank to borrow funds to invest in the share market @ near mortgage rates and they'll gladly show you the exit door. After all, that's why brokerage firms charge much higher margin rates.

They care less about where the money goes and more about how you can pay it back AND what it is secured over.
Go to the bank, ask for a loan for a big holiday, show that you can pay it back and offer them adequate security - then use the money for shares.

When brokerage firms charge higher margins are they securing the loan against property? Maybe that's why they charge higher margins.

SBQ
02-12-2020, 09:19 AM
Actually I think the NZ dividend yield was the outlier being quite high. That is probably for a variety of reasons including a high payout ratio of profit. This helps result in underinvestment in business, lack of productivity growth and many NZ businesses ending up being foreign owned (Last company please turn off the lights at the NZX?)

With interest rates on term deposits less than 1%, the net rent yield on investor housing is not looking so puny!

It's the share investment culture in NZ that put extreme emphasis on dividend payout vs letting the shareholders retained earnings grow on the balance sheet. Basic accounting is when the book value per share grows, so will the share price on the open market. This is the key reason why Buffet's Berkshire Hathaway never pays a dividend because it's more tax efficient to the shareholder. As he stated, if the shareholder wants an income stream from Berkshire, then go sell a 'portion' of their shares. If this was done in NZ, the capital gain would be tax free but somehow, there's this expectation of dividends (which is taxable income); and let's not get into the complication of 'imputed' tax dividend credits for which most NZ companies don't issue at a 1 for 1 credit that a tax free capital gain would have.

Agree NZ companies will always be under invested under this dividend expectation model. The Warehouse Group has been doing this for decades ; draining after taxed corporate profits by paying into a dividend paying policy ; while on the same hand, borrowing at much higher interest rates ; from various sources like bond issues to the worse (as Buffet would say); by issuing more shares (nothing is more worse at eroding the value of existing share holder value than by diluting their share ownership through share capital raising).

Last company I recall that turned off the lights to the NZX? That was Xero and they had clear legitimate reasons for moving to the ASX. Meanwhile, the NZ Xero share holder (or managed fund) went from a tax free position of owning Xero shares when they were on the NZX, to a position where their Xero shares (or any foreign company) listed abroad would be subjected to FIF.

SBQ
02-12-2020, 09:24 AM
They care less about where the money goes and more about how you can pay it back AND what it is secured over.
Go to the bank, ask for a loan for a big holiday, show that you can pay it back and offer them adequate security - then use the money for shares.

When brokerage firms charge higher margins are they securing the loan against property? Maybe that's why they charge higher margins.

That's not entirely true. As I said before, the primary indicator is how you're going to pay it back. In the case of a mortgage ; they're so critical to the house you're buying that quite often they won't accept any building inspection report. Some banks require their own vetted building inspectors but the overall critical factor is the house "must be INSURABLE".

Now take the same funds and buy shares? Show me where brokerage accounts in NZ are insured? Are the share investments insured? Nope - even cash in NZ banks have no depository insurance like the US & Canada have.

Anotherwords, all the equity you have means nothing to the bank if you have no income. Even pension income is not factored in because they look at your age. I'll have to say age is a bigger importance than the equity itself.

dobby41
02-12-2020, 09:35 AM
That's not entirely true. As I said before, the primary indicator is how you're going to pay it back. In the case of a mortgage ; they're so critical to the house you're buying that quite often they won't accept any building inspection report. Some banks require their own vetted building inspectors but the overall critical factor is the house "must be INSURABLE".

Now take the same funds and buy shares? Show me where brokerage accounts in NZ are insured? Are the share investments insured? Nope - even cash in NZ banks have no depository insurance like the US & Canada have.

Anotherwords, all the equity you have means nothing to the bank if you have no income. Even pension income is not factored in because they look at your age. I'll have to say age is a bigger importance than the equity itself.

Which bit is not entirely true?
That they don't really care what you do with the money?
That they want to know how you will pay the mortgage back (wages etc)?
That they want to know that if you don't pay it back they have sufficient security over a suitable house?

Maybe my post wasn't clear - by adequate security I was meaning a house (one suitable to the bank (insurable etc)).

SBQ
02-12-2020, 11:29 AM
@dobby41:

The question lies in what the borrowed funds will be used for. I know 1st hand of a friend (on pension) that has been mortgage free for some time but the bank would not lend him a mortgage on a larger place, despite having the equity of a fully paid home. Their reason was clear; 1) no reliable source of income & 2) his age. While banks aren't really allowed to discriminate by age, the prior is the key reason for rejection of mortgages.

Take the case for house & land package builds where the banks make payment under 'progress payments' to the builder. Changes to the housing plans / variations are red flags as they need 100% clarity what the extra funds (or where the funds go?) will be allocated to in the building process. In this scenario, no bank is going to give 100% of the funds and let the person project manage & choose how they spend it without formal disclosure and contracts.

On a slightly different issue, i'm not at all impressed that almost all the banks in NZ (except Kiwi Bank) are foreign owned. That is, the profits they make are to the benefit of the shareholders abroad. I'm not saying there should be laws to discourage foreign ownership but I do think NZ is way behind in terms of shifting from non-productive 'real estate assets' to investing in more liquid assets like shares in business all over the world. However, our tax laws discriminate dearly with preferential (or lack of tax) on real estate vs more productive assets like equities.

artemis
02-12-2020, 12:10 PM
..... Last company I recall that turned off the lights to the NZX? That was Xero and they had clear legitimate reasons for moving to the ASX. Meanwhile, the NZ Xero share holder (or managed fund) went from a tax free position of owning Xero shares when they were on the NZX, to a position where their Xero shares (or any foreign company) listed abroad would be subjected to FIF.

Xero is a NZ resident company.

Bjauck
02-12-2020, 12:29 PM
...
Last company I recall that turned off the lights to the NZX? That was Xero and they had clear legitimate reasons for moving to the ASX. Meanwhile, the NZ Xero share holder (or managed fund) went from a tax free position of owning Xero shares when they were on the NZX, to a position where their Xero shares (or any foreign company) listed abroad would be subjected to FIF.Back in the day, when NZ had a "brain drain" and there was more emigration than immigration, there was a joke than the last person to leave NZ should turn off the lights...Seems incredible today after so much population growth due to migration.


MET recently had its light on the NZX extinguished. I don't know with XRO, but many Australian listed companies are exempt from FIF rules..

dobby41
02-12-2020, 12:35 PM
@dobby41:

The question lies in what the borrowed funds will be used for. I know 1st hand of a friend (on pension) that has been mortgage free for some time but the bank would not lend him a mortgage on a larger place, despite having the equity of a fully paid home. Their reason was clear; 1) no reliable source of income & 2) his age. While banks aren't really allowed to discriminate by age, the prior is the key reason for rejection of mortgages.

So the mortgage wasn't rejected because of what they wanted to USE the money for but rather their ability to pay it back.
So you have proven my point!

dobby41
02-12-2020, 12:39 PM
On a slightly different issue, i'm not at all impressed that almost all the banks in NZ (except Kiwi Bank) are foreign owned. That is, the profits they make are to the benefit of the shareholders abroad. I'm not saying there should be laws to discourage foreign ownership but I do think NZ is way behind in terms of shifting from non-productive 'real estate assets' to investing in more liquid assets like shares in business all over the world. However, our tax laws discriminate dearly with preferential (or lack of tax) on real estate vs more productive assets like equities.

Maybe you can clarify something for me - how are equities productive?
Buying initial shares in a new venture is productive but after that the company doesn't get a cut from the trading so how do they add to the company?
Sure, if they make another equity raise it helps to have a high share price but that doesn't happen a lot.

A rental property could be considered productive - they produce a lot of ongoing economic activity from property management to repairs and maintenance.

iceman
02-12-2020, 01:17 PM
A theoretical question.
I presume banks will not agree using equity in your home to invest in shares? or am I mistaken? But if I went to ANZ or Westpac and indicated that the money would be used to buy their Shares (WBC or ANZ) what would the response be? They could hardly say sorry buying shares in your bank is too risky??:)

You are mistaken. I have just done exactly that with ANZ. No problems as long as your LVR and repayment ability is in order.

Sgt Pepper
02-12-2020, 01:21 PM
You are mistaken. I have just done exactly that with ANZ. No problems as long as your LVR and repayment ability is in order.
thanks ICEMAN. tempting;)

iceman
02-12-2020, 01:42 PM
thanks ICEMAN. tempting;)

Just to be clear. I didn't say anything about where I was going to invest it. Just a loan for "investments opportunities". No questions asked.

fungus pudding
02-12-2020, 02:31 PM
Just to be clear. I didn't say anything about where I was going to invest it. Just a loan for "investments opportunities". No questions asked.

I didn't have a mortgage on my house until bank told me they had a special offer. If I took minimum of $150,000 or more (revolving credit) there would be no fees, so I took it. No discussion about where I would use it, std home rates. Problem is I can't be bothered using it. Those days are gone.

JBmurc
02-12-2020, 03:09 PM
As confirmed by JB they will extend revolving credit or OD secured over property for investing for income which may include shares, managed funds or ....
Interest rate will/likely be higher than normal mortgage.

I'm getting Res rates so 2.59% not only for the company loan (business + shares) but Commercial property as well ... but thats with Westpac many banks will try to screw you and charge higher rates

SBQ
02-12-2020, 05:38 PM
Maybe you can clarify something for me - how are equities productive?
Buying initial shares in a new venture is productive but after that the company doesn't get a cut from the trading so how do they add to the company?
Sure, if they make another equity raise it helps to have a high share price but that doesn't happen a lot.

A rental property could be considered productive - they produce a lot of ongoing economic activity from property management to repairs and maintenance.

There's a lot of inconveniences owning a rental property ; the maintenance and rates, insurance, expense that eats the return on the rental income. Where does this leave in terms of overall productivity? Not a lot compared to ownership of a business that allocates the wealth in all different areas. Specifically if one that can be exported (no you can't export the land and house it sits on in NZ abroad). So from an economic potential, there's no way a house can out beat the productivity potential of tangible & intangible products that can have a global market exposure.

But don't take my word for it. Have a read below that puts NZ's productivity at the near bottom:

Or, and the economic issue that mostly drove the creation of this blog, New Zealand’s dismal long-term economic performance. In short, productivity growth (and the lack of it), and our continued decline relative to other advanced economies...

Sadly, the only realistic interpretation one can take is that the IMF thinks that over 2019 to 2025, on current government policies, New Zealand’s productivity growth performance – labour productivity and MFP – will be simply shocking. Most probably negative – the only way to square falls in real GDP per capita, unemployment returning towards normal, and a reasonable level of investment – and almost certainly far worse than in almost all other advanced economies, and especially far worse than the performance in the countries that were aiming to close gaps with the OECD leaders.

https://croakingcassandra.com/category/productivity/

Perhaps NZ's huge preference in owning real estate assets is part of the reasons of NZ's low productivity? I would believe so.

fungus pudding
02-12-2020, 05:57 PM
There's a lot of inconveniences owning a rental property ; the maintenance and rates, insurance, expense that eats the return on the rental income. Where does this leave in terms of overall productivity? Not a lot compared to ownership of a business that allocates the wealth in all different areas. Specifically if one that can be exported (no you can't export the land and house it sits on in NZ abroad). So from an economic potential, there's no way a house can out beat the productivity potential of tangible & intangible products that can have a global market exposure.

But don't take my word for it. Have a read below that puts NZ's productivity at the near bottom:

Or, and the economic issue that mostly drove the creation of this blog, New Zealand’s dismal long-term economic performance. In short, productivity growth (and the lack of it), and our continued decline relative to other advanced economies...

Sadly, the only realistic interpretation one can take is that the IMF thinks that over 2019 to 2025, on current government policies, New Zealand’s productivity growth performance – labour productivity and MFP – will be simply shocking. Most probably negative – the only way to square falls in real GDP per capita, unemployment returning towards normal, and a reasonable level of investment – and almost certainly far worse than in almost all other advanced economies, and especially far worse than the performance in the countries that were aiming to close gaps with the OECD leaders.

https://croakingcassandra.com/category/productivity/

Perhaps NZ's huge preference in owning real estate assets is part of the reasons of NZ's low productivity? I would believe so.

Are you suggesting that all the houses in New Zealand should not have owners? Obviously that's not possible, so should they not exist at all? Perhaps all house owners should be compelled to own their own business, or be forced at gun-point to buy several thousand dollars worth of shares as well. If you don't think real estate should be preferred by so many, maybe once they have purchased some flats or something, they could be forced to attend a course in learning how to hate residential investments - although it soon comes quite naturally.

artemis
02-12-2020, 06:06 PM
Are you suggesting that all the houses in New Zealand should not have owners? Obviously that's not possible, so should they not exist at all? Perhaps all house owners should be compelled to own their own business, or be forced at gun-point to buy several thousand dollars worth of shares as well. If you don't think real estate should be preferred by so many, maybe once they have purchased some flats or something, they could be forced to attend a course in learning how to hate residential investments - although it soon comes quite naturally.

Are you a Labour MP incognito? Maybe even a Minister? If not, please don't give them any more ideas.

Sgt Pepper
02-12-2020, 06:13 PM
Are you suggesting that all the houses in New Zealand should not have owners? Obviously that's not possible, so should they not exist at all? Perhaps all house owners should be compelled to own their own business, or be forced at gun-point to buy several thousand dollars worth of shares as well. If you don't think real estate should be preferred by so many, maybe once they have purchased some flats or something, they could be forced to attend a course in learning how to hate residential investments - although it soon comes quite naturally.

Young Sgt Pepper remembers the first tenants who rented my Parents flats in London St Dunedin in the late 60s. A couple of female medical students, completely trashed their flat. My parents were justifiably outraged, certainly put Sgt Pepper off being a residential landlord. Most people are fine, but some are crazy

SBQ
02-12-2020, 09:52 PM
Are you suggesting that all the houses in New Zealand should not have owners? Obviously that's not possible, so should they not exist at all? Perhaps all house owners should be compelled to own their own business, or be forced at gun-point to buy several thousand dollars worth of shares as well. If you don't think real estate should be preferred by so many, maybe once they have purchased some flats or something, they could be forced to attend a course in learning how to hate residential investments - although it soon comes quite naturally.

I'm stating in NZ, there's an exceedingly HIGH proportion of landlords (or people owning multiple houses) that serve to the low income earners that have no choice but to rent. The impression I get in NZ - when one speaks of investments, they talk none other than rental properties. That's how the rich get richer. Coming from Canada where their climate is extreme, houses are a necessity issue where the gov't have made it clear; don't turn houses into a commodity of profits but if you do, expect to pay dearly in taxes. Maybe Ms Ardern could learn something about the Cdn tax system as there's no shortage of people owning their OWN home. But certainly no where near as any of the mom & pop / landlords we see here in NZ. That's because the Cdn gov't has made investing for retirement through the share markets and unlike the taxable gains on a house ; pension / retirement plans practice 'deferred taxation'. Something few financial advisors in NZ know about.

Again the issue is simple and i'm not raining down on those owning multiple residential properties as their means for retirement. I ask why is it only the rich in NZ, on most part, get the tax advantage by owning residential properties while for the middle class, the NZ gov't throws them a doggie bone (a la Kiwi Saver) which is taxed more ?? I remembered clearly, Ms Ardern few years ago in her campaign that "NZ needs a more fair tax system". Now her motive has changed to introduce no new taxes (apart from another tax bracket on the higher income earners).

Bjauck
03-12-2020, 07:06 AM
Maybe you can clarify something for me - how are equities productive?
Buying initial shares in a new venture is productive but after that the company doesn't get a cut from the trading so how do they add to the company?
Sure, if they make another equity raise it helps to have a high share price but that doesn't happen a lot.

A rental property could be considered productive - they produce a lot of ongoing economic activity from property management to repairs and maintenance.
One gauge of productiveness would be the amount of taxable income produced from your investment.

When you buy a second-hand house or shareholding, your investment is in an established business, and the previous owner then has the settlement money to reinvest into another project.

How much of your purchase price is for the purchase of residential land? High land valuations would mean more of resources would be diverted from productive aspects or improvements.

@SBQ - I agree with your red and green synopsis and post.

dobby41
03-12-2020, 07:13 AM
There's a lot of inconveniences owning a rental property ; the maintenance and rates, insurance, expense that eats the return on the rental income. Where does this leave in terms of overall productivity? Not a lot compared to ownership of a business that allocates the wealth in all different areas. Specifically if one that can be exported (no you can't export the land and house it sits on in NZ abroad). So from an economic potential, there's no way a house can out beat the productivity potential of tangible & intangible products that can have a global market exposure.

There is a lot of hassle owning a rental and when you have several you get someone in to manage that hassle - this pays wages for PMs, maintenance, improvements. All this contributes to the productive economy.
Owning a business is something most don't do - they own shares.
This thread is shares verses property - not business verses property.
I buy a share and I have no hassle - I don't have to do a thing. No productive output at all.
If I buy in the IPO I might be helping to get a new business off the ground - useful. But from then on any share sale is just rearranging what already exists.

dobby41
03-12-2020, 07:40 AM
One gauge of productiveness would be the amount of taxable income produced from your investment.

When you buy a second-hand house or shareholding, your investment is in an established business, and the previous owner then has the settlement money to reinvest into another project.

How much of your purchase price is for the purchase of residential land? High land valuations would mean more of resources would be diverted from productive aspects or improvements.

@SBQ - I agree with your red and green synopsis and post.

Valid points.
What does 'productive' mean? I was thinking of economic activity rather than tax.

Bjauck
03-12-2020, 08:41 AM
Valid points.
What does 'productive' mean? I was thinking of economic activity rather than tax. Economic activity producing income is usually taxable. A shareholding providing equity in a business engaged in economic activity is a productive investment as without the equity the business would not function.

fungus pudding
03-12-2020, 09:11 AM
Economic activity producing income is usually taxable. A shareholding providing equity in a business engaged in economic activity is a productive investment as without the equity the business would not function.

Which of course applies only to the original share or initial offering. After that it's just a matter of swapping a bunch of scrip for a bunch of money. The many millions of dollars which will be transacted today will not affect economic activity or productivity to any great degree.

dobby41
03-12-2020, 09:29 AM
Which of course applies only to the original share or initial offering. After that it's just a matter of swapping a bunch of scrip for a bunch of money. The many millions of dollars which will be transacted today will not affect economic activity or productivity to any great degree.

Which was my point.
Yet people keep saying that rental housing is not productive (in that people should get out of rentals and put their money in the productive economy) and imply that the stock market is part of the productive economy.
You could argue that rental properties provide more economic activity (maintenance etc) than shares (keep in the bottom drawer).

Bjauck
03-12-2020, 11:03 AM
Which of course applies only to the original share or initial offering. After that it's just a matter of swapping a bunch of scrip for a bunch of money. The many millions of dollars which will be transacted today will not affect economic activity or productivity to any great degree.
The way I see it is that it is the workforce and the improvement to the land, and the ability to produce goods and services therefrom, that is the productive part of the investment. Whether that is the purchase of a rental property providing an accommodation service or shares in a company.

Bjauck
05-12-2020, 07:55 AM
The way I see it is that it is the workforce and the improvement to the land, and the ability to produce goods and services therefrom, that is the productive part of the investment. Whether that is the purchase of a rental property providing an accommodation service or shares in a company.
Just to clarify my previous post...The purchase of shares (in an already established business) is still a productive investment.

However the person, who sold the shares, may decide to invest their proceeds in a non-productive or less-productive investment. For example they may subsequently invest the proceeds in a bach/crib or an expensive section to landbank.

fungus pudding
05-12-2020, 11:53 AM
Just to clarify my previous post...The purchase of shares (in an already established business) is still a productive investment.

However the person, who sold the shares, may decide to invest their proceeds in a non-productive or less-productive investment. For example they may subsequently invest the proceeds in a bach/crib or an expensive section to landbank.

It's hardly a productive investment if the ownership of the shares simply goes to a new owner. It is the original purchaser, whose funds go to the company, that makes the productive investment. What the vendor of the shares does with his freed up capital is hardly relevant to the original deal; although if he chooses another IPO then it could be considered productive.

Bjauck
05-12-2020, 12:53 PM
It's hardly a productive investment if the ownership of the shares simply goes to a new owner. It is the original purchaser, whose funds go to the company, that makes the productive investment. What the vendor of the shares does with his freed up capital is hardly relevant to the original deal; although if he chooses another IPO then it could be considered productive. I guess the original purchaser or investor in a business could always seek a voluntary liquidation or destruction of the business when they want their funds back - instead of selling to a new investor or shareholder.

fungus pudding
05-12-2020, 02:17 PM
I guess the original purchaser or investor in a business could always seek a voluntary liquidation or destruction of the business when they want their funds back - instead of selling to a new investor or shareholder.

What a spectacularly brilliant idea.

mfd
05-12-2020, 02:26 PM
Without a liquid share market, it would cost companies more to raise capital and people would be less likely to start them. Would you prefer to invest money in a company where you will be able to quickly, easily and cheaply sell your stake at a later date, or one that you will struggle to offload?

When we buy shares we contribute liquidity to the share market and this makes it a tiny bit more rewarding for people to start businesses, and a tiny bit easier and cheaper for existing companies to invest in making themselves more productive. This effect is obviously more direct when we participate in capital raisings, but every little bit helps.

Buying an existing house has no such positive externality and only serves to drive up the price of something we all need.

Bjauck
06-12-2020, 07:03 AM
What a spectacularly brilliant idea. It is just as well as there are still people around who don't put their money into real estate and instead buy shares in companies in business, so the business does not need to be liquidated when the foundation shareholders want to end their involvement.

fungus pudding
06-12-2020, 07:19 AM
It is just as well as there are still people around who don't put their money into real estate and instead buy shares in companies in business, so the business does not need to be liquidated when the foundation shareholders want to end their involvement.

Equally, and just as silly - 'It's just as well there are people around who don't put their money into shares and instead buy real estate, so the building does not have to be dismantled and the materials returned for a credit when the original developers wants to end their involvement.'

Bjauck
06-12-2020, 10:23 AM
Equally, and just as silly - 'It's just as well there are people around who don't put their money into shares and instead buy real estate, so the building does not have to be dismantled and the materials returned for a credit when the original developers wants to end their involvement.' It is unlikely that buildings would be dismantled as the cost of dismantling may exceed any sale proceeds of the second-hand materials.

Anyway the point, which you may agree with, is that a subsequent owner of a business, building or shares is an investor in a productive asset. The product from which is taxable except in the case of a residential building occupied by the owner.

fungus pudding
06-12-2020, 10:47 AM
It is unlikely that buildings would be dismantled as the cost of dismantling may exceed any sale proceeds of the second-hand materials.



Fairly similar to what happens with a company liquidation.

Bjauck
06-12-2020, 01:55 PM
Fairly similar to what happens with a company liquidation. Companies range in complexity and may or may not own buildings and land.

They may have other assets, staff members, goodwill and intellectual property. Luckily new shareholders mean a liquidation is not necessary and the productivity of the existing company is kept alive.

fungus pudding
06-12-2020, 02:04 PM
Companies range in complexity and may or may not own buildings and land.

They may have other assets, staff members, goodwill and intellectual property. Luckily new shareholders mean a liquidation is not necessary and the productivity of the existing company is kept alive.

Phew - just like a building that finds an owner.

Bjauck
06-12-2020, 02:22 PM
Phew - just like a building that finds an owner. So you now agree that buying shares in an established business is a productive investment?

fungus pudding
06-12-2020, 03:28 PM
So you now agree that buying shares in an established business is a productive investment?

Why end a statement with a question mark?

Bjauck
06-12-2020, 04:28 PM
Why end a statement with a question mark? Because it is a question! The word order in the sentence indicates an element of surprise at what seems like a volte-face in your position...

fungus pudding
06-12-2020, 05:15 PM
Because it is a question! The word order in the sentence indicates an element of surprise at what seems like a volte-face in your position...
If it's a question, then I don't agree.

kiora
08-12-2020, 05:59 AM
Or a small business?
https://www.stuff.co.nz/business/123618893/investors-urged-to-buy-small-businesses-for-better-returns-than-houses

dobby41
08-12-2020, 07:25 AM
Or a small business?
https://www.stuff.co.nz/business/123618893/investors-urged-to-buy-small-businesses-for-better-returns-than-houses

Would be good - and productive too.
Unfortunately many people buying rental property wouldn't have the nouse to run a small business. Residential property is much easier.

Bjauck
08-12-2020, 08:05 AM
Would be good - and productive too.
... I thought one had to start the business for it to be a productive investment. Buying a second hand business, or buying a second-hand shareholding in a company that runs a business, was not productive. However, in addition, is it also if you buy an established business and work in the business too., then it is also productive. If you buy an existing business but get a manager to run it, then it is not a productive investment. Do I correctly understand the point (which I disagree with) you were making previously?

fungus pudding
08-12-2020, 08:25 AM
Would be good - and productive too.
Unfortunately many people buying rental property wouldn't have the nouse to run a small business. Residential property is much easier.

Annd many people who buy a small business should have had the nouse not to.

dobby41
08-12-2020, 08:40 AM
I thought one had to start the business for it to be a productive investment. Buying a second hand business, or buying a second-hand shareholding in a company that runs a business, was not productive. However, in addition, is it also if you buy an established business and work in the business too., then it is also productive. If you buy an existing business but get a manager to run it, then it is not a productive investment. Do I correctly understand the point (which I disagree with) you were making previously?

Starting one is the best way but I expect that if they brought an existing one they would probably add to it.
You are pushing the suggestion that I made (to start the debate) but getting an existing manager to manage it is similar, but not the same, as buying an existing share. In a small business, even with a manager running it, you probably add to the investment. With an existing share you only add to it if the company wants to increase capital.

I don't see investing in residential property as being non-productive - you end up paying a lot of money on repairs and maintenance (both of which help the productive economy). Yet people keep trying to say that property investment is non-productive?

Bjauck
08-12-2020, 10:40 AM
...

I don't see investing in residential property as being non-productive - you end up paying a lot of money on repairs and maintenance (both of which help the productive economy). Yet people keep trying to say that property investment is non-productive? I guess with residential property if you pay $1,000,000 for a house (land worth $700,000; building and other improvements worth $300,000) then you are getting a $300,000 asset which produces shelter whether you pay $700,000 for the land or $100,000 for the land.

Certainly when it comes to owner-occupiers, It makes no sense not to tax the net product of a residential property producing a net benefit (shelter) for an owner-occupier while fully taxing the net product of a business that produce a net benefit (income, ability to eat and clothe) to the owner-operator.

The initial investment or purchase of shares keeps the business alive when the start-up investors/shareholders wish to to retreat. What you may be referring to is subsequent injections of capital - or retention from annual net income - to maintain assets. In relation to a shareholding that would be retaining earnings within the business (which NZ companies are very poor at doing for various reasons.) NZ companies would also raise money from shareholders by way of a placement or rights issue.

Sgt Pepper
08-12-2020, 11:30 AM
Annd many people who buy a small business should have had the nouse not to.

This may have been covered before, but can someone more experienced or informed than myself answer this question.
If borrowing to buy shares, via mortgage security, is the interest component tax deductible?

kiora
08-12-2020, 11:36 AM
It is if they were brought for dividend income

fungus pudding
08-12-2020, 01:37 PM
This may have been covered before, but can someone more experienced or informed than myself answer this question.
If borrowing to buy shares, via mortgage security, is the interest component tax deductible?

It is, but not restricted to mortgage security. It doesn't matter what the security is, and even if you can borrow with no security (from your grandmother or mistress ?) the interest is still a cost.

artemis
09-12-2020, 06:18 AM
Fortunately the Prime Minister is up with the play. Or maybe not.

Put to her that people who invest in shares, for example, don’t always expect the value of that asset to go up, so why should it be different for housing? Ardern responded: “This gets to the heart of the issue of why so many New Zealanders turn to the housing market.”Ardern then walked off stage, having previously signalled she was taking last questions at her post-Cabinet press conference.

Whew, saved by the bell.

https://www.interest.co.nz/property/108301/pm-jacinda-ardern-says-sustained-moderation-remains-governments-goal-when-it-comes

kiora
09-12-2020, 11:46 AM
" As Clint Smith notes, interest deductions at present are, with the exception of the thin capitalisation rules, generally fully allowable if incurred in deriving gross income. The deduction relates to the rental income that is being earned from the underlying property being financed.

However, as the argument for greater application of section CB 6 notes the economic returns from property are twofold. Firstly, in the form of taxed rental income and secondly in untaxed capital growth. The present treatment, therefore, gives an allowable interest deduction for both taxed and untaxed gains. "
https://thespinoff.co.nz/politics/08-12-2020/capital-gains-tax-has-been-ruled-out-again-so-what-are-the-governments-options/?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Wednesday+9 +December+2020

Aaron
15-12-2020, 07:31 AM
Fortunately the Prime Minister is up with the play. Or maybe not.

Put to her that people who invest in shares, for example, don’t always expect the value of that asset to go up, so why should it be different for housing? Ardern responded: “This gets to the heart of the issue of why so many New Zealanders turn to the housing market.”Ardern then walked off stage, having previously signalled she was taking last questions at her post-Cabinet press conference.

Whew, saved by the bell.

https://www.interest.co.nz/property/108301/pm-jacinda-ardern-says-sustained-moderation-remains-governments-goal-when-it-comes

I guess if it is government and central bank guaranteed then why would you invest in anything other than rental houses. Sadly some young people might see Jacinda Ardern as an advocate for youth but they would be sadly mistaken. She is little different to John Key as far as I can tell.

GTM 3442
15-12-2020, 03:49 PM
Out of idle curiosity, why are so many people so certain that the tax system is the best tool for solving the current housing crisis?

fungus pudding
15-12-2020, 04:28 PM
Out of idle curiosity, why are so many people so certain that the tax system is the best tool for solving the current housing crisis?

That would take an extensive professional survey to find the answer. Check with Colmar Brunton or one of the various survey companies for a quote.

Bjauck
16-12-2020, 06:18 AM
Out of idle curiosity, why are so many people so certain that the tax system is the best tool for solving the current housing crisis?
There needs to be reform in many areas not just tax, imo.

Ardern has more or less blamed the public for her failure to reform the tax system. She ruled out a CGT or Wealth tax. As Ardern's Party got a majority of votes, I am presuming that there may be more voters who think their self-interest is better served by allowing any housing issues to remain or worsen rather than reform the tax system.

https://www.tvnz.co.nz/one-news/new-zealand/jacinda-ardern-denies-passing-blame-public-over-housing-crisis-ive-listened

dobby41
16-12-2020, 07:06 AM
Out of idle curiosity, why are so many people so certain that the tax system is the best tool for solving the current housing crisis?

It isn't but the the tax system isn't right either.
CGT won't drop the house prices - may do as a one off but then off they go again.
Even with a CGT residential leveraged property investment is still the best game in town to grow your capital base (for the average punter).

SBQ
16-12-2020, 09:59 AM
It isn't but the the tax system isn't right either.
CGT won't drop the house prices - may do as a one off but then off they go again.
Even with a CGT residential leveraged property investment is still the best game in town to grow your capital base (for the average punter).

While CGT may not solely fix the housing crisis problem in NZ, it will promote investment into more productive areas (as commonly seen overseas in Canada, Aus, US, UK etc). The table is so one sided in NZ that only a fool would choose investments non-other than NZ residential properties. The proof is clear ; look what happen since COVID came about and interest rates crashed. NZ corporations as a % of total of NZ's debt/GDP is insignificant when compared to real estate debt & gov't debt. Other countries don't game it that way. You get the principal resident home as a one off, anything more and the taxation (as how it should be) will be treated at the same level as making any other investment (ie share ownership).

Frankly i'm sick of the excuses of having no CGT in NZ. The TWG recommended it - why should Jacinda know better? It's like they're trying to find the be all end all 'single' fix solution when CGT was never intended to function that way to address affordable housing.

Earlier in the week I also heard another silly proposal of taxing in NZ (came out from Auckland Uni if I recall correctly). The person on talk radio explained that to address wealth inequality, the rich will pay a direct tax on their assets based on the bank's 'free market rate' which is basically at term deposit rates. So if a person had $500K in cash and was to invest into NZ residential properties, he/she may get a loan of $1M to buy a house, the new tax proposal is that $500K would be treated as if it was invested in the banks TD rate (ie the risk free rate) and that rate would be taxed at the individual's marginal tax rate.

Aaron
16-12-2020, 10:30 AM
Out of idle curiosity, why are so many people so certain that the tax system is the best tool for solving the current housing crisis?

personally I don't think it is the best tool. As has been pointed out on here, Aussie has a capital gains tax and their housing market is similar to ours. One thing the govt could do is reduce the central banks inflation target to 0%. As housing and asset price inflation is a result of their policy to raise prices across the board at 2%.

A capital gains tax could broaden the tax base and (I don't like to use the word fair as FP will attack if I use it) increase the perception of fairness as those with wealth benefiting from central bank and monetary policy would be seen to be contributing.

Aaron
16-12-2020, 10:53 AM
Good news on the demand side of the problem. Everyone keeps yapping about the supply side but if we closed the borders demand for housing would drop considerably and if I understood economics 101 correctly decreased demand should lead to decreasing prices.

https://www.interest.co.nz/property/108397/population-growth-migration-down-more-90-compared-year-ago

If the country just declared a man made climate emergency surely filling the country up with more people is not an appropriate response unless of course the govt is full of s**t. I think Greta called it virtue signalling.

dobby41
16-12-2020, 11:03 AM
Good news on the demand side of the problem. Everyone keeps yapping about the supply side but if we closed the borders demand for housing would drop considerably and if I understood economics 101 correctly decreased demand should lead to decreasing prices.

https://www.interest.co.nz/property/108397/population-growth-migration-down-more-90-compared-year-ago

If the country just declared a man made climate emergency surely filling the country up with more people is not an appropriate response unless of course the govt is full of s**t. I think Greta called it virtue signalling.

So that article says immigration down 90% but demand doesn't seem to have dropped?
At the moment the border is open to Kiwis only - is that not enough closure of borders?

SBQ
16-12-2020, 11:27 AM
So that article says immigration down 90% but demand doesn't seem to have dropped?
At the moment the border is open to Kiwis only - is that not enough closure of borders?

"Home ownership rates have hit a 70 year low and those working in housing are not at all surprised. A new 150-page report from Stats NZ titled Housing in Aotearoa: 2020 reveals a grim portrait of the housing crisis."

https://www.rnz.co.nz/national/programmes/checkpoint/audio/2018776252/nz-home-ownership-rates-hit-70-year-low

Low interest rates encouraging more home ownership for an already limited supply.

As for returning Kiwis - my opinion is they are only the 'displaced' / lost their job overseas etc. returning to NZ. I'm not sure how much wealth they would of brought back but those that are well established overseas with a decent job, assets, etc. would have no inclination to moving back here.

Aaron
16-12-2020, 12:49 PM
So that article says immigration down 90% but demand doesn't seem to have dropped?
At the moment the border is open to Kiwis only - is that not enough closure of borders?

That would be great if it stayed that way, not likely though. More people, more demand more consumption more growth, in population, prices and money supply.
The money supply would contract if population leveled off and becomes sustainable.
Doesn't seem to have affected demand for houses as you say. Mind you S&P 500 up last night on stimulus expectation and gold up as well which I would have expected to fall if everything is coming right.

I wonder if house buyers, share buyers, goldies and crypto might appreciate that each time central banks print it is getting larger and larger so I wonder if the frenzied buying is just a dawning realisation that dollars are risky and are a bad thing to hold. maybe not even a realisation but a natural response to what is happening. I wonder if this is what a currency collapse looks like with the price of everything shooting up as more and more currency gets printed.

Shares or Property? Maybe both or whatever you can afford while you can afford it.

Possibly a bit dramatic but seems to be the way we are headed climate emergency declaration or not.