PDA

View Full Version : Who'd want to be a landlord now ?



Beagle
18-11-2019, 10:25 AM
First major plant undermining this sector was several years ago when the Govt changed the rules to not allow depreciation on houses.
My view is this is fundamentally iniquitous as houses wear out gradually over their expected lifetime, (building code is houses are designed to last approx. 50 years so 2% depreciation as a minimum should be allowable.

This year we've now had ringfencing of looses so investors can no longer claim the loss against other income.

There have been many other changes including new standards for homes insulation to name just one other and of course we've seen the ever increasing risks of being a landlord through the widespread proliferation of methamphetamines but now this, a real "clanger" making it really hard to get rid of bad tenants.
https://www.msn.com/en-nz/money/homeandproperty/rental-law-changes-will-hamper-eviction-of-bad-tenants-landlords/ar-BBWU7WH?ocid=spartandhp

Very pleased not to be a landlord and I am not going there.

couta1
18-11-2019, 10:32 AM
First major plant undermining this sector was several years ago when the Govt changed the rules to not allow depreciation on houses.
My view is this is fundamentally iniquitous as houses wear out gradually over their expected lifetime, (building code is houses are designed to last approx. 50 years so 2% depreciation as a minimum should be allowable.

This year we've now had ringfencing of looses so investors can no longer claim the loss against other income.

There have been many other changes including new standards for homes insulation to name just one other and of course we've seen the ever increasing risks of being a landlord through the widespread proliferation of methamphetamines but now this, a real "clanger" making it really hard to get rid of bad tenants.
https://www.msn.com/en-nz/money/homeandproperty/rental-law-changes-will-hamper-eviction-of-bad-tenants-landlords/ar-BBWU7WH?ocid=spartandhp

Very pleased not to be a landlord and I am not going there. For sure, a lot more stressful than the share market IMO unless your fortunate enough to have exceptional long term tenants.

Beagle
18-11-2019, 12:02 PM
For sure, a lot more stressful than the share market IMO unless your fortunate enough to have exceptional long term tenants.

True story. I had a client who owned a lovely 4 bedroom brick and tile house in Warkworth and they had a lovely tenant that really looked after the place for just over 10 years.
One summer the rent stopped being paid and then the excuses started, one after another after another after another, very believable stories of hardship, serious illness and need within their extended family.
"Bill" was a trusting soul and based on their long track record he gave them a fair bit of latitude. Finally after a few months of stories he decided he had to do a property inspection.
She had become a P user and the place had turned into a bomb site. It took him another few months to get rid of the family and another few months and over $50,000 to clean and fix it up.
He's an old guy and simply couldn't handle the stress and he put it on the market after that. Never again were his words.

Bjauck
18-11-2019, 07:12 PM
First major plant undermining this sector was several years ago when the Govt changed the rules to not allow depreciation on houses.
My view is this is fundamentally iniquitous as houses wear out gradually over their expected lifetime, (building code is houses are designed to last approx. 50 years so 2% depreciation as a minimum should be allowable. I agree that makes no sense - depreciation is a cost of earning income. Not allowing it as a cost may end up encouraging landlords not to own new buildings. When the house is sold that is when any recovered depreciation should be taxable.


This year we've now had ringfencing of looses so investors can no longer claim the loss against other income. Making no taxable income and Reducing taxable other income by maximising leveraged untaxed capital gains was unfair too. Maybe investors should be given the option of treating as taxable the capital gain on the property if they want to claim annual losses against income from other sources?


There have been many other changes including new standards for homes insulation to name just one other I don't know the specifics of the insulation requirements. However I am all for First World well-insulated homes for all in NZ. It would also help reduce the public cost of health treatment for many childhood illnesses amongst other benefits.


of course we've seen the ever increasing risks of being a landlord through the widespread proliferation of methamphetamines but now this, a real "clanger" making it really hard to get rid of bad tenants.
https://www.msn.com/en-nz/money/homeandproperty/rental-law-changes-will-hamper-eviction-of-bad-tenants-landlords/ar-BBWU7WH?ocid=spartandhp

Very pleased not to be a landlord and I am not going there. Likewise for me. It must be nightmare for many Landlords. Private landlords should not be responsible for housing bad tenants.

JBmurc
18-11-2019, 10:51 PM
Only got one tenant and thats 'PGG Wrightsons' ... stuff the Res rental market at these low yield levels..far to many extra costs and hassles and if the Cap Gain is going be flat for next so many years why would you bother

fungus pudding
19-11-2019, 03:39 AM
Only got one tenant and thats 'PGG Wrightsons' ... stuff the Res rental market at these low yield levels..far to many extra costs and hassles and if the Cap Gain is going be flat for next so many years why would you bother

Yep. I gave up residential in the mid 80s. Best thing I ever did, and it's got a lot tougher now. Commercial/industrial is a cake-walk in comparison

artemis
19-11-2019, 06:35 AM
..... Maybe investors should be given the option of treating as taxable the capital gain on the property if they want to claim annual losses against income from other sources?.....

Just for residential rentals or all assets?

Bjauck
19-11-2019, 08:27 AM
Just for residential rentals or all assets? I guess There is always the risk that if you allow losses to be deducted from income from other sources that you end up giving a subsidy to a bad investment yielding neither a capital gain nor any net income. That would be an inefficient deployment of capital.

artemis
19-11-2019, 10:02 AM
I guess There is always the risk that if you allow losses to be deducted from income from other sources that you end up giving a subsidy to a bad investment yielding neither a capital gain nor any net income. That would be an inefficient deployment of capital.

What say time passes and income increases? Say for a small tradie business where tools and a couple of vans are secured against the family home. Starts small, builds clients and income. They can still offset losses against other income. It's just residential rentals that are now not allowed to.

Rentals usually turn cash flow positive after a few years. Ring fencing rental losses just defers offsets until then. Again, timing.

Meantime, owners will make decisions in their best interests. Like essential maintenance only for example, and decent rent increases.

Bjauck
19-11-2019, 10:18 AM
What say time passes and income increases? Say for a small tradie business where tools and a couple of vans are secured against the family home. Starts small, builds clients and income. They can still offset losses against other income. It's just residential rentals that are now not allowed to.

Rentals usually turn cash flow positive after a few years. Ring fencing rental losses just defers offsets until then. Again, timing.

Meantime, owners will make decisions in their best interests. Like essential maintenance only for example, and decent rent increases. I guess tradie businesses don't make the Kiwi dream of owner-occupier home ownership unaffordable for so many families? It is more of a political hot potato perhaps.

Perhaps some rental owners always have a high percentage mortgage so that that their rental properties seldom turn a net profit, whilst racking up leveraged capital gains? Maybe the ring fencing is aiming at that scenario.

peetter
19-11-2019, 01:33 PM
I don't know the specifics of the insulation requirements. However I am all for First World well-insulated homes for all in NZ. It would also help reduce the public cost of health treatment for many childhood illnesses amongst other benefits.


Being renter myself, I can tell you the insulation requirements are just a big joke. Only floor and ceiling has to be insulated and that only in case it's actually accessible to be insulated. In my situation the insulation is a 3cm styrofoam with about 0.5cm gaps in between the tiles. You can imagine this kind of insulation does exactly nothing to keep the house warm. This was approved as okay by 2 different insulation companies...

Coming from Europe I can tell you all the houses have floor/roof/walls full on insulation with probably 10cm+ rockwool airtight insulation. NZ houses are generally garbage quality and this is one of the reasons I decided not to invest into property. Other reasons are the quality of renters is pretty poor, Auckland properties are overpriced and government obviously guns for property investors.

Beagle
19-11-2019, 01:34 PM
https://www.newshub.co.nz/home/money/2019/11/changes-to-the-rental-sector-make-it-too-difficult-to-evict-antisocial-tenants-property-investors-federation.html?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Tuesday+19+ November+2019

fungus pudding
19-11-2019, 01:47 PM
I guess tradie businesses don't make the Kiwi dream of owner-occupier home ownership unaffordable for so many families? It is more of a political hot potato perhaps.

Perhaps some rental owners always have a high percentage mortgage so that that their rental properties seldom turn a net profit, whilst racking up leveraged capital gains? Maybe the ring fencing is aiming at that scenario.

The mortgage is irrelevant. It's the interest on the borrowings that are deductible. e.g. You can borrow on your own property and own a rental mortgage free, but still deduct the interest paid to calculate profit.

Bjauck
19-11-2019, 02:50 PM
The mortgage is irrelevant. It's the interest on the borrowings that are deductible. e.g. You can borrow on your own property and own a rental mortgage free, but still deduct the interest paid to calculate profit. Well of course if you borrow on your other assets to purchase another property then the size of the financing mortgage is still relevant. The size of the mortgage/loan is relevant. A bigger mortgage means a larger amount of interest chargeable thereon becomes deductible.

Either way, it helps inflate the property market.

Bjauck
19-11-2019, 03:01 PM
Being renter myself, I can tell you the insulation requirements are just a big joke. Only floor and ceiling has to be insulated and that only in case it's actually accessible to be insulated. In my situation the insulation is a 3cm styrofoam with about 0.5cm gaps in between the tiles. You can imagine this kind of insulation does exactly nothing to keep the house warm. This was approved as okay by 2 different insulation companies...

Coming from Europe I can tell you all the houses have floor/roof/walls full on insulation with probably 10cm+ rockwool airtight insulation. NZ houses are generally garbage quality and this is one of the reasons I decided not to invest into property. Other reasons are the quality of renters is pretty poor, Auckland properties are overpriced and government obviously guns for property investors.

Traditionally the Goal for Kiwis is to own property as it is the best way to invest your money and get a secure abode for your family.

In the 1990's I was in Ireland for a while and the fairly average terrace I lived in was so much warmer and drier in the Colder and damp Winter than the (reasonably upmarket and supposedly-insulated mid-1970's) house my parents owned was in Auckland's milder and damp Winter.

Maybe the original insulation standards were developed back in the day when UK houses were actually damper and colder and NZ's milder climate made the houses seem warmer in comparison. I wonder if the North Island had a colder climate whether the NZ insulation requirements would be more exacting. Maybe if Aucklanders had to shiver for longer in Winter, standards would be tougher?

peat
19-11-2019, 03:28 PM
probably over half the people in NZ live somewhere where it doesnt really get that cold ever.

I never wanted to be a landlord. You are only going to make good income if you deal with the tenants yourself, and do many of the maintenance fixes yourself. Ugh, on both counts. For me. (N.B. I'm not dissing property ownership)
But it does only become passive income when you farm it out to RE management company - and they take a good chunk. Which means a larger portfolio is necessary to sustain income.

Still most or many (I reckon) landlords are in it for capital gains which is why NZ tenants get a raw deal coz there is a lot of turnover by the landlords to cash up.

Bjauck
19-11-2019, 04:04 PM
probably over half the people in NZ live somewhere where it doesnt really get that cold ever. ... Even though outside temperatures are colder in Winter in the UK and Ireland, people tend to have good Winter clothing. 95% of houses have central heating in the UK.

How many people in NZ get home from work and feel cold and damp as they wait for their heaters to warm up their poorly insulated houses?

ynot
19-11-2019, 05:47 PM
40 years ago I moved from Auckland to Canada to live at the age of 25. I quickly realised how sub standard our housing was comfort wise back in NZ. Having grown up with it I never new any better. I put it down to the fact that unfortunately Auckland was not quite cold enough for the need to do anything about it. Climates like Canada
had no alternative from the beginning to deal with cold climate.

artemis
19-11-2019, 05:51 PM
....
Perhaps some rental owners always have a high percentage mortgage so that that their rental properties seldom turn a net profit, whilst racking up leveraged capital gains? Maybe the ring fencing is aiming at that scenario.

No idea what the ring fencing policy is aimed at, apart from jam today for government coffers and not tomorrow.

But if the reason is as you suggest this government doesn't have a clue about how some assets work. Surprised, not surprised.

There will be a few grumpy people after next April when they find that selling their one rental means their rental losses for the year have gone poof!

artemis
19-11-2019, 05:54 PM
.....How many people in NZ get home from work and feel cold and damp as they wait for their heaters to warm up their poorly insulated houses?

Most of those people will be homeowners so can choose to do something about it. Maybe pay 8 bucks or so for a plug in timer?

Bjauck
20-11-2019, 05:49 AM
40 years ago I moved from Auckland to Canada to live at the age of 25. I quickly realised how sub standard our housing was comfort wise back in NZ. Having grown up with it I never new any better. I put it down to the fact that unfortunately Auckland was not quite cold enough for the need to do anything about it. Climates like Canada
had no alternative from the beginning to deal with cold climate. Good insulation also keeps the building interior cooler in Summer as it does not heat up so much during sunny days.

iceman
20-11-2019, 08:45 AM
A taste of things to come ? https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12286360

Bjauck
20-11-2019, 10:10 AM
A taste of things to come ? https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12286360 Do you think as the balance tips more in favour of tenants, there will be more landlords wishing to cash up and invest their money in shares in companies on NZ's small stock exchange thereby making it more worthwhile for companies to maintain their NZ listings?

Pipi
20-11-2019, 10:36 AM
Exactly what I have been thinking for some time.

iceman
20-11-2019, 10:37 AM
Do you think as the balance tips more in favour of tenants, there will be more landlords wishing to cash up and invest their money in shares in companies on NZ's small stock exchange thereby making it more worthwhile for companies to maintain their NZ listings?

Yes I think that is inevitable !

Beagle
20-11-2019, 01:20 PM
I thought I would be pretty safe putting my own kids into our downstairs flat.
Each of them made a big mess it in their own ways. I feel better though because damage / unpaid rent was in the very low 4 figures on both occasions.
What I have seen many times from my clients is the single worst business strategy you can engage in is let your rental property out to your own kids.
I have seen repairs and maintenance bills for several clients running well into five figures.
The fact that the transaction is not an arms length business one, in a nutshell, they think they are entitled to get away with almost anything.
If there's drugs involved, look out, you're really in trouble then and how do you put them out into the street and still sleep at night ?

macduffy
20-11-2019, 01:40 PM
Doing one's property investment via the listed retirement village sector becomes increasingly attractive!

:cool:

RTM
20-11-2019, 02:44 PM
Do you think as the balance tips more in favour of tenants, there will be more landlords wishing to cash up and invest their money in shares in companies on NZ's small stock exchange thereby making it more worthwhile for companies to maintain their NZ listings?

Yes. I am seeing it within my own family.
And those new investors often already trust property. So the Retirement companies, VHP, PFI etc are probably going to form part of their investments that they are already comfortable with. So while they might be concerned about the sharemarket…..they may feel more confident with real estate sector of it.

SBQ
20-11-2019, 02:53 PM
Good insulation also keeps the building interior cooler in Summer as it does not heat up so much during sunny days.

I have the same view. With climate change being a major issue, you'll probably find overeall people's standard of living will erode. I grew up in Canada and know about home comfort however, they're achieving this at a high cost carbon footprint. I do think the trend is changing in that NZ homes will never meet OECD level of comfort. But should they? If the climate is no so extreme, why go through the necessity, using the resources to achieve that standard? It's like the Passive Haus group in NZ pushing their ultra expensive building standards with absolutely no payback time. Kinda like trying to sell Ferrari's to Toyota customers.

As far as being a landlord, I keep hearing the prospects of making $ is less with new regulations. What else is there left for people to invest in?

artemis
20-11-2019, 03:42 PM
A taste of things to come ? https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12286360

This Tenancy Tribunal case involved close neighbours and conflicts, aggressive behaviour, abuse and complaints all round. After making a decent though unsuccessful attempt to resolve, the landlord issued 90 day termination notices to both. The tenant who appealed the notice at various levels said she had tried for more than a year to find another rental without success.

Some might say not that surprising but not helped by rental shortages in the area (and her name in lights in the TT database). And there are rental shortages because?

blackcap
20-11-2019, 03:42 PM
Yes. I am seeing it within my own family.
And those new investors often already trust property. So the Retirement companies, VHP, PFI etc are probably going to form part of their investments that they are already comfortable with. So while they might be concerned about the sharemarket…..they may feel more confident with real estate sector of it.

The end game is that there will be fewer and fewer rentals on the market and rents will go up as demand increases and supply diminishes. My end game is to go through this short term pain with my rentals to reap the increased rent rewards in 3-5 years time. This is not good for renters no matter how well intentioned by this govt.

Bjauck
20-11-2019, 03:56 PM
Doing one's property investment via the listed retirement village sector becomes increasingly attractive!

:cool: That is what I have been doing since Ryman listed! I have seen so many people having issues with tenants including with close family similar to Beagle's difficult experiences.

Bjauck
20-11-2019, 04:00 PM
The end game is that there will be fewer and fewer rentals on the market and rents will go up as demand increases and supply diminishes. My end game is to go through this short term pain with my rentals to reap the increased rent rewards in 3-5 years time. This is not good for renters no matter how well intentioned by this govt. It may be good in making property available for first time buyers looking for owner-occupation?

blackcap
20-11-2019, 05:43 PM
It may be good in making property available for first time buyers looking for owner-occupation?

It certainly will, as property prices may also fall as more supply comes on the market. Which will in turn drive up yields. So hopefully the market can balance things out. But its not going to be good for renters.

iceman
20-11-2019, 07:30 PM
I thought I would be pretty safe putting my own kids into our downstairs flat.
Each of them made a big mess it in their own ways. I feel better though because damage / unpaid rent was in the very low 4 figures on both occasions.
What I have seen many times from my clients is the single worst business strategy you can engage in is let your rental property out to your own kids.
I have seen repairs and maintenance bills for several clients running well into five figures.
The fact that the transaction is not an arms length business one, in a nutshell, they think they are entitled to get away with almost anything.
If there's drugs involved, look out, you're really in trouble then and how do you put them out into the street and still sleep at night ?

I second that. Never again

JBmurc
21-11-2019, 02:30 PM
The end game is that there will be fewer and fewer rentals on the market and rents will go up as demand increases and supply diminishes. My end game is to go through this short term pain with my rentals to reap the increased rent rewards in 3-5 years time. This is not good for renters no matter how well intentioned by this govt.

But as we know we need more rentals ... the way its going future wise the Govt.(Taxpayers) will be building many more low cost accommodation blocks to put roofs over the heads of many thousands of kiwis that will rent for life

Beagle
21-11-2019, 02:59 PM
I second that. Never again

The "icing on the cake" was we only ever charged them half the market rate for the flat, (seems the decent thing to do for your own kids to help them get ahead) and they just squandered the money on other "essentials" like cigarettes', booze and drugs and when they moved out left the place like a rubbish dump. I never once heard a single word of appreciation for the very cheap rent but do recall quite a bit of attitude that we were charging them anything at all !

Bjauck
21-11-2019, 03:27 PM
But as we know we need more rentals ... the way its going future wise the Govt.(Taxpayers) will be building many more low cost accommodation blocks to put roofs over the heads of many thousands of kiwis that will rent for life We need more houses/apartments/units. We need more secure, safe and healthy abodes for families. Whether these are owned by landlords or owner occupiers is as much a political decision/fiscal decision as anything else.

couta1
21-11-2019, 03:30 PM
The "icing on the cake" was we only ever charged them half the market rate for the flat, (seems the decent thing to do for your own kids to help them get ahead) and they just squandered the money on other "essentials" like cigarettes', booze and drugs and when they moved out left the place like a rubbish dump. I never once heard a single word of appreciation for the very cheap rent but do recall quite a bit of attitude that we were charging them anything at all ! The entitled/no responsibility/want it and want it now/laden with debt generation, I'm hearing ya.

fungus pudding
21-11-2019, 03:33 PM
The "icing on the cake" was we only ever charged them half the market rate for the flat, (seems the decent thing to do for your own kids to help them get ahead) and they just squandered the money on other "essentials" like cigarettes', booze and drugs and when they moved out left the place like a rubbish dump. I never once heard a single word of appreciation for the very cheap rent but do recall quite a bit of attitude that we were charging them anything at all !

Did you manage to claim interest paid as an expense?

Bjauck
21-11-2019, 03:43 PM
The entitled/no responsibility/want it and want it now/laden with debt generation, I'm hearing ya. Yep a burgeoning climate crisis, student debt, mortgage debt (if they can afford to get on the ladder), ridiculously high deposits for pokey flats...they do have it tough. It looks like they will be saddled with mortgages even in retirement....unless they have a landowning family that has not disinherited them!

JBmurc
21-11-2019, 06:47 PM
Yep a burgeoning climate crisis, student debt, mortgage debt (if they can afford to get on the ladder), ridiculously high deposits for pokey flats...they do have it tough. It looks like they will be saddled with mortgages even in retirement....unless they have a landowning family that has not disinherited them!

Yes think we will continue to see a widening gap between the well-off and the struggling poor as costs to live continue to rise (Carbon taxes = higher energy costs etc)
the ones with family wealth(debt free property ??) will pass it on to the kids giving them a huge Capital jump on peers with next to nil inheritance ...

I know our two kids will do very well from us as we will get sizeable inheritance in time ---prob when we are in are 60's-70s and are kids will be only be in their 20's
just the way it's working out for many children from the baby boomers that also had their children much later in life 30's+ Vs 20's etc..

macduffy
21-11-2019, 07:42 PM
The "icing on the cake" was we only ever charged them half the market rate for the flat, (seems the decent thing to do for your own kids to help them get ahead) and they just squandered the money on other "essentials" like cigarettes', booze and drugs and when they moved out left the place like a rubbish dump. I never once heard a single word of appreciation for the very cheap rent but do recall quite a bit of attitude that we were charging them anything at all !

Seems like a bit of "spare the rod, etc" ……...ooops, we're not allowed to use it, are we!

:ohmy:

SBQ
21-11-2019, 08:04 PM
The end game is that there will be fewer and fewer rentals on the market and rents will go up as demand increases and supply diminishes. My end game is to go through this short term pain with my rentals to reap the increased rent rewards in 3-5 years time. This is not good for renters no matter how well intentioned by this govt.

That's not what i'm seeing. The trend is more and tenants are being crammed into accommodations. Clear example is the house sold last year on my street; purchased by one of these 'investment property conglomerates where they pool individual investors to buy properties all over NZ'. For a 4 bedroom house, i'm seeing 8 parked cars (2 on the driveway, 2 on the grass by the driveway and 4 along the street). My guess there's at least 8 people living in the house which all appear to be university student age. The turnover of tenants moving in and out is like a train station. Oh and did I mention the brick mail box by the driveway has been ran over 2 times?

In other threads in this forum, i've expressed that the NZ housing shortage is due solely on NZ's RMA being extremely restrictive to increase housing density in areas that need it most. Issues like recession plane angles (which are rarely an issue over in N. America) usually is a stopper for any multi-accommodation project. Even here in Christchurch CCC has a max restriction of no more than 6 bedrooms in a single dwelling complex.

Beagle
21-11-2019, 09:27 PM
Did you manage to claim interest paid as an expense?

We don't have a mortgage so no interest.

fungus pudding
21-11-2019, 11:58 PM
We don't have a mortgage so no interest.

Good on you, I asked because IRD used to send a form letter to landlords asking if property was let to friends or relatives, and if so they questioned if the rent was below market, and if so could disallow interest claim. That was way back when I was involved with residential investments. I'm not sure if they do that nowadays.

blackcap
22-11-2019, 07:08 AM
That's not what i'm seeing. The trend is more and tenants are being crammed into accommodations. Clear example is the house sold last year on my street; purchased by one of these 'investment property conglomerates where they pool individual investors to buy properties all over NZ'. For a 4 bedroom house, i'm seeing 8 parked cars (2 on the driveway, 2 on the grass by the driveway and 4 along the street). My guess there's at least 8 people living in the house which all appear to be university student age. The turnover of tenants moving in and out is like a train station. Oh and did I mention the brick mail box by the driveway has been ran over 2 times?

In other threads in this forum, i've expressed that the NZ housing shortage is due solely on NZ's RMA being extremely restrictive to increase housing density in areas that need it most. Issues like recession plane angles (which are rarely an issue over in N. America) usually is a stopper for any multi-accommodation project. Even here in Christchurch CCC has a max restriction of no more than 6 bedrooms in a single dwelling complex.

I think you misinterpreted my post. How is the above example that you make (totally agree) good for renters? I would not want to be crammed into accomodations. And paying a lot for it as well. Totally agree too that the RMA is far too restrictive in NZ and the supply of housing needs to be increased asap.

artemis
22-11-2019, 08:09 AM
Owner occupiers can cram people in with little if any comeback.

Under the proposed new regulations it is unclear whether one or more unauthorised occupants would be official cause to terminate in the eyes of the Tenancy Tribunal. Going to be a can of worms, if it ever makes it through the legislative process.

Used to be common for state house tenants to take in extras, not necessarily willingly, but that is cracked down on now with tenants told to get the extras to leave, if known. In any case rents should rise in those cases (household income related rent) if correct income is declared LOL.

peetter
22-11-2019, 09:24 AM
Yep a burgeoning climate crisis, student debt, mortgage debt (if they can afford to get on the ladder), ridiculously high deposits for pokey flats...they do have it tough. It looks like they will be saddled with mortgages even in retirement....unless they have a landowning family that has not disinherited them!

This is not true. I am part of the generation you are talking about and all I see around myself are people who are unwilling to work hard, cut unnecessary expenses and sacrifice their comfort.

It is really easy in NZ to save for deposit, but you actually do have to be smart about it. If you choose either trade or STEM uni, you will have no problems getting well paid job. On 50k, I was able to save 20k a year, now that my salary increased, I didn't increase my expenses and therefore save even more. In 10 years, I'll have enough to retire if I want to.

On the other hand I see my colleagues with same or higher salaries actually live paycheck to paycheck due to stupid decisions like having 10 different netflix type subscriptions, drinking every weekend and buying new phones every 1-2 years. Not to mention using uber-eats and uber on regular basis. Ohh and cars...

Beagle
22-11-2019, 10:04 AM
Vodaphone used to run a marketing campaign with the catch-phrase "make the most of now" I suspect a lot of young people have embraced that idea and not just with their communication equipment ! I think social media plays a big part in the younger generation thinking everyone else is out their living from one exciting party and event to the next and the amount of money some people waste each week on alcohol, cigarettes, socialising and generally doing exactly that, "making the most of now" is staggering. Some young people I know on a quite a good wicket think nothing of blowing $300-400 per week on having a "good time"
If they're not out there doing it they're at home getting off their face with their mates and wrecking the landlords property.
Who'd be a landlord to teens or a flat with twenty somethings :eek2:

JBmurc
22-11-2019, 10:27 AM
This is not true. I am part of the generation you are talking about and all I see around myself are people who are unwilling to work hard, cut unnecessary expenses and sacrifice their comfort.

It is really easy in NZ to save for deposit, but you actually do have to be smart about it. If you choose either trade or STEM uni, you will have no problems getting well paid job. On 50k, I was able to save 20k a year, now that my salary increased, I didn't increase my expenses and therefore save even more. In 10 years, I'll have enough to retire if I want to.

On the other hand I see my colleagues with same or higher salaries actually live paycheck to paycheck due to stupid decisions like having 10 different netflix type subscriptions, drinking every weekend and buying new phones every 1-2 years. Not to mention using uber-eats and uber on regular basis. Ohh and cars...

Wow great for you being able to live on $21,700 a year or $471pw .and be able to save retire and continue to live at these levels is quite a feat ... but I guess if you eat and house yourself cheap(campervan/Flat ? at home with the parents) and generally live very basically it would be well achievable

fungus pudding
22-11-2019, 10:45 AM
Wow great for you being able to live on $21,700 a year or $471pw .and be able to save retire and continue to live at these levels is quite a feat ... but I guess if you eat and house yourself cheap(campervan/Flat ? at home with the parents) and generally live very basically it would be well achievable


https://www.forbes.com/sites/jackkelly/2019/10/26/millennials-will-become-richest-generation-in-american-history-as-baby-boomers-transfer-over-their-wealth/#12a35cbc6c4b

peetter
22-11-2019, 11:16 AM
Wow great for you being able to live on $21,700 a year or $471pw .and be able to save retire and continue to live at these levels is quite a feat ... but I guess if you eat and house yourself cheap(campervan/Flat ? at home with the parents) and generally live very basically it would be well achievable

I do flat, yes. I cook pretty complex meals with mostly free range or organic food, have occasional drinks out with friends, go to gym, go to movies etc. I'd not call it living basically, more like not living wastefully.

I do come from post-soviet country, so I understand what it is growing up poor. I am also thankful my parents were able to teach me how to take care of myself.

RTM
22-11-2019, 05:13 PM
I do flat, yes. I cook pretty complex meals with mostly free range or organic food, have occasional drinks out with friends, go to gym, go to movies etc. I'd not call it living basically, more like not living wastefully.

I do come from post-soviet country, so I understand what it is growing up poor. I am also thankful my parents were able to teach me how to take care of myself.

GREAT Posts. Can you post them somewhere somehow where all your peers will see them?
Good luck.
RTM

Bjauck
23-11-2019, 05:25 AM
I do flat, yes. I cook pretty complex meals with mostly free range or organic food, have occasional drinks out with friends, go to gym, go to movies etc. I'd not call it living basically, more like not living wastefully.

I do come from post-soviet country, so I understand what it is growing up poor. I am also thankful my parents were able to teach me how to take care of myself. That is amazing if you are a young adult, can live like that while still being able to save and have sufficient funds to be able to retire in ten years' time and live off the income from your savings. You must have received a very big pay rise. Certainly in Auckland that would necessitate a retirement investment pot well into seven figures to provide a return and resources for potentially many decades of accommodation and retirement.

Being from a "Post Soviet" country does that mean you are used to little modern consumer technology, crowded flats and frugal living? The diet of organic food suggests an expensive non-Soviet style diet to me. A Soviet lifestyle suggests relying on public transport rather than a private car or taxis? That would save some money but would be difficult in Auckland let alone in many other parts of NZ.

If only Boomers and previous generations had developed NZ cities around affordable accommodation, public transport and if only they had developed food production on free range and organic principles, do you think NZ would already be in a better place?

artemis
23-11-2019, 06:08 AM
There are affordable rental options if renters choose them.

peetter
23-11-2019, 10:26 AM
That is amazing if you are a young adult, can live like that while still being able to save and have sufficient funds to be able to retire in ten years' time and live off the income from your savings. You must have received a very big pay rise. Certainly in Auckland that would necessitate a retirement investment pot well into seven figures to provide a return and resources for potentially many decades of accommodation and retirement.

Being from a "Post Soviet" country does that mean you are used to little modern consumer technology, crowded flats and frugal living? The diet of organic food suggests an expensive non-Soviet style diet to me. A Soviet lifestyle suggests relying on public transport rather than a private car or taxis? That would save some money but would be difficult in Auckland let alone in many other parts of NZ.

If only Boomers and previous generations had developed NZ cities around affordable accommodation, public transport and if only they had developed food production on free range and organic principles, do you think NZ would already be in a better place?

I do make a good salary, but still short of 6 figures. I work in IT with no uni education. I rent a 4 bedroom house in North shore where I live with my partner and another couple. And I bus to work, as it makes sense both financially and time wise, I don't have to stress in traffic and can relax while listening to audio book or watching some sharetrading video :D.

I said, I'll have enough to retire in case I want to, not that I will. In that case, I'd bugger off Auckland. I think 700-800k is enough to theoretically retire on somewhere outside of Auckland. I also expect, I'll move up at my job and will be able to save even more in another 3-5 years.

Style of living out of post-soviet country would be more of a grow your own veggies, breed animals, cook at home, repair everything yourself. I think big difference between west and east is, that westerners are used to other people doing stuff for them. Easterners usually don't have money to pay for services, so they do it by them selfs. Organic style foods is just a life style we chose to do, we are not strict about it, but we do try to buy quality food etc.

I agree public transport is not great in Auckland, but I'd argue the problem is in the style of the city. Auckland should start building apartment buildings, city this size cant afford to build suburbia forever. Say proposed light rail... it makes 0 sense in Auckland, because light rail is useful for high density population. What is a way to go in my opinion is to build public transport hubs across the city, build huge parkings there. People would only drive there and then continued on bus/train/ferry. Then do connections between these hubs and you can practically get anywhere in the city using public transport. In addition you could do commerce centers around these hubs. The CRL in CBD is a great first step to this.

Boomers could not anticipate the migration waves coming to NZ and with limited resources of 4-5 million people I think NZ infrastructure is not so bad. Problem is, there is nobody in politics now who would be willing to actually fight for the projects necessary. Everyone is just playing it safe and nothing is happening.

Bjauck
23-11-2019, 01:34 PM
To retire on 800k? Maybe if you have a mortgage free house as well.

Do-it-yourself services? It sometimes becomes more expensive when a pro is needed to repair the amateur botch ups. The garage drill makes a mess of filling dental cavities!

If Auckland were like Budapest or London it would be easier to be within walking distance of a bus route or train. Lots of migrants originally came here because Auckland was not like London or Budapest though! Good luck with encouraging landowners or taxpayers to cough up the necessary dough to fund big strategic public transport hubs and other infrastructure...

Who oversaw the migration policies and the lack of infrastructure planning to cater for the resultant population increase? Indeed who benefited most from the demand for housing and constricted supply of new housing as a result of this state of affairs?

Why Are Kiwi Houses So Expensive? Video From Stuff..
https://play.stuff.co.nz/details/_6091048203001

Beagle
24-11-2019, 01:20 PM
https://www.stuff.co.nz/business/property/117593943/landlord-furious-after-tenant-pays-50-of-25k-worth-of-damage

Bjauck
25-11-2019, 06:57 AM
https://www.stuff.co.nz/business/property/117593943/landlord-furious-after-tenant-pays-50-of-25k-worth-of-damage
That article is pure and simple click bait from Stuff.
A screaming inaccurate headline on a Hot button issue.
The Landord with a dozen properties was well experienced and his two 2017 tribunal cases ended with sizeable payouts for himself. He admitted he stopped regularly inspections and with his portfolio of properties, why didn't he get an agent in to help?
He claimed there were $25,000 in damages yet he applied only for $5040. Why only claim that if his recent cases gave him sizeable payouts?

He did not just get $50 he got the bond as well. The article is click bait. An accurate headline would not have drawn in as many clicks.

artemis
25-11-2019, 12:36 PM
That article is pure and simple click bait from Stuff.
A screaming inaccurate headline on a Hot button issue.
The Landord with a dozen properties was well experienced and his two 2017 tribunal cases ended with sizeable payouts for himself. He admitted he stopped regularly inspections and with his portfolio of properties, why didn't he get an agent in to help?
He claimed there were $25,000 in damages yet he applied only for $5040. Why only claim that if his recent cases gave him sizeable payouts?

He did not just get $50 he got the bond as well. The article is click bait. An accurate headline would not have drawn in as many clicks.


The Tenancy Tribunal decision has been posted online - 4214273. It is very detailed.

Sizeable payouts in 2017 cases? For rent owed, rubbish removal and damage. I suppose there are different definitions of sizeable. Tenant could have paid the rent and cleaned up on vacating. $350 allowed for rubbish removal. That's a fair bit of rubbish.

Beagle
25-11-2019, 02:22 PM
The Tenancy Tribunal decision has been posted online - 4214273. It is very detailed.

Sizeable payouts in 2017 cases? For rent owed, rubbish removal and damage. I suppose there are different definitions of sizeable. Tenant could have paid the rent and cleaned up on vacating. $350 allowed for rubbish removal. That's a fair bit of rubbish.

9 cubic meter skip bin hire, (about par for when each of my kids moved out of the flat), but no allowance for the many hours of hard physical labour cleaning the flat and filling up the skip bin.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12286373

Bjauck
25-11-2019, 03:30 PM
The Tenancy Tribunal decision has been posted online - 4214273. It is very detailed.

Sizeable payouts in 2017 cases? For rent owed, rubbish removal and damage. I suppose there are different definitions of sizeable. Tenant could have paid the rent and cleaned up on vacating. $350 allowed for rubbish removal. That's a fair bit of rubbish. Sizable was the journalist’s word. According to the report he had been aware of the damage for some time. He did not take photos when the tenancy commenced and did not have a record of inspections. Did he not claim what he thought was the full cost of damage, because the flat needed refurbishment and he was going to renovate the property anyway? He stated he was going to renovate the bathroom and kitchen.

artemis
25-11-2019, 03:34 PM
9 cubic meter skip bin hire, (about par for when each of my kids moved out of the flat), but no allowance for the many hours of hard physical labour cleaning the flat and filling up the skip bin.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12286373

Hi Beagle, yes agree about rubbish removal, but I was responding to bjauck referring to a previous (2017) Tenancy Tribunal decision for the same landlord, different property. Bjauck reckoned the landlord got a sizeable ** payout from the tenant. I thought it was modest in the circs - adjudicator awarded the landlord $350 for removing a trailer and ute load of rubbish left behind. The TT usually allows $25 ph for a landlord, more for an itemised invoice from a third party. $25 ph is not much for what is often a mucky job.That the tenant should have dealt with.

** Ok I see it was the journalist who has a weird idea of sizeable.

Beagle
28-11-2019, 03:35 PM
Yeah I couldn't agree more artemis. $25 an hour isn't much these days.

Biscuit
29-11-2019, 10:03 AM
Evicted a tenant last year and took 2 trailer loads of their rubbish and "returned" it to them at their new place. Wouldn't really recommend it as standard operating practice but it sure was more satisfying than going back to the tenancy tribunal. At TT (which is actually quite a reasonable system) it takes up so much time, you get a judgement and then more than likely you will need to enforce it through the courts if you can.

artemis
29-11-2019, 10:21 AM
Evicted a tenant last year and took 2 trailer loads of their rubbish and "returned" it to them at their new place. Wouldn't really recommend it as standard operating practice but it sure was more satisfying than going back to the tenancy tribunal. At TT (which is actually quite a reasonable system) it takes up so much time, you get a judgement and then more than likely you will need to enforce it through the courts if you can.

Heh, you should have applied for some of their bond for your time and petrol.

The Ministry of Justice has processes to recover debts through their collections unit.

Biscuit
29-11-2019, 10:31 AM
Heh, you should have applied for some of their bond for your time and petrol.

The Ministry of Justice has processes to recover debts through their collections unit.

Already had been to TT and got the bond (didn't cover the missed rent of course), got an order for eviction, got a bailiff, got them out .... then the clean up. I've taken a couple of tenants to court and that can work if you have good info on them and where they work or a work and income number. But if you don't and they don't show up, good luck getting anything out of them and all the time it is costing you time and money.

artemis
29-11-2019, 10:36 AM
MoJ can often help with addresses etc if there is a TT order.

Biscuit
29-11-2019, 12:23 PM
MoJ can often help with addresses etc if there is a TT order.

Depending on what's owing, what info you have, and how you are feeling on the day, I guess its a personal judgement call whether you'd rather go through the courts or prefer to return the rubbish and let it go at that.

Beagle
05-12-2019, 04:50 PM
Evicted a tenant last year and took 2 trailer loads of their rubbish and "returned" it to them at their new place. Wouldn't really recommend it as standard operating practice but it sure was more satisfying than going back to the tenancy tribunal. At TT (which is actually quite a reasonable system) it takes up so much time, you get a judgement and then more than likely you will need to enforce it through the courts if you can.

LOL now that's what I call restorative justice !

Bjauck
11-12-2019, 07:20 AM
O to be rid of the landlord - A Christmas Carol?
Inherited Wealth/Inherited Poverty - NZ is on its way to becoming a version of Dickensian Britain?

https://www.stuff.co.nz/business/118070437/home-owners-are-becoming-new-zealands-landed-gentry-passing-their-wealth-down

peetter
11-12-2019, 07:36 AM
O to be rid of the landlord - A Christmas Carol?
Inherited Wealth/Inherited Poverty - NZ is on its way to becoming a version of Dickensian Britain?

https://www.stuff.co.nz/business/118070437/home-owners-are-becoming-new-zealands-landed-gentry-passing-their-wealth-down

Teenager saves $30000 by age 18 and all people are interested in is he got a loan from father instead of a bank. I think this says all about the society bashing successful and hard working...

Bjauck
11-12-2019, 12:49 PM
Teenager saves $30000 by age 18 and all people are interested in is he got a loan from father instead of a bank. I think this says all about the society bashing successful and hard working... Sure good on him for saving $30,000, especially if he had expensive living expenses whilst trying to save. Lucky him to have a landowning family with a spare house to sell so that he did not have borrow from a bank. As the pun goes, he is to the manor born, with a silver spoon!

peetter
11-12-2019, 01:43 PM
I'd bet you overwhelming majority of those people shaming him for getting money from father and having all expenses paid by parents, has been in exactly the same situation between 16-18yo. That means their parents paid for everything. It's just an excuse for laziness and bad decisions. It's always the rich people causing poor people being poor :D.

Bjauck
11-12-2019, 03:36 PM
I'd bet you overwhelming majority of those people shaming him for getting money from father and having all expenses paid by parents, has been in exactly the same situation between 16-18yo. That means their parents paid for everything. It's just an excuse for laziness and bad decisions. It's always the rich people causing poor people being poor :D.

Shaming him? No. He is showing a precocious maturity of action for his age.

It is a shame that that more and more people are being priced out of the ability to access tax-efficient home ownership though. And they are not all lazy! It is just a fact of life in today’s NZ that the rich (especially the land rich) are getting richer and the poor, poorer. It is the result of excessive inflation in asset prices and in part the tax system heavily relying on Income tax and GST.

How many families looking for a stable home are unable to raise the required deposit and have missed out buying a home as young single people with no need to get a commercial mortgage after being given or loaned a large inheritance from families? Just something to cogitate.

The trend has been for Many more families to end up at the mercy of the NZ rental market and landlords.

peetter
11-12-2019, 05:27 PM
I see your point regarding the prices,taxes etc. It may be getting harder to get the deposit. However from my experience anyone who wants to, will be able to get the deposit in NZ. It's just a matter of life decisions, time and some work.

I think enough was said on the topic. It just makes my blood boil when I see articles like this and comments under them.

artemis
11-12-2019, 05:36 PM
Getting a deposit is not that easy these days, but it can be done for many households if they take a longer time frame, make decisions according to their plan, and Kiwisaver.

For the year ended June 2018, households spent an average of $16.30 of every $100 of their household income on housing costs. This is relatively unchanged from the $16 they spent in 2008. Stats NZ.

Bjauck
12-12-2019, 10:36 AM
Getting a deposit is not that easy these days, but it can be done for many households if they take a longer time frame, make decisions according to their plan, and Kiwisaver.

For the year ended June 2018, households spent an average of $16.30 of every $100 of their household income on housing costs. This is relatively unchanged from the $16 they spent in 2008. Stats NZ. It is not wise to use your pension fund. After all it should be kept for retirement!

How about a 5% stamp duty on purchases of second and subsequent homes (exemption only for the owner-occupier's principal residence) and using the proceeds to give all kiwsavers an extra annual credit?

SBQ
12-12-2019, 05:34 PM
It is not wise to use your pension fund. After all it should be kept for retirement!

How about a 5% stamp duty on purchases of second and subsequent homes (exemption only for the owner-occupier's principal residence) and using the proceeds to give all kiwsavers an extra annual credit?

The NZ gov't is more concerned about protecting NZ real estate than KiwiSaver as it's clear both asset classes have different tax treatments. A 5% stamp duty would more equitable but that would not address the housing shortage. There is certainly not an investment shortage in various corporations around the world. Yet, Kiwi Saver funds are taxed annually in the same manner as running a business.

No matter how difficult the landlord vs tenancy tribunal can be, i'm not expecting any rush of landlords fleeing from owning properties and rushing into equities. Just consider the alternative? What better alternative?

iceman
12-12-2019, 09:03 PM
You are right SBQ, it is all about protecting NZ real estate and high prices, by succesive Governments and the banking system. Our 24 yo daughter is currently going through trying to buy a fist home (value approx $550-600k), with our family trust likely to buy 25% of it with her to make it easier. She has $105k saved and over $20k in KS that she can access.
The Trust has properties and shares but today I learned from our long term bank ANZ, that they no longer consider dividends (despite regular history for many years) from shares as income for their purposes of calculating income to debt ratio, which now is their preferred method and LVRs are basically redundant (in our case anyway).

So the healthy portfolio the Trust holds in NZX shares assets and the dividend stream from it, is totally ignored by the bank. If we had the same amount invested in rental property with the more unreliable stream of rental income, they would lend the Trust enough to buy several houses.
Go figure.

iceman
12-12-2019, 09:04 PM
You are right SBQ, it is all about protecting NZ real estate and high prices, by succesive Governments and the banking system. Our 24 yo daughter is currently going through trying to buy a fist home (value approx $550-600k), with our family trust likely to buy 25% of it with her to make it easier. She has $105k saved and over $20k in KS that she can access.
The Trust has properties and shares but today I learned from our long term bank ANZ, that they no longer consider dividends (despite regular history for many years) from shares as income for their purposes of calculating income to debt ratio, which now is their preferred method and LVRs are basically redundant (in our case anyway).

So the healthy portfolio the Trust holds in NZX shares assets and the dividend stream from it, is totally ignored by the bank. If we had the same amount invested in rental property with the more unreliable stream of rental income, they would lend the Trust enough to buy several houses.
Go figure.

Jay
13-12-2019, 06:39 AM
Is the rationale that the income is unreliable (so are rents), you could sell the shares at any time, (can sell the rental property too - albeit would take a little longer), how about if you had funds in Term Deposit with them, would they take that as income - could withdraw that as well and blow it at the casino, it is no wonder property is seen as the best investment.
Your daughter has done well iceman, hope my two boys can do the same, I can see 1 most likely will, the other not sure.

macduffy
13-12-2019, 01:20 PM
Banks have always been reluctant to lend against equities for various reasons: subject to potential loss of unquantifiable value; difficulty in taking security over shares; complex administration, tracking of fluctuating value/maintaining value margin over the loan amount; general lack of expertise regarding equities on the part of bank staff. They much prefer real estate and mortgages!

Bjauck
13-12-2019, 01:42 PM
Is the rationale that the income is unreliable (so are rents), you could sell the shares at any time, (can sell the rental property too - albeit would take a little longer), how about if you had funds in Term Deposit with them, would they take that as income - could withdraw that as well and blow it at the casino, it is no wonder property is seen as the best investment.
Your daughter has done well iceman, hope my two boys can do the same, I can see 1 most likely will, the other not sure. She has done well - but is likely to get help from the family trust fund too to buy a house.

The fact that NZers can raid the pension scheme to buy into an already expensive housing market underlines the priority and favoritism given to real estate investment. Why shouldn't the pension fund not also be used to buy a shareholding, establish a business or undertake post graduate research. And why shouldn't owning a business or shares have the same tax efficiency given to owner-occupied housing?

I can understand the caution of the bank in using dividend history as a guide for future income. Just look at what happened to the big dividends from erstwhile market stalwart FBU.

artemis
13-12-2019, 06:10 PM
Banks have always been reluctant to lend against equities for various reasons: subject to potential loss of unquantifiable value; difficulty in taking security over shares; complex administration, tracking of fluctuating value/maintaining value margin over the loan amount; general lack of expertise regarding equities on the part of bank staff. They much prefer real estate and mortgages!

Iceman's issue was to do with serviceability rather than security. Banks can have whatever rules they like, but I would have thought a dividend stream was at least as reliable as a household's employment income.

SBQ
13-12-2019, 07:30 PM
You are right SBQ, it is all about protecting NZ real estate and high prices, by succesive Governments and the banking system. Our 24 yo daughter is currently going through trying to buy a fist home (value approx $550-600k), with our family trust likely to buy 25% of it with her to make it easier. She has $105k saved and over $20k in KS that she can access.
The Trust has properties and shares but today I learned from our long term bank ANZ, that they no longer consider dividends (despite regular history for many years) from shares as income for their purposes of calculating income to debt ratio, which now is their preferred method and LVRs are basically redundant (in our case anyway).

So the healthy portfolio the Trust holds in NZX shares assets and the dividend stream from it, is totally ignored by the bank. If we had the same amount invested in rental property with the more unreliable stream of rental income, they would lend the Trust enough to buy several houses.
Go figure.

Regarding 1st home buyers, I would like to direct you to a post I made few months ago comparing what Canada is doing for their 1st home buyers: (and perhaps this is something the NZ gov't should be looking at)

https://www.sharetrader.co.nz/showthread.php?11540-first-home-buyer-advice&p=770998&viewfull=1#post770998

Basically, the gov't will lend up to 5% on existing home or 10% value of a newly built house on value up to $500K. No payment interest payments, nothing, this incentive is paid back at time of sale of the house in the form of a 'share of the capital gain'.

Now regarding the use of Kiwi Saver funds to go towards a home mortgage, IMO is a farce and provides absolutely no benefit from a tax perspective. Canada for many decades have allowed the transfer of RRSP investments towards the purchase of their new home. However, the clear distinction is these Cdn managed funds under the RRSP model grows TAX FREE (or basically tax deferred until retirement age where taxes on the gain are paid when disbursements are made). VERY different to Kiwi Saver funds that operate under a model of paying taxes to IRD on the gain every year (either locally from dividends or foreign investments under the FIF rules). So basically, they're just telling people that you're not 'locked into KiwiSaver' - you can access the funds through converting it into buying a home - what kind of incentive is this??? certainly not a Canadian tax incentive where the gains become 100% tax free.

Your problem about banks not recognising dividend income from shares is no different to most places abroad. On a different discussion on this forum, I expressed that NZ banks will gladly show you the door if you wanted to borrow funds specifically to invest in shares, but love to lend to you if you meet the requirement for a home mortgage. Why? Well the reason being is banks don't like taking different levels of risks and having shares certainly adds a different mix to their risk criteria. I would also be not surprised if the bank did not look at your 'trust' holding these investments because technically, a trust is a separate entity and banks don't like to involve 2 way liens on a property title as it limits their control in case of a forclosure. There use to be a time wher banks would take on all sorts of risks like lending for a new business start up. Not anymore without significant collateral. Throughout history countless of banks have gone bankrupt by holding corporate or assets in equities as when the stock market crashes, so too do the banks. But houses don't crash for a significant long term time frame; likewise they don't generate the same level of returns as equities however, that's not what the banking model is about. As others have said, banks are only interested in simple mortgages.

SBQ
13-12-2019, 07:35 PM
She has done well - but is likely to get help from the family trust fund too to buy a house.

The fact that NZers can raid the pension scheme to buy into an already expensive housing market underlines the priority and favoritism given to real estate investment. Why shouldn't the pension fund not also be used to buy a shareholding, establish a business or undertake post graduate research. And why shouldn't owning a business or shares have the same tax efficiency given to owner-occupied housing?

I can understand the caution of the bank in using dividend history as a guide for future income. Just look at what happened to the big dividends from erstwhile market stalwart FBU.

Pension funds like KiwiSaver already have the ability to produce higher returns through leverage (on margin). But using KiwiSaver to invest into a new business or towards school study is entirely a different can of beans. The fact that more than 95% of small businesses fail within 5 years is a good reason why banks shy away from lending for business ventures. Likewise with schooling. If the person takes on a useless degree than where would that leave in terms of wise use of KiwiSaver funds (when it could be kept in the pension to have more growth?).

fungus pudding
13-12-2019, 08:41 PM
Pension funds like KiwiSaver already have the ability to produce higher returns through leverage (on margin). But using KiwiSaver to invest into a new business or towards school study is entirely a different can of beans. The fact that more than 95% of small businesses fail within 5 years is a good reason why banks shy away from lending for business ventures. Likewise with schooling. If the person takes on a useless degree than where would that leave in terms of wise use of KiwiSaver funds (when it could be kept in the pension to have more growth?).

Where did you get that 95% rate of business failure from, and what makes you believe it?

SBQ
13-12-2019, 10:00 PM
Where did you get that 95% rate of business failure from, and what makes you believe it?

A figure way back in college taking a course on small business. Over 50% fail after 5 years. But add those existing businesses that started before also fail a different 5 year window time frame. For eg there's a huge portion of small businesses we see today in smaller towns have closed up - call it the invasion of The Warehouse and or 'online shopping', such shops that existed decades below have vanished ie. Dick Smith Electronics. Another way to look is in the past 50+ years, what % of those are still around today? This is why banks are very weary about lending $ to small businesses ; not just counting new startups but also existing businesses that get into cash flow problems.

Bjauck
14-12-2019, 08:21 AM
Pension funds like KiwiSaver already have the ability to produce higher returns through leverage (on margin). But using KiwiSaver to invest into a new business or towards school study is entirely a different can of beans. The fact that more than 95% of small businesses fail within 5 years is a good reason why banks shy away from lending for business ventures. Likewise with schooling. If the person takes on a useless degree than where would that leave in terms of wise use of KiwiSaver funds (when it could be kept in the pension to have more growth?).

Sure the KiwiSaver money released for further education may result in failure for the kiwsaver concerned. The money released for real estate purchase may result in further inflating th housing market or it may be used to buy an over priced problem house. My opinion is that Kiwisaver should only be used for retirement and not as a real estate deposit saving scheme.

The government should introduce a second tax concessionary scheme to encourage saving with the ability to withdraw savings (with a write-back of tax concessions for withdrawals over a certain amount and within a set time period) prior to retirement.

iceman
14-12-2019, 08:24 AM
Iceman's issue was to do with serviceability rather than security. Banks can have whatever rules they like, but I would have thought a dividend stream was at least as reliable as a household's employment income.

My point exactly artemis. They accept employment income and rental income but ignore 100% of the dividend income. I showed them back 7 years that the dividend income was certainly no less reliable than rental income but "rules are rules". That is the ridiculous part. Then we are told to diversify our savings and investments but the whole system is geared towards housing artificially maintaining worryingly high prices. And our young first home buyers and families are the biggest sufferers of this stupid policy.

macduffy
14-12-2019, 09:01 AM
My point exactly artemis. They accept employment income and rental income but ignore 100% of the dividend income. I showed them back 7 years that the dividend income was certainly no less reliable than rental income but "rules are rules". That is the ridiculous part. Then we are told to diversify our savings and investments but the whole system is geared towards housing artificially maintaining worryingly high prices. And our young first home buyers and families are the biggest sufferers of this stupid policy.

Yes, employment income can fluctuate - and disappear - just as dividend income can. But if the worst happens the value of the equities usually disappears but the mortgage on the real estate remains.

artemis
14-12-2019, 02:15 PM
Yes, employment income can fluctuate - and disappear - just as dividend income can. But if the worst happens the value of the equities usually disappears but the mortgage on the real estate remains.

Too true. Banks mitigate some risk by using a higher than actual interest rate to calculate serviceability.

However employment income takes a big hit when the household of two with two incomes becomes a household of three with one income. Certainly very common with first home buyers. They usually make it through the tough years, often with free government money, and into calmer waters.

SBQ
14-12-2019, 05:51 PM
Sure the KiwiSaver money released for further education may result in failure for the kiwsaver concerned. The money released for real estate purchase may result in further inflating th housing market or it may be used to buy an over priced problem house. My opinion is that Kiwisaver should only be used for retirement and not as a real estate deposit saving scheme.

The government should introduce a second tax concessionary scheme to encourage saving with the ability to withdraw savings (with a write-back of tax concessions for withdrawals over a certain amount and within a set time period) prior to retirement.

If you really want to curb the rising real estate prices.. just tax it. Don't allow those owning more than 1 house to sell (after holding for more than 5 years) where the gains are tax free. Those that have made gains in Kiwi Saver would be a fool not to use those funds to put into their 1st home. (ie transferring from 1 asset pool that is taxable vs the house asset that has tax free capital gain). This reminds me again, i've asked local financial advisors if they worked out the difference between owning a Kiwi Saver fund vs owning a house (where they can leverage). They always come back saying "that depends".

fungus pudding
14-12-2019, 06:15 PM
If you really want to curb the rising real estate prices.. just tax it. Don't allow those owning more than 1 house to sell (after holding for more than 5 years) where the gains are tax free. Those that have made gains in Kiwi Saver would be a fool not to use those funds to put into their 1st home. (ie transferring from 1 asset pool that is taxable vs the house asset that has tax free capital gain). This reminds me again, i've asked local financial advisors if they worked out the difference between owning a Kiwi Saver fund vs owning a house (where they can leverage). They always come back saying "that depends".

Why the one house limit? Either tax capital gains - or don't.

iceman
14-12-2019, 10:35 PM
Yes, employment income can fluctuate - and disappear - just as dividend income can. But if the worst happens the value of the equities usually disappears but the mortgage on the real estate remains.

In the unlikely and very extreme event of a diversified share portfolio "disappearing", I´d say our housing market would be in serious trouble also. Best for the banks not to lend anything, just in case the sky falls in !!!

artemis
15-12-2019, 06:51 AM
Why the one house limit? Either tax capital gains - or don't.

'Special' treatment for rental owners is having an effect.

Last few headlines from Trademe's monthly rental price report -

Rental prices continue their surge toward summer
Rents in the main centres warm up with summer on the horizon
Demand soars for rentals across the country
Tenants in Wellington paying $60 more per week in rent
Rents rise countrywide
Rents rocket in the region

fungus pudding
15-12-2019, 07:38 AM
'Special' treatment for rental owners is having an effect.

Last few headlines from Trademe's monthly rental price report -

Rental prices continue their surge toward summer
Rents in the main centres warm up with summer on the horizon
Demand soars for rentals across the country
Tenants in Wellington paying $60 more per week in rent
Rents rise countrywide
Rents rocket in the region

What is 'special' treatment?

artemis
15-12-2019, 10:30 AM
What is 'special' treatment?

Bright line test, ring fencing of rental losses, removal of building depreciation for starters. None of those apply to other businesses, including commercial property.

Bjauck
15-12-2019, 11:03 AM
Bright line test, ring fencing of rental losses, removal of building depreciation for starters. None of those apply to other businesses, including commercial property.

If owning an investment residential property and renting it out is a business, are there any requirements for it to be a going-concern in order for expenses to continue to be deducted for tax purposes?

macduffy
15-12-2019, 11:12 AM
In the unlikely and very extreme event of a diversified share portfolio "disappearing", I´d say our housing market would be in serious trouble also. Best for the banks not to lend anything, just in case the sky falls in !!!

I'm not arguing the bank's position here, just stating reasons why they take that position. As investors we (mostly) prefer diversified portfolios; from a bank's perspective, diversification increases complexity and oversight. Tutorial over.
:)

artemis
15-12-2019, 11:24 AM
If owning an investment residential property and renting it out is a business, are there any requirements for it to be a going-concern in order for expenses to continue to be deducted for tax purposes?

Depends what you mean by going concern. Is it a taxable activity - yes. Does it have income - depends. Does it make a profit - yes.

I think you may mean something like how long is it OK to make a loss before IRD comes knocking. AFAIK there is no (published) set rule, but IRD systems have a lot of checks and balances and they might well check if there is a pattern of losses. IRD will no doubt take into account when a property was purchased as that can skew the income / expenses ratio.

SBQ
15-12-2019, 11:41 AM
Why the one house limit? Either tax capital gains - or don't.

It's recognized having shelter (or a roof over your head) is a necessity. The issue on taxation should be based on necessity. For everything else, yes you should tax it because there's the intent for profit or gain. The single home owner has no intention for profiting other than to keep a roof over their head. I've just read in Silicon Valley there are IT workers living out of RVs and motorhomes because they're able to save (or basically make the sacrifice to save in order to get into a house later on).

There are not many countries that impose a capital gains tax on everything. Even in the US as the principal residence is entitled to tax free capital gain between moving houses.

SBQ
15-12-2019, 11:47 AM
If owning an investment residential property and renting it out is a business, are there any requirements for it to be a going-concern in order for expenses to continue to be deducted for tax purposes?

The example the CRA uses in Canada is if you rent the house out, then the capital gains are also taxable. ANY ongoing investment portfolio that runs like a "BUSINESS" with the intent to "MAKE A PROFIT" is always going to attract capital gains tax and not just the annual rental income that is taxed after deductions. In fact, CRA model for taxation is very extensive to have 3 areas of taxation when a person looks to profit. You have salary & wage income, dividend income from investments, and capital gain ; all are treated differently with different tax rates. IRD in NZ is way too lenient in allowing the use of real estate as a way to escape tax when compared to other investment or business models.

artemis
15-12-2019, 11:59 AM
... IRD in NZ is way too lenient in allowing the use of real estate as a way to escape tax when compared to other investment or business models.

There is no CGT in New Zealand, though there are situations where a capital gain is treated as income for tax purposes. The current government campaigned on a CGT, then set up a tax working group that (eventually) came to the CGT party. Next minute, the Prime Minister made a captain's call and canned it.

There were some exceptions to the proposed GST, like main home, small businesses sold to fund the owner's retirement, baches. The exceptions were not thought through and kept being added to or changed with voter feedback. It was heading for a big unpopular mess and a potential game changer for the government. So, gone.

SBQ
15-12-2019, 08:53 PM
There is no CGT in New Zealand, though there are situations where a capital gain is treated as income for tax purposes. The current government campaigned on a CGT, then set up a tax working group that (eventually) came to the CGT party. Next minute, the Prime Minister made a captain's call and canned it.

There were some exceptions to the proposed GST, like main home, small businesses sold to fund the owner's retirement, baches. The exceptions were not thought through and kept being added to or changed with voter feedback. It was heading for a big unpopular mess and a potential game changer for the government. So, gone.

Yes i'm aware IRD will simply treat property gains as straight income gains whereas in Canada, the same situation would be the capital gain would be simply treated as capital gains tax (a different rate / criteria). My problem is in NZ, there is no clear distinction for those 'buying houses with the intent to make a profit.... but hold the property well after the 2 or 5 year brightline test' and therefore able to sell the house without IRD being aware of any knowing that rental income has been collected on the property. They've basically kept a complete blind eye on this area with no internal checks. For eg in Vancouver the city council compile records on how the property is used. ie. say if the person intends to rent a portion of the house out, then they require a rental license from the local city council ; for which the home owner has to declare on their insurance policy, for which the home owner has to apportion what % of the house is rented out to the CRA so when the time comes they sell the house, ONLY that % portion NOT used as rental is tax free on their principal residence (under the change of use of the principal residence act). Even leaving the house vacant, the City of Vancouver compiles that data and forwards it to the federal level.

Ms Ardern is a joke. Spent all this $ on an independent TWG - only to say no against their advice. Why was there a lack of communication between her Labour Party caucus and the TWG, WITH the NZ public? What came to her decision? What factors she did not like? The people voted her in to address housing affordability and she's failed miserably in this area. While countries like Canada have made great efforts to address affordability while at the same time, discouraging the incentive to use houses as a profiting tool. Because having grown up in Canada, only very few people i've come across make big $ from owning real estate; the vast majority have made their wealth on the sharemarket. But as i've said before in another thread, NZ's tax structure clearly discourages direct investment in foreign shares that fall under the FIF regime. Those living abroad wanting to reside in NZ would be hit with FIF on their overseas investments - yielding the only migrants that come to NZ are the poor ones that have no significant assets abroad.

blackcap
16-12-2019, 07:30 AM
Yes i'm aware IRD will simply treat property gains as straight income gains whereas in Canada, the same situation would be the capital gain would be simply treated as capital gains tax (a different rate / criteria). My problem is in NZ, there is no clear distinction for those 'buying houses with the intent to make a profit.... but hold the property well after the 2 or 5 year brightline test' and therefore able to sell the house without IRD being aware of any knowing that rental income has been collected on the property. They've basically kept a complete blind eye on this area with no internal checks. For eg in Vancouver the city council compile records on how the property is used. ie. say if the person intends to rent a portion of the house out, then they require a rental license from the local city council ; for which the home owner has to declare on their insurance policy, for which the home owner has to apportion what % of the house is rented out to the CRA so when the time comes they sell the house, ONLY that % portion NOT used as rental is tax free on their principal residence (under the change of use of the principal residence act). Even leaving the house vacant, the City of Vancouver compiles that data and forwards it to the federal level.

Ms Ardern is a joke. Spent all this $ on an independent TWG - only to say no against their advice. Why was there a lack of communication between her Labour Party caucus and the TWG, WITH the NZ public? What came to her decision? What factors she did not like? The people voted her in to address housing affordability and she's failed miserably in this area. While countries like Canada have made great efforts to address affordability while at the same time, discouraging the incentive to use houses as a profiting tool. Because having grown up in Canada, only very few people i've come across make big $ from owning real estate; the vast majority have made their wealth on the sharemarket. But as i've said before in another thread, NZ's tax structure clearly discourages direct investment in foreign shares that fall under the FIF regime. Those living abroad wanting to reside in NZ would be hit with FIF on their overseas investments - yielding the only migrants that come to NZ are the poor ones that have no significant assets abroad.

Yet interestingly in NZ, there has never been a fund to invest in residential property. There are funds for commercial property. I asked Brian Gaynor a while back why this was. He said it has been tried in the past but it just does not work. There is no money to be made in residential property. (in other words its too hard). So I do not think there are profiting mechanisms with residential property. I manage three rentals that have appreciated in value the last 10 years, but if I go back and work out the return after all costs, I would be better off having put my money in the stock market. Once the growth in capital value that we have seen the last 10 years plateaus, it is going to be a season of discontent for those holding residential property.

SBQ
16-12-2019, 11:19 AM
Yet interestingly in NZ, there has never been a fund to invest in residential property. There are funds for commercial property. I asked Brian Gaynor a while back why this was. He said it has been tried in the past but it just does not work. There is no money to be made in residential property. (in other words its too hard). So I do not think there are profiting mechanisms with residential property. I manage three rentals that have appreciated in value the last 10 years, but if I go back and work out the return after all costs, I would be better off having put my money in the stock market. Once the growth in capital value that we have seen the last 10 years plateaus, it is going to be a season of discontent for those holding residential property.

If you take your time frame longer, you'll find residential houses would perform better than shares. Of course subject to what houses or shares you buy - I would speak specifically houses in the Auckland market because i've seen many of my cousins that bought houses there shortly after 2000. The amount of windfall in gains is immense if they were to sell today. For the same period, you've had a dot come crash and a GFC.

Reason why no residential property funds? Because in the similar fashion with commercial properties ; the residential holding will be subjected to tax on the gains and rental incomes, for which the net result is little or no gain. HOWEVER, to the individual landlord.... that structures buying a bunch of residential properties over many years while collecting rental income, can sell over the long long term without paying a $1 in tax. As I mentioned before, no one considers taxation.. not even the manage funds in Kiwi Saver that addresses the taxation for investors. They talk about fancy annual returns over so many years but they're not net of taxes they pay and taxes that the individual has paid.

I seen the stock market crashes.... without a doubt, Auckland residential property has an advantage.

JBmurc
16-12-2019, 08:31 PM
Not sure how many on here read the "NZ Property investor mag" but now and again I get an issue and as I've enjoyed many a good investment return in NZ Property I like to keep up to date with present market >>

Now in the latest issue I read a piece on "Why you should take interest only loans over your investment properties" and forget about paying off the debts as NZ property only goes higher in value on average 10% pa so just use the increased equity you get and buy more and more properties on I.O and never pay the properties off.

Surely we must be getting to peak Property love here in NZ as looking over the average yields nationwide on current average selling prices we see yields of 3-6% so no wonder I.O lending is all the rave as after an ever increasing insurance/rates costs taxes etc not going be much if capital left to pay down any of the actually property purchase price .. pure madness IMHO
seems like the core investment plan of many is BUY and hope for Cap gain as in the past it worked great so why would it top now

iceman
16-12-2019, 11:39 PM
Yet interestingly in NZ, there has never been a fund to invest in residential property. There are funds for commercial property. I asked Brian Gaynor a while back why this was. He said it has been tried in the past but it just does not work. There is no money to be made in residential property. (in other words its too hard). So I do not think there are profiting mechanisms with residential property. I manage three rentals that have appreciated in value the last 10 years, but if I go back and work out the return after all costs, I would be better off having put my money in the stock market. Once the growth in capital value that we have seen the last 10 years plateaus, it is going to be a season of discontent for those holding residential property.

I agree blackcap. I do hold residential rental property as part of my portfolio and will continue to do so (unless this Government continues to make it harder) but it would be much easier and equally successful long term just to have it in shares.

iceman
16-12-2019, 11:42 PM
Not sure how many on here read the "NZ Property investor mag" but now and again I get an issue and as I've enjoyed many a good investment return in NZ Property I like to keep up to date with present market >>

Now in the latest issue I read a piece on "Why you should take interest only loans over your investment properties" and forget about paying off the debts as NZ property only goes higher in value on average 10% pa so just use the increased equity you get and buy more and more properties on I.O and never pay the properties off.

Surely we must be getting to peak Property love here in NZ as looking over the average yields nationwide on current average selling prices we see yields of 3-6% so no wonder I.O lending is all the rave as after an ever increasing insurance/rates costs taxes etc not going be much if capital left to pay down any of the actually property purchase price .. pure madness IMHO
seems like the core investment plan of many is BUY and hope for Cap gain as in the past it worked great so why would it top now

The banks are already onto this as you can see from posts a few days ago on this thready. LVRs are simply not counting anymore for investors. Banks now look at income to debt ratios so the Property mag is wrong about this

SBQ
17-12-2019, 10:49 AM
Not sure how many on here read the "NZ Property investor mag" but now and again I get an issue and as I've enjoyed many a good investment return in NZ Property I like to keep up to date with present market >>

Now in the latest issue I read a piece on "Why you should take interest only loans over your investment properties" and forget about paying off the debts as NZ property only goes higher in value on average 10% pa so just use the increased equity you get and buy more and more properties on I.O and never pay the properties off.

Surely we must be getting to peak Property love here in NZ as looking over the average yields nationwide on current average selling prices we see yields of 3-6% so no wonder I.O lending is all the rave as after an ever increasing insurance/rates costs taxes etc not going be much if capital left to pay down any of the actually property purchase price .. pure madness IMHO
seems like the core investment plan of many is BUY and hope for Cap gain as in the past it worked great so why would it top now

My uncle in Australia has invested heavily in real estate for about 40 years and used the same model of borrowing maximum with use of negative gearing, and with no intention of ever paying the mortgages off as every so many years he went out and bought more properties. Now, or since the psat 10 or so years Australia imposed stamp duty on real estate investments. He says there are no significant gains and all he does is just work for the bank. He's also too frighten to sell any of his properties because of CGT and hindsight, he tells me he would of been better off invested into the sharemarket. Of course this is Australia. In NZ we have an entirely different can of beans and i'm not seeing the Kiwi Savers having more than the real estate investors. Of course there are exceptions but I keep hamming the same issue; unlike Australia, NZ has a clear tax advantage in residential properties.

Another uncle is trying to sell his house in Australia for which he said had made x 3 times capital gain for holding around 30+ years. The offer was accepted but since he lives in NZ, he NZ lawyer and the Australian lawyer have got their hands in the pot. He would most certain have to pay CGT but the other issue is, Australia's tax dept may take a closer look and query about the rental income he's earned off it for the whole time he's owned the property. On top of this you have NZ's AML and CRS regulations. Again, Australia is not like NZ where you can have tax free ie 'home stay' income. I told him hindsight, he would been far better off buying Auckland real estate instead.

fungus pudding
17-12-2019, 11:18 AM
My uncle in Australia has invested heavily in real estate for about 40 years and used the same model of borrowing maximum with use of negative gearing, and with no intention of ever paying the mortgages off as every so many years he went out and bought more properties. Now, or since the psat 10 or so years Australia imposed stamp duty on real estate investments. He says there are no significant gains and all he does is just work for the bank. He's also too frighten to sell any of his properties because of CGT and hindsight, he tells me he would of been better off invested into the sharemarket. Of course this is Australia. In NZ we have an entirely different can of beans and i'm not seeing the Kiwi Savers having more than the real estate investors. Of course there are exceptions but I keep hamming the same issue; unlike Australia, NZ has a clear tax advantage in residential properties.



What is the 'clear advantage'?

JBmurc
17-12-2019, 11:23 AM
The banks are already onto this as you can see from posts a few days ago on this thready. LVRs are simply not counting anymore for investors. Banks now look at income to debt ratios so the Property mag is wrong about this

Yes fully understood ...strange why the article on I.O over I.P didn't put this into the perspective of income to debt ratio ... which banks are they using ??

But I've seen the same promotion on the NZ propertytalk forum .. the idea to property wealth is as basic as BUY and HOLD then RENO revalue -repeat and don't stress about yield as the ongoing Capital Gain will make you rich Negative Yield no stress .... the no money down 20 properties in a year hype etc

SBQ
17-12-2019, 05:12 PM
What is the 'clear advantage'?

In NZ, tax free capital gain on the sale of residential houses. There are so many ways one could game the system; via being a slumlord or doing fixer uppers, holding the properties in multiple names within the family. The gaming of being tax free is so significant that IRD does not have the tools to monitor it. VERY different to in Canada where lawyers and real estate agents are held accountable by the tax dept for not crossing the Ts and dotting the Is. In NZ if a real estate agent is caught not confirming with AML, well they just lose their job. In Canada, up to 1/3rd (IRC) of the value of the house must be held in a retainer and is not released until the CRA gives the OK.

So when you compare to Kiwi Saver, an investment scheme where you can't leverage and the gains are taxed annualy, it doesn't take long to realise that "cumulative" gains are not really there despite employer matching contributions. FYI, this was all addressed in Canada when they introduced RRSPs. Small matching % of contributions are ineffective as many managed funds take more than 2 or 3% in admin / mgt frees (especially during the 80s and 90s era). So they made a maximum of 18% limit for matching contributions. In additions, UNUSED contributions in previous years could be carried forward indefinitely. Meaning on years where you contributed nothing to your pension, the CRA would allow that portion credit to applied in the next year (essentially doubling your contribution amount). This flexibility is critical as stock market rise and fall and so should the investor be able to choose WHEN they want to be in the market or not.

fungus pudding
17-12-2019, 05:54 PM
In NZ, tax free capital gain on the sale of residential houses. There are so many ways one could game the system; via being a slumlord or doing fixer uppers, holding the properties in multiple names within the family. The gaming of being tax free is so significant that IRD does not have the tools to monitor it. VERY different to in Canada where lawyers and real estate agents are held accountable by the tax dept for not crossing the Ts and dotting the Is. In NZ if a real estate agent is caught not confirming with AML, well they just lose their job. In Canada, up to 1/3rd (IRC) of the value of the house must be held in a retainer and is not released until the CRA gives the OK.

So when you compare to Kiwi Saver, an investment scheme where you can't leverage and the gains are taxed annualy, it doesn't take long to realise that "cumulative" gains are not really there despite employer matching contributions. FYI, this was all addressed in Canada when they introduced RRSPs. Small matching % of contributions are ineffective as many managed funds take more than 2 or 3% in admin / mgt frees (especially during the 80s and 90s era). So they made a maximum of 18% limit for matching contributions. In additions, UNUSED contributions in previous years could be carried forward indefinitely. Meaning on years where you contributed nothing to your pension, the CRA would allow that portion credit to applied in the next year (essentially doubling your contribution amount). This flexibility is critical as stock market rise and fall and so should the investor be able to choose WHEN they want to be in the market or not.

The treatment of real estate by the IRD is no different from shares or any other investment.

SBQ
17-12-2019, 07:02 PM
The treatment of real estate by the IRD is no different from shares or any other investment.

You must be blind because i'm seeing everyone (well not everyone but a ton of people) gaming IRD. Accountants know themselves advising clients how to buy residential properties and NOT fall in the trap that IRD will tax their investment upon the sale of the house. Such as keeping the house well long enough before selling, and not selling more than 1 house within a short period of time. Why? Because IRD rules are, holding houses long enough = tax free capital gain. This is entirely different to IRD's view on share investments where you hold them for 1 day or for 10 years, the gains are taxed annually.

JBmurc
17-12-2019, 09:39 PM
You must be blind because i'm seeing everyone (well not everyone but a ton of people) gaming IRD. Accountants know themselves advising clients how to buy residential properties and NOT fall in the trap that IRD will tax their investment upon the sale of the house. Such as keeping the house well long enough before selling, and not selling more than 1 house within a short period of time. Why? Because IRD rules are, holding houses long enough = tax free capital gain. This is entirely different to IRD's view on share investments where you hold them for 1 day or for 10 years, the gains are taxed annually.

Well only Cap gains Tax on share investments if your a trader if your buying shares for say the yield and don't buy and sell shares mutable times taking Cap gains then you don't pay tax or can claim tax loses

fungus pudding
18-12-2019, 01:09 AM
You must be blind because i'm seeing everyone (well not everyone but a ton of people) gaming IRD. Accountants know themselves advising clients how to buy residential properties and NOT fall in the trap that IRD will tax their investment upon the sale of the house. Such as keeping the house well long enough before selling, and not selling more than 1 house within a short period of time. Why? Because IRD rules are, holding houses long enough = tax free capital gain. This is entirely different to IRD's view on share investments where you hold them for 1 day or for 10 years, the gains are taxed annually.

Mine aren't. I must be lucky. I even sold some once and was not taxed.

fungus pudding
18-12-2019, 01:12 AM
Well only Cap gains Tax on share investments if your a trader if your buying shares for say the yield and don't buy and sell shares mutable times taking Cap gains then you don't pay tax or can claim tax loses

Correct, exactly like real estate investment.

artemis
18-12-2019, 06:38 AM
The treatment of real estate by the IRD is no different from shares or any other investment.

Actually it is, or can be, different for residential rental properties. Bright line test. Ring fencing of rental losses. Removal of building depreciation.

And not tax but new legislated compliances in place or announced that do not apply to other businesses - rent control (increases annual only), serious restrictions on termination, more ....

SBQ
18-12-2019, 07:25 AM
Well only Cap gains Tax on share investments if your a trader if your buying shares for say the yield and don't buy and sell shares mutable times taking Cap gains then you don't pay tax or can claim tax loses

You mean NZ and some shares on the ASX? Is it sensible to have your eggs in 3% of the world's asset in terms of diversification? Higher quality stocks abroad such as those on the NYSE or Nasdaq attract FIF and regardless of what shares you invest, most are subjected to dividend tax (not many are full 100% imputed tax credited). Perhaps investors need to realise NZ's corporate tax rate is not competitive to corporate rates in the US or Canada ; what would that lead to in terms of overall returns. Oh and I find it very interesting of NZ share investors obsession with collecting dividends. But if you want capital gains.. not many on the NZX can throw a pitch to NZ investors that they prefer to keep cash flows and reflect the retained earnings as capital gains.

Very few invest shares directly, so i'm pointing to Kiwi Saver, ALL those managed funds are trader status and therefore subjected to tax on ANY gains. There's no way to game shareholder investments like you can with buying residential properties.

SBQ
18-12-2019, 07:31 AM
Actually it is, or can be, different for residential rental properties. Bright line test. Ring fencing of rental losses. Removal of building depreciation.

And not tax but new legislated compliances in place or announced that do not apply to other businesses - rent control (increases annual only), serious restrictions on termination, more ....

I reiterate my point, there's a huge difference in how IRD addresses tax on real estate investments where despite you have rent controls, etc. virtually everyone is gaming the system so they don't pay any tax on the capital gain. I know many that use the 'home stay' category which IRD allows the home owner to collect rent tax free up to a threshold. The Bright Line test is a joke because all it does is tells investors a clearer rule ; sell the house before 5 years and you'll be looked at for taxes. That's a load of rubbish in terms of addressing the real issue that tax on real estate in NZ is handled entirely different to other forms of investments.

Claiming depreciation on a house? Only reason to do this is IF you're running your residential portfolio AS A BUSINESS. Therefore have to pay the tax. Anyone gaming IRD will not do this and fly under the radar, use their own expense to make repairs to the house, increase it's value. If I recall correctly, Winston Peters said that NZ's real estate is the key pillar of NZ's economy and structure. No wonder Jacinda Ardern did nothing about CGT.

fungus pudding
18-12-2019, 08:28 AM
I reiterate my point, there's a huge difference in how IRD addresses tax on real estate investments where despite you have rent controls, etc. virtually everyone is gaming the system so they don't pay any tax on the capital gain. I know many that use the 'home stay' category which IRD allows the home owner to collect rent tax free up to a threshold. The Bright Line test is a joke because all it does is tells investors a clearer rule ; sell the house before 5 years and you'll be looked at for taxes. That's a load of rubbish in terms of addressing the real issue that tax on real estate in NZ is handled entirely different to other forms of investments.

Claiming depreciation on a house? Only reason to do this is IF you're running your residential portfolio AS A BUSINESS. Therefore have to pay the tax. Anyone gaming IRD will not do this and fly under the radar, use their own expense to make repairs to the house, increase it's value. If I recall correctly, Winston Peters said that NZ's real estate is the key pillar of NZ's economy and structure. No wonder Jacinda Ardern did nothing about CGT.

Sounds like you had better get every last cent invested in real estate - pronto. That's the only thing I invest in, either directly or through the LPT's that have that PIE advantage. I didn't realise how lucky I am.

SBQ
18-12-2019, 10:20 AM
Sounds like you had better get every last cent invested in real estate - pronto. That's the only thing I invest in, either directly or through the LPT's that have that PIE advantage. I didn't realise how lucky I am.

I can't speak for yourself and there are exceptional cases where individuals have done well in shares. The bold reality is people in NZ are not investing directly. You simply can't pitch a model where the average person is able to produce exceptional returns with shares. I'm not seeing this like I do in N. America.

Do you wonder why all the banks don't care for share investments and all they encourage is to loan mortgages? As the previous person mentioned in this post, his bank did not care about the share investment holdings when looking to buy his daughter's 1st home. What banks will do is lend on equity of real estate but NOT on equity in shares. I'm sure you are aware of this ; banks are freely able to lend on houses and nothing else.

It may seem i'm all bitter about this disparity between investments in residential housing, & shares on the stock exchange (from a NZ perspective). My greatest concern is for the average NZ resident, even for say 90% of the NZ population, pitching a model of Kiwi Saver to them would prove worse than if they invested in real estate directly. Of course things could of been different IF taxes were more equitable like they are in Aus/Can/US. You can give hats off to Michael Cullen for ramming Kiwi Saver down on the people.

Personally I hate real estate as an investment because it's a non-productive asset. But what can be done when you're living in NZ? I look at my children to see what choice they have for investment planning and the picture tells me clearly. 1) The next generation living in NZ will never have as much wealth, in terms of shareholder / pension investments, then those living abroad in the US or Canada. and this is ALL due to the differences in tax treatment. 2) Choosing Kiwi Saver vs a mortgage to buy another house (because you can leverage) will net you more wealth at the end ; again due to differences in tax. Following link elaborates the issue: (for which at the time they were talking how much wealth would be left on the house IF CGT was passed ; we know now we can forget about CGT):

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12209227

Look at the graph showing the timing of tax; the brown line (assuming the house investment) having a lot more wealth at the end than the blue line (assuming ie managed fund share investment where the gains are taxed every year). As quoted from the link:
"They are taxed at the same rate, but they do not end up with the same returns. The investment that's taxed at the end earns compound growth on everything, while the line that's taxed annually loses part of its growth immediately, along with the compound growth that would've come with it. In this scenario, that amounts to a $142,000 difference."

And no person has been more vocal about robbing wealth from compounded returns than John Bogle (RIP) in his Vanguard empire where he was critical on high management fees by managed funds. Likewise, no different to paying tax on annual gains or in the FIF. If your Kiwi Saver fund is invested in the US listed shares, unfortunately FIF literally robs them by taxing on the whole investment amount of FDR 5% regardless on years where they make no gain or loss. Meaning why is there a difference in FIF treatment for those invested in managed funds vs individuals owning US shares directly ?? If you're not following, the individual person under FIF on years where they have a loss, can elect out of the FDR and choose the 'comparative rate' FIF and pay no tax. Managed funds CAN NOT do this ; they're forced to pay FDR on the entire portfolio value having gain or no gain. Below link is an example of what i'm getting at: (which proves the person in a PIE fund is worse off... You say PIE advantage?)

https://www.consilium.co.nz/media/1080/investing-in-foreign-investment-funds-a-tax-comparison-of-pies-and-auts-consilium.pdf

There was another web link that has gone off line but it's titled "For FIF’s Sake: Why NZ global tax rules need a rewrite” by Anthony Edmonds". Which shows even more tax disparities between the individual directly investing under FIF and those investing under a PIE.

But of course... people in NZ only should invest in NZ shares because it's the right thing to do LMAO...

fungus pudding
18-12-2019, 10:53 AM
I can't speak for yourself and there are exceptional cases where individuals have done well in shares. The bold reality is people in NZ are not investing directly. You simply can't pitch a model where the average person is able to produce exceptional returns with shares. I'm not seeing this like I do in N. America.

Do you wonder why all the banks don't care for share investments and all they encourage is to loan mortgages? As the previous person mentioned in this post, his bank did not care about the share investment holdings when looking to buy his daughter's 1st home. What banks will do is lend on equity of real estate but NOT on equity in shares. I'm sure you are aware of this ; banks are freely able to lend on houses and nothing else.

It may seem i'm all bitter about this disparity between investments in residential housing, & shares on the stock exchange (from a NZ perspective). My greatest concern is for the average NZ resident, even for say 90% of the NZ population, pitching a model of Kiwi Saver to them would prove worse than if they invested in real estate directly. Of course things could of been different IF taxes were more equitable like they are in Aus/Can/US. You can give hats off to Michael Cullen for ramming Kiwi Saver down on the people.

Personally I hate real estate as an investment because it's a non-productive asset. But what can be done when you're living in NZ? I look at my children to see what choice they have for investment planning and the picture tells me clearly. 1) The next generation living in NZ will never have as much wealth, in terms of shareholder / pension investments, then those living abroad in the US or Canada. and this is ALL due to the differences in tax treatment. 2) Choosing Kiwi Saver vs a mortgage to buy another house (because you can leverage) will net you more wealth at the end ; again due to differences in tax. Following link elaborates the issue: (for which at the time they were talking how much wealth would be left on the house IF CGT was passed ; we know now we can forget about CGT):

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12209227

Look at the graph showing the timing of tax; the brown line (assuming the house investment) having a lot more wealth at the end than the blue line (assuming ie managed fund share investment where the gains are taxed every year). As quoted from the link:
"They are taxed at the same rate, but they do not end up with the same returns. The investment that's taxed at the end earns compound growth on everything, while the line that's taxed annually loses part of its growth immediately, along with the compound growth that would've come with it. In this scenario, that amounts to a $142,000 difference."

And no person has been more vocal about robbing wealth from compounded returns than John Bogle (RIP) in his Vanguard empire where he was critical on high management fees by managed funds. Likewise, no different to paying tax on annual gains or in the FIF. If your Kiwi Saver fund is invested in the US listed shares, unfortunately FIF literally robs them by taxing on the whole investment amount of FDR 5% regardless on years where they make no gain or loss. Meaning why is there a difference in FIF treatment for those invested in managed funds vs individuals owning US shares directly ?? If you're not following, the individual person under FIF on years where they have a loss, can elect out of the FDR and choose the 'comparative rate' FIF and pay no tax. Managed funds CAN NOT do this ; they're forced to pay FDR on the entire portfolio value having gain or no gain. Below link is an example of what i'm getting at: (which proves the person in a PIE fund is worse off... You say PIE advantage?)

https://www.consilium.co.nz/media/1080/investing-in-foreign-investment-funds-a-tax-comparison-of-pies-and-auts-consilium.pdf

There was another web link that has gone off line but it's titled "For FIF’s Sake: Why NZ global tax rules need a rewrite” by Anthony Edmonds". Which shows even more tax disparities between the individual directly investing under FIF and those investing under a PIE.

But of course... people in NZ only should invest in NZ shares because it's the right thing to do LMAO...

And here's silly ol' me thinking we were talking about NZers investing in NZ. I even thought paying 28% tax through a PIE was better than paying 33%. Silly me.

Bjauck
18-12-2019, 03:27 PM
And here's silly ol' me thinking we were talking about NZers investing in NZ. I even thought paying 28% tax through a PIE was better than paying 33%. Silly me. Maybe because of the relative appeal of residential housing investment and until recently an the lack of widespread pension scheme assets, The NZ share market has been hollowed out. So many NZ companies have relocated overseas - or have been taken over. For example just to maintain a shareholding in ex-NZ company Xero involves holding foreign shares on the ASX.

Much of the banking sector is in Australian hands so for the NZ resident for that business sector the only way to have a shareholding in that substantial part of the NZ economy is to have shares in a foreign company through foreign shares trading either on the ASX or on the NZX. A NZ company owning those banking assets would enable the NZ shareholders to claim a substantial imputation credit as opposed to the current situation of a minimal imputation claim for NZ resident holders.

I think NZers owning shares in specific overseas companies, which have assets in NZ, is sometimes the best way for NZ residents to have targeted exposure in certain NZ businesses and sectors.

Many NZ business and companies have ended up under overseas shareholders. Why not vice versa.

SBQ
18-12-2019, 07:31 PM
Maybe because of the relative appeal of residential housing investment and until recently an the lack of widespread pension scheme assets, The NZ share market has been hollowed out. So many NZ companies have relocated overseas - or have been taken over. For example just to maintain a shareholding in ex-NZ company Xero involves holding foreign shares on the ASX.

Much of the banking sector is in Australian hands so for the NZ resident for that business sector the only way to have a shareholding in that substantial part of the NZ economy is to have shares in a foreign company through foreign shares trading either on the ASX or on the NZX. A NZ company owning those banking assets would enable the NZ shareholders to claim a substantial imputation credit as opposed to the current situation of a minimal imputation claim for NZ resident holders.

I think NZers owning shares in specific overseas companies, which have assets in NZ, is sometimes the best way for NZ residents to have targeted exposure in certain NZ businesses and sectors.

Many NZ business and companies have ended up under overseas shareholders. Why not vice versa.

I'm quite sure you know the answer why. I've never been happy with the whole idea of dividend payments and with inputation credits because the more efficient method from a tax point of view is to keep the funds in retained earnings / shareholder's equity and let the share price reflect that. Therefore generation a tax free capital gain. Just allow the shareholder to elect any disbursements of payment by simply selling a portion of their share holding. This creates liquidity on the NZX (for which the reality being, the liquidity is drying up on the NZX).

I also question how many foreign companies abroad actually have full interest in owning NZ companies? Who would risk that kind of involvement? I've seen the Canadian "Ontario Teacher's Pension" come and buy NZ's Yellow Page holding for a large sum... to only later be wiped out by online information for finding ph# instead of out of the traditional Yellow Pages directory books we see delivered to homes each year. Then there's "sensitive assets" like the Auckland airport where foreign funds tried to invest in. When you look at the NZX, what reputable managed fund from the US would ever find 'undervalued' companies there? Not when politically, you have an investment environment that discourages NZ residents ability to invest in foreign shares ; i'm certain brokerage firms in the US have simply cut off access to buying equities on the NZX over the recent FMA regulation. You have a ban on non-residents being able to buy houses in NZ. It doesn't take long (or the damage has already been done) to tell the investment community abroad that NZ does not play fair when looking at both sides of the fence.

Reason why many NZ companies like Zero have gone abroad? It's the very same reason why the individual would seek their investments abroad. They seek a more fair equitable tax system. Does NZ's corporate tax rate of 30% seem competitive on the OECD scale?

It's just so sad the individual living in NZ gets the worse situation being stuck in Kiwi Saver and the price of owning houses have been an exclusive for only the high income earners...

Bjauck
19-12-2019, 07:57 AM
I'm quite sure you know the answer why. I've never been happy with the whole idea of dividend payments and with inputation credits because the more efficient method from a tax point of view is to keep the funds in retained earnings / shareholder's equity and let the share price reflect that. Therefore generation a tax free capital gain. Just allow the shareholder to elect any disbursements of payment by simply selling a portion of their share holding. This creates liquidity on the NZX (for which the reality being, the liquidity is drying up on the NZX)..

I think I may not have made my point clear in my response to another poster. Namely: Much of NZ business is now actually in foreign ownership. So, owning foreign shares may actually be a way to invest in those companies who own NZ businesses now.

However in relation to imputed dividends I disagree. It gives a tax-neutral flexibility for companies to either retain or distribute tax paid profit. Attaching imputation credits means that the shareholder is not then in effect double-taxed on the company profit. If the tax paid profit were kept in the company, then the only way for a shareholder (who relies on an income stream from investments) would be to sell shares thereby incurring transaction costs.

Other countries have investment schemes with discounted tax rates on dividends and/or a tax threshold before dividend income is taxed. Certainly until NZ introduces such schemes, imputation at least tries to address double taxation on the income from NZ shares.

A few years old:
https://www.interest.co.nz/business/77780/dividend-imputation-has-changed-how-nz-corporates-deliver-returns-shareholders-says

SBQ
19-12-2019, 08:39 AM
I think I may not have made my point clear in my response to another poster. Namely: Much of NZ business is now actually in foreign ownership. So, owning foreign shares may actually be a way to invest in those companies who own NZ businesses now.

However in relation to imputed dividends I disagree. It gives a tax-neutral flexibility for companies to either retain or distribute tax paid profit. Attaching imputation credits means that the shareholder is not then in effect double-taxed on the company profit. If the tax paid profit were kept in the company, then the only way for a shareholder (who relies on an income stream from investments) would be to sell shares thereby incurring transaction costs.

Other countries have investment schemes with discounted tax rates on dividends and/or a tax threshold before dividend income is taxed. Certainly until NZ introduces such schemes, imputation at least tries to address double taxation on the income from NZ shares.

A few years old:
https://www.interest.co.nz/business/77780/dividend-imputation-has-changed-how-nz-corporates-deliver-returns-shareholders-says

I'll try to keep this short as it's off topic. I completely agree on the reasons for the imputation credit, which avoids double taxation. Canada addresses this via a dividend credit directly to the shareholder on their tax return. But eitherway, i'm not buying this argument one bit. You have critics that have been very vocal against Warren Buffet why he doesn't pay dividends in Berkshire Hathaway because quite simply, they don't know better. This is not to rain against issue dividends because Buffet collect a heap of dividends. His view is simply again, not tax efficient and encourages the companies that Berkshire hold to retain profits for use in EXPANSION to maintain growth. Otherwise if there's no growth then dividend payment is acceptable.

If you really want an income stream, then choose a different asset class. But to assume these NZ listed companies to have an expectation to pay dividends? No matter if they're in a growth stage or mature type of company say like utilities (huge lack of distinction). It's prevalent entirely through NZ's finance industry ; NZ brokers such as MacQuires giving out their investment approach that focus on dividends and .. none other. No wonder companies like Xero have left the NZX. On the US front, US brokerage firms are shutting out access to the NZX because of the NZ gov'ts FMA. Then I hear liquidity in the NZX is drying up. Should be interesting to see where the NZX will be in 10 years. Wouldn't be happy to be holding Kiwi Saver focused solely on NZ listings.

Bjauck
19-12-2019, 10:01 AM
Companies such as Xero May also have left NZ owing to the fact that the available capital has been limited - pension funds have such a comparatively small investment footprint here and households stuff their assets into residential housing.

Obviously with shares, there are types of companies and sectors where dividend streams are available, as in overseas markets. No income stream is 100% certain, just as with fixed interest stock and residential rents. Risk assessment is a requirement for all investments, businesses and even in selecting a salaried position.

Bjauck
21-12-2019, 08:48 AM
A Christmas Carol - a modern NZ version:

When one person's investment is another person's home....

New Zealand's rental market: What's really happening?https://www.stuff.co.nz/business/118364208/new-zealands-rental-market-whats-really-happening

artemis
21-12-2019, 09:36 AM
What's really happening? Look beneath the sad Christmas stories. The current government has changed the rules, and has announced yet more changes.

Equal and opposite reaction?

Note that the tenants who have to leave all say cannot find a new rental. Funny that.

Bjauck
21-12-2019, 01:04 PM
What's really happening? Look beneath the sad Christmas stories. The current government has changed the rules, and has announced yet more changes.

Equal and opposite reaction?

Note that the tenants who have to leave all say cannot find a new rental. Funny that.
Tales of woe are of course more poignant at Christmas-time.
About time for changes?...Also look behind the stories from badly-done-to Landlords.

peat
21-12-2019, 01:10 PM
I tend to think tenants should have permanent tenure if they want it.
That would make landlords think more about what they are doing, profiting off others fundamental requirements. Hey I'm not against it but landlords need to commit!

However, it should be quick and easy to remove if genuine reason such as damage or arrears or anti-social activities etc.

fungus pudding
21-12-2019, 01:46 PM
I tend to think tenants should have permanent tenure if they want it.
That would make landlords think more about what they are doing, profiting off others fundamental requirements. Hey I'm not against it but landlords need to commit!

However, it should be quick and easy to remove if genuine reason such as damage or arrears or anti-social activities etc.

Nothing to stop you offering permanent tenure to a tenant if you want to. Just don't expect others to.

artemis
22-12-2019, 06:45 AM
Nothing to stop you offering permanent tenure to a tenant if you want to. Just don't expect others to.

Correct, and in practice it happens often. The new termination rules announced by Minister Faafoi pretty much have that effect, with only limited reasons to terminate a tenancy. By the asset owner, that is. Tenants can pretty much leave when they like. He may walk some of the new rules back a bit, though no sign of that yet.

peat
22-12-2019, 02:06 PM
Nothing to stop you offering permanent tenure to a tenant if you want to. Just don't expect others to.

I've never wanted to be a landlord despite acknowledging its massive benefits, and I may be labouring the point a bit I guess but what I'm saying is that it should be mandatory that a tenant can stay as long as they like and landlords should know this and learn to live with it.
It can still be sold of course! As a going concern and income stream. So nothing really changes for those truly wanting an income stream.
I agree its a bit draconian but it would sort the housing market out :D

Edit: To me right of tenure is a fundamental human right bugger all this right to internet or whatever, but having a roof over ones head goes to the absolute bone (with me) in the sense that it destroys the soul if its not there. You have to pay for it of course and quick punishment and eviction if you don't. That would be my trade-off , absolute severity in this area with legal enforcement easily available etc.

<end rant>

artemis
22-12-2019, 02:44 PM
Right of tenure is set to take a big step forward here. If this continues then I think we will see a change in the mix of landlords. State subsidised social housing will have to increase rapidly, and there will be the rise of corporate residential landlords and the drifting away of landlords with only one or two rentals. An apartment building of rentals only, corporate ownership, has been discussed recently and is common overseas.

Consider the consequences. Social tenants will have right of tenure pretty much because if they are trouble who else will take them? Corporate landlords will follow the rules to the letter and take no prisoners. They will be resourced to do just that. Sad stories will not wash.

Plus a flood of freed up funds into other investments.

Aaron
23-12-2019, 08:09 AM
Not sure how many on here read the "NZ Property investor mag" but now and again I get an issue and as I've enjoyed many a good investment return in NZ Property I like to keep up to date with present market >>

Now in the latest issue I read a piece on "Why you should take interest only loans over your investment properties" and forget about paying off the debts as NZ property only goes higher in value on average 10% pa so just use the increased equity you get and buy more and more properties on I.O and never pay the properties off.

Surely we must be getting to peak Property love here in NZ as looking over the average yields nationwide on current average selling prices we see yields of 3-6% so no wonder I.O lending is all the rave as after an ever increasing insurance/rates costs taxes etc not going be much if capital left to pay down any of the actually property purchase price .. pure madness IMHO
seems like the core investment plan of many is BUY and hope for Cap gain as in the past it worked great so why would it top now

Unless the financial system changes this will always make sense. With stable prices negative gearing would just be about people losing money and investing poorly without the 6-8% tax free capital gain it would just be stupid. People do not expect to pay back debt anymore, they know that central banks will engineering inflation (reduction in the value of a dollar) to sort out their debts. The display since the financial crisis has been shocking across the globe, wholesale printing of money and something as ludicrous as negative interest rates has been preferable to letting asset prices fall. The system doesn't make sense but property investor is giving the right advice for the times.
We need to scrap targeted inflation as a policy it has only been around since 1990 in NZ when people still believed in trickle down economics. That is all it is a dumb idea that if rich people feel wealthier we will all be better off as the wealth trickles down.
I haven't got the statistics but I imagine wealth is actually trickling down while the main flow upwards increases wealth and income inequality.

Aaron
23-12-2019, 11:02 AM
This article appears to confirm that NZ Property is on the right track with its IO advice.

https://www.zerohedge.com/markets/world-bank-warns-wave-debt-could-unleash-historic-crisis-crush-global-economy

Interest rates can't rise the only way out would seem to be high inflation and a massive decrease in the purchasing power of currencies (currencies in which your loans are denominated).

It seems wrong to me but there is no one in a position of power willing to change things.

SBQ
07-01-2020, 08:52 AM
This article appears to confirm that NZ Property is on the right track with its IO advice.

https://www.zerohedge.com/markets/world-bank-warns-wave-debt-could-unleash-historic-crisis-crush-global-economy

Interest rates can't rise the only way out would seem to be high inflation and a massive decrease in the purchasing power of currencies (currencies in which your loans are denominated).

It seems wrong to me but there is no one in a position of power willing to change things.

Article basically sums it up as, 'don't put your investment into emerging countries' because they have a far higher debt load with a much higher level of risk. It's the very developed nations that are benefiting from the rise in debt. The question is which nations can handle a rise in interest rate? Large nations like the US certainly can and when this happens, you'll see the lessor countries will suffer more into financial crisis.

So the question is how bad is NZ real estate investment? NZ's currency is already been devaluing since the the Labour Gov't coalition and with a ban in foreign buyers of NZ residential houses (which reduces the liquidity), you'll find the NZ gov't has no option other than 1) raise taxes & 2) borrow more funds EXTERNALLY 'abroad'. FYI, many talk about how much debt the US has but fail to understand at nearly 3/4 of is internal or public held debt. The other 1/4 is gov't debt / foreign.

Consider how much debt our NZ gov't has been borrowing abroad. We've grown from $270B to nearly $300B under Ms Ardern:
https://tradingeconomics.com/new-zealand/external-debt

My purse is in the US and fortunately so (as the article makes mention of "the Smart People") because quality attracts capital. Unlike NZ with foreign buyer ban, the US maintains an open market policy for foreign investment (most specifically in US equities which is far more productive than owning real estate).

Bjauck
07-01-2020, 04:24 PM
America catches a cold; the rest of the world gets pneumonia.

Apart from certain cities in the US, Americans have more affordable real estate than NZers?

Before the foreign purchaser restrictions were introduced many insiders (sure many had a vested interest in high turnover of expensive property and mortgages) downplayed the involvement of foreign purchasers in residential real estate. We were informed that such bans would have just a limited effect. Surely the effect on liquidity would be minimal as the majority of demand is local?

(2017) https://www.stuff.co.nz/business/98442788/foreign-buyer-ban-will-affect-small-proportion-of-property-sales

https://www.tvnz.co.nz/one-news/new-zealand/very-minimal-impact-some-property-experts-not-convinced-banning-foreign-buyers-help-kiwi-housing-market

Just before the ban came into effect https://www.interest.co.nz/property/94335/anz-economists-say-governments-forthcoming-ban-foreign-buyers-new-zealand-houses-not

JBmurc
07-01-2020, 06:30 PM
America catches a cold; the rest of the world gets pneumonia.

Apart from certain cities in the US, Americans have more affordable real estate than NZers?

Before the foreign purchaser restrictions were introduced many insiders (sure many had a vested interest in high turnover of expensive property and mortgages) downplayed the involvement of foreign purchasers in residential real estate. We were informed that such bans would have just a limited effect. Surely the effect on liquidity would be minimal as the majority of demand is local?

(2017) https://www.stuff.co.nz/business/98442788/foreign-buyer-ban-will-affect-small-proportion-of-property-sales

https://www.tvnz.co.nz/one-news/new-zealand/very-minimal-impact-some-property-experts-not-convinced-banning-foreign-buyers-help-kiwi-housing-market

Just before the ban came into effect https://www.interest.co.nz/property/94335/anz-economists-say-governments-forthcoming-ban-foreign-buyers-new-zealand-houses-not

I watched an interview today on the US Markets talking about debt issues etc ... saying how the property bubble is back with House price-to-income multiples over 4 !!! here across NZ the average is around 6 Auckland 9 ---Queenstown the most out of balance with 13 !! (I'm sure Central Otago would be around Auckland rates)

SBQ
07-01-2020, 10:20 PM
I watched an interview today on the US Markets talking about debt issues etc ... saying how the property bubble is back with House price-to-income multiples over 4 !!! here across NZ the average is around 6 Auckland 9 ---Queenstown the most out of balance with 13 !! (I'm sure Central Otago would be around Auckland rates)

and that's the real reason! If the US is talking of a housing bubble where it's a multiple of 4, what does that leave for NZ? What keeps NZ real estate going is the preferential tax treatment vs investing in other ventures (ie small business or shares). If houses in NZ had capital gains tax similar to abroad, then we would see as much speculation and the housing multiples would be much lower. Also part of the reason for the much higher multiple in NZ is taxation is much higher than in America, meaning it takes a lot more years ; or a higher multiple. But overall you simply can't compare US houses to NZ houses as it would be like comparing apples to oranges. In the US, house sizes are clearly massive. The middle class person in the US lives in a house that only maybe the 1% in NZ would afford in NZ (and that's if 5000 ft^2 McMansion size houses were a common thing in NZ which they are not). Furthermore, US house sizes are based on "livable space" vs in NZ house size is determined by basically the size of the slab foundation (no factor on the thickness of the walls, hallways, aspects that matter on the term "livable space". The garage space or balcony / decks are not livable spaces in the US but can be in NZ. So a 280m2 size house in NZ is really only a 2000 ft2 size house in America.

Don't believe the economists from various NZ banks as they're misleading like their Kiwi Saver funds NZ banks keep promoting. Well.. deceptive in that the full taxation of the funds and to the individuals are not spelled out clearly when investing NZ or foreign equities. They don't know the full impact of things on a global scale. So when a ban is set, the impact is it discourages OTHER forms of investments (trickle effect).

Close friend living in Vancouver keeps me up with the un-affordability of housing there. But after his visit to Auckland last year, he completely understands what I meant by comparing apples with oranges. The Auckland house doesn't have the central heating / home comfort as the Vancouver and all at a price tag where the Auckland house is more than in Vancouver, while being 40% smaller in size. Narrow streets, no back alley access.

One thing that will definitely hurt NZ is if migration goes the other way (more people leaving NZ and those coming in). Of course this is on to a different topic but the issue of brain drain is a concern. When NZ public hospitals get a low grade report because it's cheaper to use senior nurses to take care of patients when it should be a proper doctor (because most likely many of these doctors have left NZ). NZ gov't doesn't pay enough and each wave of strikes that happen, the Labour Gov't fixes it with raising more pay which in effect, loads up the productive class of NZ by making them pay more taxes.

artemis
08-01-2020, 06:36 AM
I watched an interview today on the US Markets talking about debt issues etc ... saying how the property bubble is back with House price-to-income multiples over 4 !!! here across NZ the average is around 6 Auckland 9 ---Queenstown the most out of balance with 13 !! (I'm sure Central Otago would be around Auckland rates)

Country multiples v specific location multiples. Frogs v pears.

Also depends if comparing median prices with median wage or with household income.

Bjauck
08-01-2020, 10:37 AM
...Close friend living in Vancouver keeps me up with the un-affordability of housing there. But after his visit to Auckland last year, he completely understands what I meant by comparing apples with oranges. The Auckland house doesn't have the central heating / home comfort as the Vancouver and all at a price tag where the Auckland house is more than in Vancouver, while being 40% smaller in size. Narrow streets, no back alley access. ...
That is true. I think Australian residences also are of better quality to those in NZ. So extracting the value of the improvements and just comparing the value of the land part of the section, NZ real estate is even more unaffordable and expensive. Residential real estate does comprise such a large proportion of NZ household wealth. What happens with the price of housing will have a bigger impact in NZ than for other countries.

i think NZ had net emigration and a brain drain in the 1980s, but the real price of residential real estate kept on increasing as well. It is also worth bearing in mind that the UK joined the EEC in 1973. Until then the UK had been our biggest export market (the UK accounted for 36% of NZ exports in 1970) and there was a challenging period for the NZ economy after that.

JBmurc
08-01-2020, 05:49 PM
Country multiples v specific location multiples. Frogs v pears.

Also depends if comparing median prices with median wage or with household income.

Correct so I looked into it >>

New Zealand's median income is $52,000 FEB19 - NZ median home price $630k late 2019 ===== Ratio 12.1
USA median income- $63,688 USA JAN19 -median home price $227k JUL19 . ===== Ratio 3.6

SBQ
08-01-2020, 08:40 PM
Correct so I looked into it >>

New Zealand's median income is $52,000 FEB19 - NZ median home price $630k late 2019 ===== Ratio 12.1
USA median income- $63,688 USA JAN19 -median home price $227k JUL19 . ===== Ratio 3.6

Even if you factor the statistical measure with the bell curve, no matter which part of the bell, the results is so compelling that NZ is so far out of touch in affordability or what you get in a house.

Another figure to look at is land prices for empty sections. Here in Christchurch we're looking near $300,000 for 600m2 size sections in new sub-divisions.

Many years ago I remember on talk radio talking about some overseas celebrity visiting NZ that made a statement saying "NZ is a rip-off place" and I think the public kinda took offense to the person's statement. But there was some merit to the person's claim. I suppose when NZ residents hear that kind of negativity, they can't give any other excuse or a way to change it so they come back with remarks like "Well if you don't like NZ you don't have to visit again etc.."

JBmurc
08-01-2020, 08:58 PM
Even if you factor the statistical measure with the bell curve, no matter which part of the bell, the results is so compelling that NZ is so far out of touch in affordability or what you get in a house.

Another figure to look at is land prices for empty sections. Here in Christchurch we're looking near $300,000 for 600m2 size sections in new sub-divisions.

Many years ago I remember on talk radio talking about some overseas celebrity visiting NZ that made a statement saying "NZ is a rip-off place" and I think the public kinda took offense to the person's statement. But there was some merit to the person's claim. I suppose when NZ residents hear that kind of negativity, they can't give any other excuse or a way to change it so they come back with remarks like "Well if you don't like NZ you don't have to visit again etc.."

Yes been looking over at Utah state ... looks just like one HUGE Central Otago but with much cheaper property

fungus pudding
08-01-2020, 09:02 PM
Yes been looking over at Utah state ... looks just like one HUGE Central Otago but with much cheaper property

Yeah, but look what the poor buyers get for a president.

JBmurc
08-01-2020, 11:20 PM
Yeah, but look what the poor buyers get for a president.

LOL yes and we have Comrade Cindy .. polar opposites..

Bjauck
20-01-2020, 07:05 AM
Another week; another housing unaffordability article;Another drop in NZ home ownership rate? The housing divide continues.
https://www.stuff.co.nz/business/118831756/rising-regions-make-nzs-housing-market-less-affordable

Good news for the tax efficient de facto retirement schemes for boomers, but bad news for first home buyers and home upsizers.

Aaron
20-01-2020, 03:39 PM
Not sure which would be worse low interest rates and high house prices or high interest rates and low house prices.
We have hindsight to know anyone buying in the 70s & 80s has had inflation to rapidly make the mortgage manageable in spite of the high interest rates.

From recent history we also know that buying a house has still generally been a very financially positive move.

https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-house-price-values
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-90-day-rate

I wonder if this will ever change or if there is a price that is too high or a yield too low (particularly in light of the additional costs being put on landlords).

At negative interest rates no asset price is too high and any yield above 0% would probably be acceptable.

fungus pudding
20-01-2020, 04:21 PM
Not sure which would be worse low interest rates and high house prices or high interest rates and low house prices.


Low interest rates make for the worst time to buy. Go mad when they are through the roof. If they drop your asset increases in value while your outgoings reduce. Buying when rates are low (and prices are high} is risky. If/when rates rise, your new asset value drops and the cost of ownership rises. Fungus's first law of economics. 'Interest rates and asset prices are the opposite ends of a see-saw'.

Aaron
21-01-2020, 08:35 AM
Low interest rates make for the worst time to buy. Go mad when they are through the roof. If they drop your asset increases in value while your outgoings reduce. Buying when rates are low (and prices are high} is risky. If/when rates rise, your new asset value drops and the cost of ownership rises. Fungus's first law of economics. 'Interest rates and asset prices are the opposite ends of a see-saw'.

Agreed but will we ever have a chance to invest in a less risky time as central banks will only lower interest rates and this could go on for many years.

Bjauck
21-01-2020, 08:58 AM
So much NZ household wealth comes from investment in land. With asset price inflation, as wealth inequality increases with current tax settings and wealth becomes concentrated in a small percentage of households, NZ will probably have to develop a strategy to reduce the social frictions.

The following is about to years old, so the situation is probably even more polarised now.
Oxfam report - Huge wealth gap in New Zealand where richest 1% own 28% of wealth

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11979151


Is Capital Gains Tax Really Dead?
https://www.stuff.co.nz/business/opinion-analysis/118864950/is-the-capital-gains-tax-really-dead

fungus pudding
21-01-2020, 08:58 AM
Agreed but will we ever have a chance to invest in a less risky time as central banks will only lower interest rates and this could go on for many years.

Rates will almost certainly stay around current low levels for foreseeable future, but the foreseeable future for me currently is shorter than the typical home mortgage.:eek2:

artemis
21-01-2020, 11:36 AM
So much NZ household wealth comes from investment in land. With asset price inflation, as wealth inequality increases with current tax settings and wealth becomes concentrated in a small percentage of households, NZ will probably have to develop a strategy to reduce the social frictions.

The following is about to years old, so the situation is probably even more polarised now.
Oxfam report - Huge wealth gap in New Zealand where richest 1% own 28% of wealth
....

Suggest take Oxfam reports with a big spoon of salt. They have an agenda. They, and many journalists that create the headlines, are regularly smacked by some who compare the base data Oxfam use (from the Credit Suisse highly regarded global wealth report) with the Oxfam conclusions. And the headlines.

Credit Suisse 2018 reports show that New Zealand’s wealth inequality declined from the previous year’s 72.3 Gini points to 70.8 Gini points. Don't see that in the headlines, probably not reported at all here.

Kool-Aid.

And even if the 28% is correct, Oxfam includes NZ billionaires from the Forbes annual list. Because it supports their agenda and keeps the donations rolling in.

Bjauck
21-01-2020, 12:47 PM
Suggest take Oxfam reports with a big spoon of salt. They have an agenda. They, and many journalists that create the headlines, are regularly smacked by some who compare the base data Oxfam use (from the Credit Suisse highly regarded global wealth report) with the Oxfam conclusions. And the headlines.

Credit Suisse 2018 reports show that New Zealand’s wealth inequality declined from the previous year’s 72.3 Gini points to 70.8 Gini points. Don't see that in the headlines, probably not reported at all here.

Kool-Aid.

And even if the 28% is correct, Oxfam includes NZ billionaires from the Forbes annual list. Because it supports their agenda and keeps the donations rolling in. Sure they have an agenda. Who doesn’t? Using the same facts and information, different people offer different conclusions. So we need to look at vested interests, what has been ignored and and who pays those that offer different conclusions.

One Oxfam agendum is to strive for a fairer allocation of resources. I wonder how NZ is faring in 2020.
The world is full of vested interests and Government policy is usually the result of the most powerful and influential vested interests. Suggest we should critique those who rubbish Oxfam too.

Oxfam answers some questions:
https://www.oxfam.org.nz/news-media/blog/top-5-questions-you-asked-about-new-oxfam-inequality-report/

SBQ
21-01-2020, 05:25 PM
Sure they have an agenda. Who doesn’t? Using the same facts and information, different people offer different conclusions. So we need to look at vested interests, what has been ignored and and who pays those that offer different conclusions.

One Oxfam agendum is to strive for a fairer allocation of resources. I wonder how NZ is faring in 2020.
The world is full of vested interests and Government policy is usually the result of the most powerful and influential vested interests. Suggest we should critique those who rubbish Oxfam too.

Oxfam answers some questions:
https://www.oxfam.org.nz/news-media/blog/top-5-questions-you-asked-about-new-oxfam-inequality-report/

Completely agree - a lot of the reports don't factor important variables and many can't be simply quantified in figures. Like how do you quantify a person's reason of living in NZ because the climate is better? How do you quantify the living comfort of a Canadian built home despite having a high carbon foot print?

An equally justifiable reason. Why is it at uni (well at the time I attended) the profs were out to fail everyone? I mean when I attended uni in Canada, having 50% of the students fail in finance classes was the norm. So what does that mean for the top 1% in the class? Why should they get better recognition? I feel this is the same argument how the media points a bad finger at the 1% owning a high % of wealth. Is it not they should be rewarded for their ability? How else do you address inequality because when I was grade school, I saw a lot of students that were not equal and simply didn't make the cut. It's a double standard we have in society ; ok for the poor to receive benefits and bash the rich, but when it comes to education, let's bash the weak and praise the top grads.

As far as CGT in NZ goes. Well our gov't will never be serious about it as long as they have a vested interest in real estate. Certainly not with NZ 1st and Winnie Peters. However, I often wonder why the TWG never considered options in implementing CGT in tranches? This is nothing and has been done in Canada for as long as I can remember. At times the CGT was 75% of the gain became taxable income. Then dropped to 50% of the gain becomes taxable. There's also exemptions to certain special assets. Even Bush made exemptions for US farmers to have their land exempt from CGT. I see NO reason why the NZ gov't couldn't do the same. Perhaps over 5 years implement the CGT SLOWLY so it doesn't have a hard impact on investments.

Bjauck
22-01-2020, 09:11 AM
SBQ - I think I am on the same page as you in relation to a CGT. However I am not sure about the rest of your post. It seemed somewhat contradictory to me. I have to say I got lost when you said some students "were not equal." I agree that skill in a particular subject, academic ability and intellectual function is not the same for everyone.

Apart from on CGT, we may have to agree to disagree.

kiora
23-01-2020, 07:32 AM
Doesn't seem like much CGT for all those audits
https://www.stuff.co.nz/business/118961210/inland-revenue-slaps-property-traders-with-125m-tax-bill?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Thursday+23 +January+2020

Aaron
23-01-2020, 07:59 AM
Doesn't seem like much CGT for all those audits
https://www.stuff.co.nz/business/118961210/inland-revenue-slaps-property-traders-with-125m-tax-bill?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Thursday+23 +January+2020

$12.5mill taxes or $37.8mill in profits (assuming the top tax rate) possibly closer to $50mill. assuming an average of 25% tax rate for one year.

Better than a kick in the pants.

SBQ
23-01-2020, 07:00 PM
Doesn't seem like much CGT for all those audits
https://www.stuff.co.nz/business/118961210/inland-revenue-slaps-property-traders-with-125m-tax-bill?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Thursday+23 +January+2020

Which goes to show that the tax laws in NZ are not on a fair playing field. As a matter of comparison, in Canada when you purchase property you have to disclose to the lawyer / conveyance person why you're buying it? there's a tick box list of things like 'your 1st home', 'vacation home', non-resident home, and many others. NZ's taxing of property speculators is no different than in Canada. Actually there are 3 major categories that the tax authority views on house / land purchase. If you're in the business of dealing with buying and selling real estate, then of course the gains on the sale of your assets (the houses) will be taxed at same business income rates (no different to in NZ). If you bought the house as an individual and it turns out you're in the building trade, then the gains would be classed as regular individual income tax rates. If you bought the house and made improvements to the house in a renovation, then the 'adjusted cost base' would have to be changed and the house would get revalued for taxation and of course, the intent is the key ; auditors will ask did you renovate with intention to sell? If so, then the gains on the sale will be at capital gains rates. So what i'm getting at is what IRD has done is they have not spelled out clearly (as in that article) what is taxable when making gains on the sale of property. Too many loops holes in my opinion because something like this would never happen in Canada ; they don't even have such a brightline test criteria - the declaration status is determined at the time of purchase and at time when the house is sold.

@ Bjauck:

What I was getting at is at school, the smart students that do so well (and of course work hard) are well rewarded and those that fall behind... they just get left in the corner. But in the realm of investments in NZ, it's only those that have the $ are the ones that can take advantage of buying NZ residential properties and be able to sell near retirement with tax free capital gains. Those that are on the low end class status in NZ have only... Kiwi Saver for which is subjected to a lot more taxes throughout the entire investing scheme. That's unfair and that's why Canada addressed this issue decades ago. The rich shouldn't be the only ones that can make $ and 'be advantaged'. Just like at uni, the smart or clever students are the only ones that can get scholarships. It's all wrong.

Bjauck
23-01-2020, 07:39 PM
SBQ - I agree with you on the Kiwisaver/investment real estate unfairness in burden of tax.

Balance
26-01-2020, 02:29 PM
$12.5mill taxes or $37.8mill in profits (assuming the top tax rate) possibly closer to $50mill. assuming an average of 25% tax rate for one year.

Better than a kick in the pants.

Then there are those who ‘voluntarily’ agree to pay tax on their property gains after becoming aware of that audits.

Aaron
27-01-2020, 02:24 PM
Then there are those who ‘voluntarily’ agree to pay tax on their property gains after becoming aware of that audits.

True, because the extension of the bright line test to 5 years was a recent adjustment, I had heard the IRD contacted people to tell them they may have missed something from their tax returns and if you don't want late payment and shortfall penalties maybe you want to revisit your calculations before we audit. The bright line test is pretty cut and dried in many cases so it would be interesting to know how much was voluntarily disclosed after contact from IRD prior to being audited.

Bjauck
19-02-2020, 01:26 PM
UN housing expert calls for NZ rent freeze and CGT to end 'significant human rights crisis'
https://www.stuff.co.nz/life-style/homed/residential/119643746/un-housing-expert-calls-for-nz-rent-freeze-and-cgt-to-end-significant-human-rights-crisis

Does the UN expert realise the electoral hurdle that exists to overcome the entitlement of boomer investors in residential housing?

fungus pudding
19-02-2020, 04:36 PM
UN housing expert calls for NZ rent freeze and CGT to end 'significant human rights crisis'
https://www.stuff.co.nz/life-style/homed/residential/119643746/un-housing-expert-calls-for-nz-rent-freeze-and-cgt-to-end-significant-human-rights-crisis

Does the UN expert realise the electoral hurdle that exists to overcome the entitlement of boomer investors in residential housing?

She certainly hasn't studied the effect of rent-freezes, which has always proved disastrous; even NZ's last rent freeze under Muldoon.

Bjauck
20-02-2020, 11:08 AM
She certainly hasn't studied the effect of rent-freezes, which has always proved disastrous; even NZ's last rent freeze under Muldoon. Muldoon was a divisive figure?

Maybe she thought that given the current circumstances in NZ, a rent freeze although imperfect was better than letting the current situation to continue.