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View Full Version : 12 Reasons to get into Property as a long term investment



minimoke
30-07-2008, 07:33 AM
Actually there is only one reason and that is there will always be demand. But lets look at other reasons which will ultimately put upward pressure on values:
1. Aging housing stock: those quaint villas are starting to fall down requiring new housing stock of which the cost of building is tied to inflation.
2. Household formation. The number of households is increasing meaning they need more homes to live in – be they owned or rental
3. Population growth. Not at a staggering rate but it will grow
4. Interest rates: currently falling – but regardless still low.
5. Economic growth: Slowing but still growing over the long term
6. Unemployment - Still low giving people confidence to borrow
7. Inflation: Still low giving people confidence to borrow
8. Expectations. Over the long term NZ’ers still expect property values to increase
9. Bricks and mortar; Property still gives a sense of security for parking your money. 1987 and 2008 will be forever cast in potential share investors mind. 2007 and 2008 will be remembered for the collapse of Finance Companies. Sleepyhead has not reported increased sales in mattresses.
10. Home ownership. The kiwi psych is to “own our own home” and not to rent. We yearn to be a landlord. This is generational and won’t change overnight.
11. Tax System: Still favours rental property. Also little beats the return on investment by paying a dollar off the mortgage.
12. Dwindling supply of trades people. With Australia having a minimum wage of $17 the cost of building will increase which has to flow into the value of improvements on a property. A “knowledge economy” doesn’t encourage people towards lifting a hammer.

upside_umop
30-07-2008, 08:48 AM
12 Reasons for short/medium term.

1. Oversupply of houses for sale - This is evident from REINZ average sale time
2. Political risk - See those affordable housing developments. National also wants to cut a lot 'red tape' in all areas of government departments. Watch for them to combine with the RBNZ for solutions to housing - dont rule out a capital gains tax.
3. Migration - We currently have net migration so less demand for housing.
4. Interest rates - Have been at record highs, and only dropped last week. Overseas credit crunch is still in full swing and this will dictate the foreign lending rates that almost all NZ banks are exposed to. Big lag effect from OCR.
5. Economic growth - We have had negative economic growth over the last two quarters. This is defined as a recession. Growth looks bleak for the next two quarters and is expected to be stagnant.
6. Unemployment - Although low by historical standards, its rising. RBNZ has a target of 5%, currently 3.6%.
7. Inflation - Expected to tip 5% in september. Let inflation errode housing stock further while you keep your money in the bank protected from inflation at current high rates.
8. Expectations of short/medium term is that housing will decline.
9. People look to the USA and see 30% declines in housing value and people walking away from their houses. Why put yourself in a similar risk? People are opting to rent until things are more clear and certain.
10. Home ownership - Yes, in the long term its the kiwi psych to own your own home. But in the short/medium term its being put across media that its infact much cheaper to rent given the current conditions. Coupled with this, is oversupply of rentals in main centres, meaning rental pressure wont be strong over short/medium term.
11. Student debt - Rising, and repayments come out of graduates gross wage.
12. Kiwisaver - Ever growing number of people joining, now past 700,000. Less money in housing, more in productive sectors of investment. Also, as a bit of speculation on my part, first home buyers may have joined and could be waiting for the 'incentives' to mature before buying their first home. These incentives are $1000 per year for the first 5 years for houses that meet the kiwisaver criteria. Couples can both benefit claiming individually.

minimoke
30-07-2008, 08:51 AM
Good points except the tax system does not treat property investment favourably.
I guess when I look at tax – in a general sense I am looking at the lack of a capital gains tax, the imputed rent issues for high equity home owners and the ability to deduct losses and expenses from rental properties. Rentals can also better manage cash flow though depreciation opportunities. We know the yarns people tell around their “revenue focussed” rentals – you can’t have those same conversations so easily around shares or other investment vehicles. If you consider Council Rates as a tax on land then our levels aren’t so high as to be seen as a barrier for entry.

minimoke
30-07-2008, 08:52 AM
12 Reasons for short/medium term.


Hijacking this thread a bit?? If you place on a separate thread I’d be more than happy to debate

minimoke
30-07-2008, 08:56 AM
In fact, one reason for not investing in property is that owning more houses than one needs presumably makes it more difficult for new entrants to the market to acquire a home of their own. If everybody in the country was a landlord where would they find tenants?
hiawatha
Everyone NEEDS a roof over their head. We are told every wants to own their own house. The reality being that not everyone will own their own house leaving an opportunity for those that want to be landlords

minimoke
30-07-2008, 11:25 AM
However, there is something unsatisfactory about a situation where a lot of would be owners are unable to get into a property because a lot of other people own houses which they don't live in, and therefore don't need.
hiawatha
I’m not sure I understand the logic behind that. I’ll have to put my socialist thinking cap on to figure that out.

tim23
30-07-2008, 07:14 PM
10.Home ownership. The kiwi psych is to “own our own home” and not to rent. We yearn to be a landlord. This is generational and won’t change overnight

What a contradiction! You sound like to type to say rent money is dead money as well? (one of the dumbest statements I hear)

minimoke
31-07-2008, 06:14 AM
What a contradiction! You sound like to type to say rent money is dead money as well? (one of the dumbest statements I hear)
Tim – there’s no contradiction. It looks like you haven’t seen my posts on renting, of course rent money isn’t dead money – provided the renter is disciplined and puts the savings made from not owning aside to increase their wealth in alternative ways. Lets face it. No one buys a home straight away, so they have to live somewhere in the meantime.

corran
31-07-2008, 07:39 AM
Actually there is only one reason and that is there will always be demand.

There will also be want for housing but there will not always be demand. Demand implies the ability to pay which many potential buyers don't have. If credit conditions tighten the level of demand will drop much further.

IMO, the reason for the boom in house prices throughout the developed world for much of the 00's was largely due to far too easy credit. That era is now over. People still want to buy and are willing to pay close to the asking price but they simply can't borrow the amount they need (at least over here in the UK).

I'm sure that there will always be opportunities for shrewd investors to make money out of property as a rental investment. But people who expect captial growth from their own homes will probably be in for a nasty next few years IMHO.

The Great Gold Guru
31-07-2008, 10:49 AM
I am both a landlord and a tenant so have used the current market to my financial advantage !! Here's my secret

As a tenant I live in a house in Devonport worth $1.4m .... rent I pay is $750pw ....

As a landlord I own four properties in Wanganui .... combined rental income in $820pw. Outlay to buy those properties was $601,000.

So effectively I get to live in a house worth $799,000 more than my outlay and still keep $70 per week in my pocket. ( I realise this is very simplistic with rates, insurance and maintenance issues on 4 houses greater than on one although with North Shore City rates there is probably not alot in it. )

I realise that capital gains over the very long term will be in Devonport's favour but over the next few years I don't think there will be much in it. Also I am providing four single mum's down in Wanganui with good quality accomodation at a reasonable price ... all four stated when they moved in that it was the nicest house they had ever had .... all four are 1900-1920 villas that have been recently updated. There is certainly an element of helping the less fortunate out in it for me ... I wish to add to my Wanganui portfolio ... its the town I grew up in many years ago and so I want to do my bit to help the town along. Buying run down central city villas, doing them up and then renting them out to the less fortunate people in society is my little contribution. They won't be sold and I haven't put the rent up in any of them in over 12 months.

minimoke
31-07-2008, 10:58 AM
As a tenant I live in a house in Devonport worth $1.4m .... rent I pay is $750pw ....

You are the one winning there. That’s a gross yield of only 2.7%. Who’d want to be a landlord!

The Great Gold Guru
31-07-2008, 12:53 PM
I agree , my wife doesn't quite see it that way but at the moment I am winning the battle .... I guess when there are some capital gains to add into the equation she will be on stronger footing. In the meantime though we are onto a winner and I agree it is much much cheaper to rent a house in this part of the world than buy one ... no contest !!