Hi Skol. You have forgotten leverage. RE is the one place where historicly Joe Average is able to get some serious leverage on his investment and that changes the numbers quite a bit.
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Leverage is what makes the numbers stack up. Lets presume mortgage at 8pc inflation at 3pc with a 10pc rise in prices like it has been for as long as I can remember. Tie in $200000 dollars in a mortgage which reduces in value each year due to inflation at 8pc and you are on to a winner regardless of house prices. Macdunk
The whole point is that to be a winner the capital gain must exceed the losses. Buying at current low returns, and factoring in management, interest, rates, insurance, vacancies and the real biggie, maintenance, then it is difficult to see a profit over the next ten years. It's not difficult to see losses. I'm not against residential investment having made a living at it for many years along with sufficient $$$$ to move onto better things - but there is a time to jump - and a time to stand back. It's a good start for those with low capital - but only when everything stacks up. At the moment things look disastrous to me.
Lets forget the numbers and concentrate on demand. Auckland at this moment is increasing its population by fifty people each week. It matters very little in the wide scheme of things who owns the extra homes that this extra demand requires. whats the difference between private ownership to Govt ownership, the money required still gets drawn away from the productive sector regardless. It is much safer for individuals to invest in property than get ripped off by the swill at the trough company directors in the share market, that the average Joe Blow has little understanding off. The increased cost of building has increased at a higher level than the increase in the average company share price. The average developer pays extortionate levies and fees compared to even ten years ago before he even gets a nail driven in. Macdunk
The levies and fees you refer to are small in relation to the margins potentially achieved by developers. You will find that these fees still do not cover the true capital costs of providing infrastructure (eg roading upgrades, sewers and water) to new developments. The long suffering rate payer will continue to subsidise developers, even the "average" ones you describe.
Waitakere listings continue increasing, especially in the economic ranges, outpacing increase in listings everywhere else in Auckland. Hope the Government is taking notice that disallowing depreciation is already begining to impact on rents, ala they have begun their rise. Is the extra funding for accomodation supplements ready? Within two years, they'd be needing an extra $50 per week per tenanted household at the very minimum - more because of the flow on effects of GST. This will impact the capital markets adversely too.
Rents are not linked to what the landlord pays in tax. They are set by supply and demand. So unless the owners burn their houses down because they don't like the change there's no reason that the possible tax changes (if any) will affect rents. And what is 'an economic range'?
NZ needs 1,000s of new houses a year. Even if they aren't built as investment properties, investors do buy the house the new builds are upgrading from. They therefore do have an effect on supply. The BNZ (?) modeled that any tax impact would be shared 1/3 increased rents and 2/3 reduced prices. I am not saying they are correct but I do expect some increase in rents, even if it isn't 100% as some suggest.
Herd instinct seems to be alive and well on this thread. Supply and demand is all it amounts to and even if there are 50 immigrants a week moving to Auckland, how will they afford the rent?
Besides, I read just recently that emigration from NZ to Aust. is up again, heaps of jobs for skilled people, vacating homes in NZ.
There seems to be some assumption that rents have to rise because of tax changes, maintenance or whatever, but that's got bugger all to do with what punters will pay for rent.