first home buyer advice

Hey everyone,

I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
For $400,000 3 bedroom house with $80K deposit (20%):
5-year fixed rate mortgage @ 4.39%: $369/week
Rates: ~$25/week
Insurance: ~30/week
Maintenance: ~$30/week
Total: $454/week

Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.

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Originally Posted by sanctus671

Hey everyone,

I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
For $400,000 3 bedroom house with $80K deposit (20%):
5-year fixed rate mortgage @ 4.39%: $369/week
Rates: ~$25/week
Insurance: ~30/week
Maintenance: ~$30/week
Total: $454/week

Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.

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If your OE is done go for it.Rates insurance a bit light depending on where you are buying.Even if tight worth it in long run.

Even without capital gains or paying down principal, mortgage repayments v income quickly start to look attractive. Unless income drops a lot.

Possible help here for first home buyers.

https://www.govt.nz/browse/housing-a...ur-first-home/

I've worked out the #s and from a tax point of view, it's a no brainer to buy NZ real estate. Now that capital gains tax is out of the issue for NZ homes, it's safe to say there's certainty where housing prices will go in the long term future (UP). Don't take my word for it, just go ask the banks why they will allow people to leverage into a home but won't lend towards buying shares on the NZX? and i'm speaking banks will have no problem lending over $1M if your income supports the payments, but they won't even lend $100 towards a direct investment in NZ shares without all collateral requirements. etc.

If you have a home stay, the income from that is also tax free. There's just so many freebies that IRD allows that i'm surprised why people consider with the likes of Kiwi Saver.

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Originally Posted by sanctus671

Hey everyone,

I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
For $400,000 3 bedroom house with $80K deposit (20%):
5-year fixed rate mortgage @ 4.39%: $369/week
Rates: ~$25/week
Insurance: ~30/week
Maintenance: ~$30/week
Total: $454/week

Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.

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Yes I think it makes sense even better if you can add some value to the home(Paint, upgraded kitchen, bathrooms, etc) i.e make sure to buy with good bones-- brick/roughcast -steel roof, good sun, good location, your far better of paying a few dollars more to secure a much lower maintenance cost going forward etc ... interest to where you are looking to BUY have done many property transactions over the years.

Also, rates are trending downwards go for the sharpest rate you can find ASB offered me 3.85% 2yr + $4550 cash (for 600k debt re-finance)

Also great idea if you only need one room even lookout for 4brd many time not much more in cost but can add several thousand more in income pa ... you could rent 1-2 rooms and airBNB the 3rd-4th

In hindsight I wish I held onto my first property was only 24yrs old build two story 3brd upstairs -2 bed flat underneath back in the early 2000's in Queenstown total loan was only 500k!! look at it now https://homes.co.nz/address/queensto...re-place/1jjLp

Should have just rented out all the rooms and flat would have paid all the out goings and these days the flat would bring in $500-600pw
and instead of paying for a room and rent I could have just paid down the loan ... but young and dumb took a quick 200k Cap gain at auction ..

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Originally Posted by JBmurc

....

In hindsight I wish I held onto my first property was only 24yrs old build two story 3brd upstairs -2 bed flat underneath back in the early 2000's in Queenstown total loan was only 500k!! look at it now https://homes.co.nz/address/queensto...re-place/1jjLp

Should have just rented out all the rooms and flat would have paid all the out goings and these days the flat would bring in $500-600pw
and instead of paying for a room and rent I could have just paid down the loan ... but young and dumb took a quick 200k Cap gain at auction ..

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You have to remember, where else did you put that $200K gain for a return? This is why I think investing in NZ real estate is so important with a clear advantage over other areas of investing ; namely NZ shares. You don't hear of those selling up their home to buy shares but you do hear those selling up shares (ie converting the gains of Kiwisaver into the 1st home program) to buy real estate.

Hindsight is always 20/20 and you can never turn back time. The same can be said on how much gain certain shares have gone over the past 15 years. I remember when Amazon.com was at $15/share... (shortly after the dot com crash) now around $1800 USD.

As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well

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Originally Posted by kiora

As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well

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You've got to be kidding. No bank is going to lend on the equity of the house AT comparable mortgage rates. Sure at 10 or 15% but not at 4% that we see for home mortgages. Even greater consideration, who would assume that risk of paying 10% on the loan hoping to earn 15% or 20% on shares? That's not how the lending market works. Because if that was true, then the whole lending industry would not care about mortgages and instead, buy shares directly for the greater returns. They don't lend because the risk is extremely high compared to lending on houses. Consider a business plan on what the banks require to lend. But it's highly probably the person that earns their own income from a business will have no problems buying a house. Buying shares is the last thing they would consider in terms of investments. It makes me wonder why people are in Kiwi Saver to begin with if they don't own a home over their head.

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Originally Posted by SBQ

You've got to be kidding. No bank is going to lend on the equity of the house AT comparable mortgage rates. Sure at 10 or 15% but not at 4% that we see for home mortgages. Even greater consideration, who would assume that risk of paying 10% on the loan hoping to earn 15% or 20% on shares? That's not how the lending market works. Because if that was true, then the whole lending industry would not care about mortgages and instead, buy shares directly for the greater returns. They don't lend because the risk is extremely high compared to lending on houses. Consider a business plan on what the banks require to lend. But it's highly probably the person that earns their own income from a business will have no problems buying a house. Buying shares is the last thing they would consider in terms of investments. It makes me wonder why people are in Kiwi Saver to begin with if they don't own a home over their head.

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If you mortgage your house, how would the bank stop you buying shares with the proceeds? Also, margin lending rates are significantly lower than you think.

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Originally Posted by kiora

As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well

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Exactly what I have done .. the way I see it is my share trading company invests the bank's funds at a cost of the going rate as I have good equity I'm currently looking to refix the 250k @ 3.85% 2yr fixed ... I'm confident I can do better than 3.85% pa

Also looking to receive a 4.5k cash bonus for a shift to another bank .. but must stay with that bank for 3yrs have received over $10k in cash over the years

Thanks for the replies everyone! Very helpful and reassuring to read these.

For interest rates, my concern is if something like 08/09 happens again where they shoot up to 10+% for several years. Given that we are in one of the longest bull markets in history with interest rates current at an all time low, it seems like the risk for that is reasonably high over the next 5 years. It means a weekly repayment of $454 would be closer to $1000 which would be pretty hard to manage. That's why my thought on fixing the rate for as long as possible would reduce that risk if something were to happen in the next 5 years. I'm obviously all for a lower interest rate, but would like to hear your thoughts on the risk behind it if there is any.

Also, how were you able to get the cash bonus'? is the 10k from switching to different banks?

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Originally Posted by SBQ

You've got to be kidding. No bank is going to lend on the equity of the house AT comparable mortgage rates. Sure at 10 or 15% but not at 4% that we see for home mortgages. Even greater consideration, who would assume that risk of paying 10% on the loan hoping to earn 15% or 20% on shares? That's not how the lending market works. Because if that was true, then the whole lending industry would not care about mortgages and instead, buy shares directly for the greater returns. They don't lend because the risk is extremely high compared to lending on houses. Consider a business plan on what the banks require to lend. But it's highly probably the person that earns their own income from a business will have no problems buying a house. Buying shares is the last thing they would consider in terms of investments. It makes me wonder why people are in Kiwi Saver to begin with if they don't own a home over their head.

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Easy, drawing down mortgage,using their equity , an investor is able to benefit from rise in house value and share value.At a cost of 4-5% interest/year turns a good return into supernova :)

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Originally Posted by mfd

If you mortgage your house, how would the bank stop you buying shares with the proceeds? Also, margin lending rates are significantly lower than you think.

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The bank won't stop you. I'm talking the reality aspect of borrowing on a line of credit (or against the house you live in) AND investing it into shares. The bottom line is you need a return on shares consistently over the long term that betters the going lending rate (currently around 5% or 6% floating). Look at it from the bank's perspective. Why would they lend at 5 or 6% when they could buy shares directly and earn say 10 or 20% a year? It's because it's far easier to extract the $ from the working person while having the ability to own the house in a foreclosure.

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Originally Posted by kiora

Easy, drawing down mortgage,using their equity , an investor is able to benefit from rise in house value and share value.At a cost of 4-5% interest/year turns a good return into supernova :)

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Actually it's not that simple. In times of kaos and financial market crisis, you get sky rocketing interest rates while plummeting share prices (and you can say good bye to the dividends as most companies would be under water). The prudent reliable method in NZ has always been... to invest in another house than to buy shares because housing prices have a predictable outcome regardless of the economic times. The same can not be said with shares, especially NZ ones.

It seems people have already forgot about 2008... Bad enough to leverage against against... even worse to leverage and buy shares for the long term. If you're going to margin, all the traders I speak to only do so for a short term because the daily rates are way too high.

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Originally Posted by SBQ

The bank won't stop you. I'm talking the reality aspect of borrowing on a line of credit (or against the house you live in) AND investing it into shares. The bottom line is you need a return on shares consistently over the long term that betters the going lending rate (currently around 5% or 6% floating). Look at it from the bank's perspective. Why would they lend at 5 or 6% when they could buy shares directly and earn say 10 or 20% a year? It's because it's far easier to extract the $ from the working person while having the ability to own the house in a foreclosure.

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I'm not sure why you quote floating rather than a sub-4% fixed interest rate. If you have a setup where this is deductible against your share profits, it's even easier.

Banks have a very different business model and risk profile to share investors. Your question is like asking why a bank would lend to a farm rather than just growing food for a profit, why lend to a house investor rather than just buying the house themselves and renting it out? Different entities have different motives.

Your other point comparing share investing to property ignores the possibility of a housing crash, which have happened before, will happen again, and could happen here. Being careful with leverage applies equally to property investors as it does to share investors.

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Originally Posted by mfd

I'm not sure why you quote floating rather than a sub-4% fixed interest rate. If you have a setup where this is deductible against your share profits, it's even easier.

Banks have a very different business model and risk profile to share investors. Your question is like asking why a bank would lend to a farm rather than just growing food for a profit, why lend to a house investor rather than just buying the house themselves and renting it out? Different entities have different motives.

Your other point comparing share investing to property ignores the possibility of a housing crash, which have happened before, will happen again, and could happen here. Being careful with leverage applies equally to property investors as it does to share investors.

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And especially as houses in NZ are at record highs + record high av. household debt..low NZ incomes etc

Of course the equitiy market can be horrible in the crash .. I do remember the GFC (I had over 300k in loans in the market) but thats why I have my Sharetrading structured in a company... still got a few tax credits to use up from the GFC.

But property ian't perfect (just ask some CHCH home owners)

Also Good luck selling your NZ property in a major market downturn when several others are for sale on the same street and new R.V's come out with 20% reduction in value and wipes out all your equity.

Also you can buy an ETF or Gold company that will do well during a market crash ..make money while other investment are going down in value.

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Originally Posted by sanctus671

Thanks for the replies everyone! Very helpful and reassuring to read these.

For interest rates, my concern is if something like 08/09 happens again where they shoot up to 10+% for several years. Given that we are in one of the longest bull markets in history with interest rates current at an all time low, it seems like the risk for that is reasonably high over the next 5 years. It means a weekly repayment of $454 would be closer to $1000 which would be pretty hard to manage. That's why my thought on fixing the rate for as long as possible would reduce that risk if something were to happen in the next 5 years. I'm obviously all for a lower interest rate, but would like to hear your thoughts on the risk behind it if there is any.

Also, how were you able to get the cash bonus'? is the 10k from switching to different banks?

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Generally, I received 3k from shifting banks ASB to ANZ etc ...one bank even paid me $2k to keep lending with them rather than shift
that's how Morg Brokers make a living from cash kickback from getting the bank new business ..

the banks make you sign an agreement that if you shifted from the bank within a period of time you must payback the cash ...I've found it use to be 2yrs now its 3yrs .... they also like you to bring your accounts across and have your income paid into one of their accounts (But I never did)

If you are taking out a new loan to buy a house and have a good deposit I'm sure your get some cash to help pay the legals etc

.....As to the rates we have another GFC more likely rates will go even lower not higher as all that does is make the matter worse ..
I was paying 7.5% in 2007 didn't go higher after 08 now did it ,, the Central bank Financial system is all about Growth at all costs and keeping the debt fueled bubble from popping just look at Japan where the central bank is the biggest holder of BONDs and Now A Top-10 Shareholder In 50% Of All listed Japanese Companies..... we are all going to turn japanese IMHO

No way any NZ Govt is going to allow interest rates to head higher with the amount of debt held buy not only everyday kiwi voters but companies and councils Dunedin has over 200mill in debt ..whats Aucklands ??

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Originally Posted by SBQ

Actually it's not that simple. In times of kaos and financial market crisis, you get sky rocketing interest rates while plummeting share prices (and you can say good bye to the dividends as most companies would be under water). The prudent reliable method in NZ has always been... to invest in another house than to buy shares because housing prices have a predictable outcome regardless of the economic times. The same can not be said with shares, especially NZ ones.

It seems people have already forgot about 2008... Bad enough to leverage against against... even worse to leverage and buy shares for the long term. If you're going to margin, all the traders I speak to only do so for a short term because the daily rates are way too high.

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Actually I remember 2008 quite clearly & fondly.It turned out to be the opportunity of my lifetime going all in.:)
Maybe next time it will be different.

The one BIG advantage of shares over housing is liquidity particularly in a crash.You can always sell shares & raise money in a few days in a crash whereas housing crash unless you quickly move to a fire sale price you will be caught.

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Originally Posted by mfd

I'm not sure why you quote floating rather than a sub-4% fixed interest rate. If you have a setup where this is deductible against your share profits, it's even easier.

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Sub 4% fixed rate? The 5-6% figure is the range for 'line of credit or revolving line of credit' or basically, loans for those that want to borrow against the equity of their homes, such as here:


https://www.bnz.co.nz/personal-banki...ome-loan-rates


NOT sub-4% rates for residential "owner OCCUPIED" as such here:


https://www.bnz.co.nz/personal-banking/home-loans


and I won't get into margin lending rates from brokers like Fosryth Barr etc, they're going to be a lot higher.

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Banks have a very different business model and risk profile to share investors. Your question is like asking why a bank would lend to a farm rather than just growing food for a profit, why lend to a house investor rather than just buying the house themselves and renting it out? Different entities have different motives.

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Actually no. It has everything to do with the risk level involved. The bank is not going to care what you do with the $ you borrow on a line of credit if they have the house as security. Go try offering the banks that you have shares in a company as collateral and they'll gladly show you the door. The distinction i'm trying to make is, the asset class of a house is world's apart different than owning shares of a company. When it's very clear that banks that do the lending attach different rates (ie go look at lending rates for corporate or business ventures....). If you want to make the risk adjusted distinction of using funds borrowed against the equity of the house, and then go buying shares, then the base break even rate return should be comparable to what banks would lend to corporations - so around 8% or higher. Anotherwords, the person doing this venture should be considering a break even of 5% but rather, 8% or what ever the corporate lending rate would be (to factor the risk the individual is taking).

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Your other point comparing share investing to property ignores the possibility of a housing crash, which have happened before, will happen again, and could happen here. Being careful with leverage applies equally to property investors as it does to share investors.

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No it doesn't. The extent of past housing crashes and frequency have been minimal compared to the crash in share market indices etc. As I mentioned before the 2 asset classes are worlds apart. For starters we have the Reserve Bank that put priority to NZ's real estate than any specific corporation or industry sector. It's an issue of too big to fail - the adjusting of the reserve bank interest rate adjusts purely to keep housing prices buoyant (and indirectly, the whole economy). Any such crashes in the housing market are minimised by these monetary controls. They do not care to the extent what happens on the corporate side or the NZ share market, and because of this, this is the key reason why the banks have no issues lending on 1st time buyer of a home with NO collateral, but it's a horse of a different colour when ask to lend on share equities or business ventures without collateral.


Another thing to consider. What would be the extent of the NZ economy if there was a major housing crash? I'm talking say a 50% or 60% drop within a 2 year period? I'll tell you. Your share equities would do far worse. No one is immuned in a market crash but one thing certain is real estate fares better than any other asset class when the whole economy is turned upsidedown.

Yes, 4% is appropriate as we are talking about owner occupied houses. E.g., I have 50% equity in the house I live in and decide to leverage my portfolio and take out 20% equity to buy shares. A bank will offer me a sub 4% fixed rate mortgage on that (perhaps depending on age etc). They will probably do this even if I just tell them I want a flash car and a holiday, let alone something worthy like buying shares.

You still seem to think banks don't offer margin lending - if I walk into ASB and ask for a loan based on my shares as collateral, they will say 'sure, what do you have?'. The amounts they will loan against different holdings are published here

https://www.asb.co.nz/documents/asb-...ding-documents

As the other posters have said on here sanctus671, go for it. But I would not be considering locking in 5 years fixed right now, at least not all of it. The World is heavily burdened with debt and there is no way in my view that there will be any major increases in interest rates anytime soon, possibly not in my lifetime (mid fifties). It would kill the heavily indebted World economy. There are currently about USD 11 TRILLION of cash invested in negative interest bearing accounts around the World, which gives a good indication of where lots of very wealthy people think interest rates are heading in the near future.

I 2nd what Iceman says about fixing.Ever since GFC I only fixed 25 % of the mortgage once and that was for 6 months only when inflation looked like picking up around 3-4 years ago.
My view is fixing is putting yourself more at risk than not fixing

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Originally Posted by kiora

I 2nd what Iceman says about fixing.Ever since GFC I only fixed 25 % of the mortgage once and that was for 6 months only when inflation looked like picking up around 3-4 years ago.
My view is fixing is putting yourself more at risk than not fixing

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Or fix 1 year at a time as those rates are constantly significantly lower than floating

Believe this or not
https://www.interest.co.nz/business/...risis-lowering
Check out Fig 10 for forecast.Ouch for savers.

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Originally Posted by kiora

Believe this or not
https://www.interest.co.nz/business/...risis-lowering
Check out Fig 10 for forecast.Ouch for savers.

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Some of these economists seem determined to drive us into negative rates territory.

:mellow:

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Originally Posted by SBQ

Sub 4% fixed rate? The 5-6% figure is the range for 'line of credit or revolving line of credit' or basically, loans for those that want to borrow against the equity of their homes, such as here:


https://www.bnz.co.nz/personal-banki...ome-loan-rates


NOT sub-4% rates for residential "owner OCCUPIED" as such here:


https://www.bnz.co.nz/personal-banking/home-loans


and I won't get into margin lending rates from brokers like Fosryth Barr etc, they're going to be a lot higher.





Actually no. It has everything to do with the risk level involved. The bank is not going to care what you do with the $ you borrow on a line of credit if they have the house as security. Go try offering the banks that you have shares in a company as collateral and they'll gladly show you the door. The distinction i'm trying to make is, the asset class of a house is world's apart different than owning shares of a company. When it's very clear that banks that do the lending attach different rates (ie go look at lending rates for corporate or business ventures....). If you want to make the risk adjusted distinction of using funds borrowed against the equity of the house, and then go buying shares, then the base break even rate return should be comparable to what banks would lend to corporations - so around 8% or higher. Anotherwords, the person doing this venture should be considering a break even of 5% but rather, 8% or what ever the corporate lending rate would be (to factor the risk the individual is taking).





No it doesn't. The extent of past housing crashes and frequency have been minimal compared to the crash in share market indices etc. As I mentioned before the 2 asset classes are worlds apart. For starters we have the Reserve Bank that put priority to NZ's real estate than any specific corporation or industry sector. It's an issue of too big to fail - the adjusting of the reserve bank interest rate adjusts purely to keep housing prices buoyant (and indirectly, the whole economy). Any such crashes in the housing market are minimised by these monetary controls. They do not care to the extent what happens on the corporate side or the NZ share market, and because of this, this is the key reason why the banks have no issues lending on 1st time buyer of a home with NO collateral, but it's a horse of a different colour when ask to lend on share equities or business ventures without collateral.


Another thing to consider. What would be the extent of the NZ economy if there was a major housing crash? I'm talking say a 50% or 60% drop within a 2 year period? I'll tell you. Your share equities would do far worse. No one is immuned in a market crash but one thing certain is real estate fares better than any other asset class when the whole economy is turned upsidedown.

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Your advice is factually wrong. There are plenty of people here using Margin Loans supplied by a bank and doing very well ~ current rates around 6%. If you are returning 12%+ per year (fairly easy) then every year is a win. Go to the bank or even easier jump on Google and find out. They don’t hand a cheque over you have to stump up with equity. Very similar to a house but the returns are way higher.

I also find it amusing particularly in Akl where house inflation will be flat for the next 10 years - therefore reducing CAGR even further below returns from the market - people continually claiming they can’t be beat with property. This is blatantly untrue.

Go build a spreadsheet and put the returns in. Heck you can even make an easy 10% CAGR with infrastructure funds ETF or managed funds with zero effort or risk. 10% CAGR means your money doubles every 7 years. The model you build will answer your questions and prove that property is not the best investment. I have built this spreadsheet and the numbers don’t lie.

I think the long run property returns 30 years CAGR were around 6-7%? This will drop in the next 10 years to zero basically due to structural issues with the NZ economy. Push CAGR to 5-6%? Sure you can drive past your houses and feel proud of yourself while you brag to friends but you could have been twice as rich by understanding the numbers.

Since you bring up the Reserve Bank I will tell you what will happen. There is no way the Labour or National Government will accept house price rises of 5% or more. They can’t afford the wage bills for public servents. If our wage growth is amazing - which it isn’t ( approx 1.1% real yoy) - then they would be more comfortable. The numbers for accomodation supplements and $ needed for the baby boomer super bill, roading, education, means that macro forces will prevail. What I am really interested in is Adrian’s thoughts on a sound housing market that doesn’t eat into our budget and hence international borrowings. I would assume he would like house price growth just above inflation.

I agree that shares have crashes but you ride them out. Longer run the average return should be in the range of 9-15% depending on your portfolio and if you are lucky to have multi baggers.

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Your advice is factually wrong. There are plenty of people here using Margin Loans supplied by a bank and doing very well ~ current rates around 6%. If you are returning 12%+ per year (fairly easy) then every year is a win.

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Right, you must one of the few that can consistently achieve 12% pa every year on average for the like 10 or 20 years. How many Kiwi Saver funds are achieving this return (after admin / mgt fees) ? Your 9 - 15% range of return is EXTREMELY optimistic.

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Go build a spreadsheet and put the returns in. Heck you can even make an easy 10% CAGR with infrastructure funds ETF or managed funds with zero effort or risk. 10% CAGR means your money doubles every 7 years. The model you build will answer your questions and prove that property is not the best investment. I have built this spreadsheet and the numbers don’t lie.

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Have you considered taxation? Correct me if i'm wrong, frequent trades in a portfolio are taxed at resident income rates. A person that buys the house can get away with any capital gains tax when it comes near to retirement time. You can disagree. I've spoken to many qualified financial advisers and they tell me owning real estate is hard to beat when you factor taxation in portfolios from gains from frequent trading.

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Originally Posted by sanctus671

Hey everyone,

I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
For $400,000 3 bedroom house with $80K deposit (20%):
5-year fixed rate mortgage @ 4.39%: $369/week
Rates: ~$25/week
Insurance: ~30/week
Maintenance: ~$30/week
Total: $454/week

Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.

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The trouble with buying a house is that you cannot spread the risk unlike with shares where you can a portfolio of different shares.

There have been years of increasing prices due to falling interest rates so how many years of falling interest rate fuelled price rises can be left? The CGT resolution may mean that NZ investors still keep on putting their money into residential property rather than equities and business but we may already be near the top of the cycle anyway. Also given NZ's already hollowed out share market and expensive land will there be any more drift of capital from business and share equity to real estate?

NZ may be very susceptible to a severe correction as we have used the drop in interest rates to load up to the max on debt to out-bid others to leverage ourselves into residential land.

However The lack of action over a CGT I think will mean that NZ residential property will continue to be the tax-preferred de-facto superannuation scheme for those who are rich enough to afford deposits and can afford investment in land.

Quote:

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Originally Posted by Bjauck

The trouble with buying a house is that you cannot spread the risk unlike with shares where you can a portfolio of different shares.

There have been years of increasing prices due to falling interest rates so how many years of falling interest rate fuelled price rises can be left? The CGT resolution may mean that NZ investors still keep on putting their money into residential property rather than equities and business but we may already be near the top of the cycle anyway. Also given NZ's already hollowed out share market and expensive land will there be any more drift of capital from business and share equity to real estate?

NZ may be very susceptible to a severe correction as we have used the drop in interest rates to load up to the max on debt to out-bid others to leverage ourselves into residential land.

However The lack of action over a CGT I think will mean that NZ residential property will continue to be the tax-preferred de-facto superannuation scheme for those who are rich enough to afford deposits and can afford investment in land.

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You mean lowering risks in a portfolio through 'diversification' of shares ; the concept that the more different companies you own in a market index, then the more likely the risk and returns will perform like the index. Fortunately this is not even remotely comparable to owning real estate for the simple reason that they're entirely different asset classes. Their risk models aren't even remotely close as we've seen in the 2008/2009 GFC. During the peak of the GFC crisis, NZ real estate still carried on through with marginal drops in housing prices. You can thank the monetary controls that the reserve banks have.

See the thing is when central bank interest rates change, they have the most impact on mortgages and real estate but less impact on those in the equity markets. This model of monetary control has been with us for several decades and despite all the skeptics ie 'low interest rates causing record high mortgage debts', i'm afraid this is nothing new or any concern. The metrics have not changed since the 80s, 90s, or 2000+ with all those stock market crisis. Meaning the rules have not changed. For each decade there will be those that say the houses are overpriced and people are in record levels of debt. Our elders keep reminding us how bad things got with sky 20% interest rates in the late 70s. But the metrics have not changed, and the same houses still kept going up.

The problem with shares is one has to routinely keep it updated. If you bought a basket of NZX shares in the 1980s or just pick most of the shares in the NZX50 index, then wait for a very long time doing nothing, what would be left in the portfolio after 50 years time? You would find the many of them delisted or gone dead / non-performing. Compare this to a house in a good neighbourhood?

NZ perhaps has had it's once and only chance of bringing in CGT ; I don't think for quite some time the NZ will make another attempt. The reason why? Because all our politicians like real estate so much that they themselves own a lot of real estate. The banks like it too. By the way, the ban on foreign residents buying NZ houses won't affect the big person. It only cuts out the small guy that tries to buy 1 or 2 houses in Auckland. The banks will always open accounts to the privileged elite (in all different ways either incorporating a NZ trust or setting up a company; to even a small oversight in paperwork by the bank).

If you ask me what NZ can do to broaden it's investors away from NZ real estate? Well since CGT is a no go. I would say remove the restrictions of choice of investments abroad by abolishing the FIF / FDR rules. Canada tried this in the 80s and 90s where no more than 1/3rd of the portfolio was allowed to be of foreign content. All investors did was just kept their $ in real estate. When the doors went open, more and more investors found better returns abroad like in the US etc. (while taxing those gains the same way they do with domestic gains ; not this taxing of paper gains under FIF we see in NZ).

German Government's latest 10 year bond offer of EURO 3 Billion has a -0.24% interest rate. A pretty good indication on where rates are heading in the medium term. No need to fix long in my view.

Quote:

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Originally Posted by iceman

German Government's latest 10 year bond offer of EURO 3 Billion has a -0.24% interest rate. A pretty good indication on where rates are heading in the medium term. No need to fix long in my view.

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Yes I agree it's nasty and for years the EU has told the people "Austerity Measures are a Must". I'm curious who exactly is putting money in German bonds, let alone putting money in the EU? Over in America they knew the cards would fall down when the EU bloc was formed after 2000. Their recipe to have a 'united of nations ; like the United States so they could compete competitively, but that didn't happen well.

We've been told the root cause is none of the various EU nations had 'consolidated it's debt'. You have Italy that is claiming Germany for war repatriations of their gold and $ taken away in early 19th century (hidden in a similar fashion as how Maduro in Venezuela moved the nations gold to Russia). Look at all the different languages and cultures within the EU ; how would any synergy exist economically?

Any explanation in the past 3 years why the US currency and their equity markets had done so well? It's because the smart wealthy folk in the EU (and many other places around the world) have moved their wealth to the US (China's been doing it for a very long time ; they send their cash to the US and buy the DOW, or real estate).

If there's any leading interest rate we should follow, then that would have to be the US reserve bank rate. These negative rates we see in the EU have minimal influence outside the EU. Just look at the buyers in the bond market. I recall during the Greek crisis, the US issued T-Bills and China had no problems buying it up. When the Greek gov't went to offer bonds, China wasn't there... When Italy wants to issue gov't bonds but is only able to pay 2%, no one buys any ; because the market thinks at that default risk level, Italy should be paying 8%. So Italy has no choice but to rely on the ECB which says well.. we'll buy the bonds somewhere in between. On the short hand, the ECB screws the rest of the EU nations and that's what we see happening in Germany (rob Peter to pay Paul).

Quote:

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Originally Posted by Bjauck

The trouble with buying a house is that you cannot spread the risk unlike with shares where you can a portfolio of different shares.

There have been years of increasing prices due to falling interest rates so how many years of falling interest rate fuelled price rises can be left? The CGT resolution may mean that NZ investors still keep on putting their money into residential property rather than equities and business but we may already be near the top of the cycle anyway. Also given NZ's already hollowed out share market and expensive land will there be any more drift of capital from business and share equity to real estate?

NZ may be very susceptible to a severe correction as we have used the drop in interest rates to load up to the max on debt to out-bid others to leverage ourselves into residential land.

However The lack of action over a CGT I think will mean that NZ residential property will continue to be the tax-preferred de-facto superannuation scheme for those who are rich enough to afford deposits and can afford investment in land.

---

I agree in part ... if we are talking about pure 1x investment NZ Res rental property Vs several NZ Blue chip higher yield shares then yes I agree the latter has some bonus facts ..like being able to sell online within seconds not days to years with NZ prop..

But on the other hand in "sanctus671" case and many like him paying rent ..owning a house is a no-brainer esp if you make a smart purchase and don't pay overs for a leasehold unit etc ..

But if sanctus can afford a freehold solid home and rent the rooms out he will be much better off longer term even if NZ property pulls back 20% if he made a smart purchase he should be able to add value and rent rooms out lifting his cashflows better than if he was just renting..

Then going forward sanctus will have an asset that is nearly as good as Cash ... unlike say commercial property that banks give 50% value or shares that if your lucky 5-10%...

And as he pays down the debt he will gain equity can borrow upto 80% to buy other investments at the lowest rates available

Personal Property a Great Core investment to then branch outwards from

I know a bit off original topic but here's a couple of charts to illustrate the problem with German banks - Deutsche Bank: (with reference on the equity / stock side ; not the bond issue side).

https://static.seekingalpha.com/uplo...5614645526.png

https://upcrypto.org/wp-content/uplo...on-660x330.jpg

Canada has no exposure and i'm certain NZ & Australian banks too have no exposure. This is the thing that even we live in a globalised world, capital flows of $ move freely and tend to pick safer places. I don't see a total collapse of the EU but I do see the average citizen living there will have a tougher time, especially for future generations.

Attachment 10640



https://www.creditcardcompare.com.au...our-ownership/

Quote:

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Originally Posted by JBmurc

https://www.creditcardcompare.com.au...our-ownership/

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The exposure in NZ/Aus is a lot less than what's happening in Europe. So to be correct, no DIRECT exposure but some indirect exposure. I would not say an EU collapse would also take down the NZ & Aus economy.

Quote:

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Originally Posted by SBQ

The exposure in NZ/Aus is a lot less than what's happening in Europe. So to be correct, no DIRECT exposure but some indirect exposure. I would not say an EU collapse would also take down the NZ & Aus economy.

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No of course not directly.. but I'm sure an EU banking collapse would certainly hurt all major international banks and cause major systematic issues across Global banking enough to really hurt the NZ's foreign backed credit-fueled economy

On the Canadian front for 'doing something about' the problem of 1st home buyer ownership, it seems the Cdn gov't is taking it all the way to the bank so that low income or 1st time home owners can get their 1st home. Unlike NZ, we've stood flat and done absolutely NOTHING about making homes more affordable for the 1st home buyer.

https://www.cmhc-schl.gc.ca/en/media...uyer-incentive

and for more beefier details:

https://www.moneysense.ca/spend/real...yer-incentive/

"The federal government launched a new national program on September 2, 2019, that it says will help thousands of families across the country buy their first home. Aptly named the First-Time Home Buyer Incentive (FTHBI), the program offers eligible buyers up to 10% of a home’s purchase price to put toward their down payment, thus lowering mortgage carrying costs and making home ownership more affordable."

C'mon Ms Ardern, why aren't you doing anything about the issue of home affordability in NZ???

And the eligibility for FTHBI is pretty reasonable:

"are not only people who have never owned a home before, but also homeowners who have gone through a divorce or breakdown of a common-law partnership, or those who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the past four years."

And the Cdn gov't will:

"The government will loan buyers 5% of the purchase price for a re-sale home, or 10% for a new one. That works out to a possible $50,000 on a new $500,000 home, or $25,000 on a $500,000 resale property. "

This is on top of the 5% down payment the 1st home buyer needs to have. The FTHBI portion is payable after 25 years with no interest BUT the capital gain value of the house the Cdn gov't will also get the benefit; that is the home owner under this scheme SHARES the capital gain with the gov't, likewise in a crash (not likely house values would be less after 25 years) the gov't will share the loss. But it's interesting to see the Cdn gov't is making a bold move to tell 1st home buyers that they are willing to take the risk in lending. Again:

"Buyers don’t have to make ongoing payments and are not charged interest on the loan. But they do have to repay the incentive, either when they sell the house, or after 25 years—whichever comes sooner. "

Quote:

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Originally Posted by SBQ

C'mon Ms Ardern, why aren't you doing anything about the issue of home affordability in NZ???
[/I]

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Why even discuss home affordability when central banks continue to suppress interest rates and provide liquidity to pump up asset prices. Why not look at the main reason for house price growth, instead of encouraging the next generation to take on even more debt to keep the ponzi scheme going. I guess it is easier and ensures votes.

Quote:

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Originally Posted by Aaron

Why even discuss home affordability when central banks continue to suppress interest rates and provide liquidity to pump up asset prices. Why not look at the main reason for house price growth, instead of encouraging the next generation to take on even more debt to keep the ponzi scheme going. I guess it is easier and ensures votes.

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Modern Monetary Theory (MMT) is what pulled the US economy out of the GFC in 2008. Unfortunately MMT is not working in the EU as we see artificial interest rates that are well below what the market expects (their negative interest rate policy does not work buyers of their bonds expect a much higher rate). Anyways in respect to NZ, the RB also adopts MMT but I would not say it's anything near what the EU is at. Key distinction is we still have a we ways to go to zero. The better indicator is to watch the NZ currency.

Housing is only 1 segment of the interest rate variable. Commercial & gov't loans are a big factor so it's more important that the key drivers of maintaining employment, and thus the economy roll through in tough times. Though I do agree, too low rates will encourage the rich to buy more houses in NZ, it also means they stand to risk more in a real estate bubble crash. Sadly, when the economy collapses, so does employment which basically wipes out those trying to buy their 1st home.

Many NZ politicians would disagree but the real problem why next generations have to pile on more debt to buy a house is simply due to NZ's weak currency and thus, the long erosion of standard of living. NZ is a small country that can not make EVERYTHING efficiently to produce the end product 'the house'. Also NZ's is very poor at implementing tax policies on residential homes as all too many just 'game the system' without paying any taxes. This is very different to the Cdn model where the CRA is effective at collection any capital gain tax on the property. But overall, MMT will cease to work if 'taxation' is not applied across all asset classes and this is a key problem in NZ, and not because of interest rates are too high or too low.

Quote:

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Originally Posted by SBQ

Modern Monetary Theory (MMT) is what pulled the US economy out of the GFC in 2008. Unfortunately MMT is not working in the EU as we see artificial interest rates that are well below what the market expects (their negative interest rate policy does not work buyers of their bonds expect a much higher rate). Anyways in respect to NZ, the RB also adopts MMT but I would not say it's anything near what the EU is at. Key distinction is we still have a we ways to go to zero. The better indicator is to watch the NZ currency.

Housing is only 1 segment of the interest rate variable. Commercial & gov't loans are a big factor so it's more important that the key drivers of maintaining employment, and thus the economy roll through in tough times. Though I do agree, too low rates will encourage the rich to buy more houses in NZ, it also means they stand to risk more in a real estate bubble crash. Sadly, when the economy collapses, so does employment which basically wipes out those trying to buy their 1st home.

Many NZ politicians would disagree but the real problem why next generations have to pile on more debt to buy a house is simply due to NZ's weak currency and thus, the long erosion of standard of living. NZ is a small country that can not make EVERYTHING efficiently to produce the end product 'the house'. Also NZ's is very poor at implementing tax policies on residential homes as all too many just 'game the system' without paying any taxes. This is very different to the Cdn model where the CRA is effective at collection any capital gain tax on the property. But overall, MMT will cease to work if 'taxation' is not applied across all asset classes and this is a key problem in NZ, and not because of interest rates are too high or too low.

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I guess these might all be factors. Tax policy around capital gains including housing has been consistent for many years without house prices getting too high. I would suggest that after each central bank intervention when the economy(borrowers) gets over extended with lower rates and easier debt means people are now comfortable becoming over-extended financially knowing that central banks will drop interest rates and assist refinancing. Another couple of financial crises and you will get paid to have a mortgage with negative interest rates like in Denmark. No limit on house prices then and then overextended borrowers are no longer overextended. People saving money though are screwed. I guess that's the game and I am upset as my parents taught me to be prudent with debt and to save for the future.(Worst advice ever since about 1987)

Quote:

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Originally Posted by Aaron

I guess these might all be factors. Tax policy around capital gains including housing has been consistent for many years without house prices getting too high. I would suggest that after each central bank intervention when the economy(borrowers) gets over extended with lower rates and easier debt means people are now comfortable becoming over-extended financially knowing that central banks will drop interest rates and assist refinancing. Another couple of financial crises and you will get paid to have a mortgage with negative interest rates like in Denmark. No limit on house prices then and then overextended borrowers are no longer overextended. People saving money though are screwed. I guess that's the game and I am upset as my parents taught me to be prudent with debt and to save for the future.(Worst advice ever since about 1987)

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NZ house prices got too high because of the NZRB placing more emphasis on economic output (ie productivity) than to control inflation. Their measuring stick of determining inflation, the CPI, is a very crude method for assessing inflation as it never considers the long term outlook of ie. mortgages. It's only a snap shot of costs at from point A to point B ; and considers no other variable. I much prefer the US's model of factoring inflation 'Producer's Price Index' PPI. So what has been consistent in NZ is IRD rarely collects taxes on the sale of houses (with exception to those that are in the business/trade/construction). Such an asset class so large, it should not be ignored if you're using interest rates as a means to control house prices. What makes the Canadian model of treating real estate so remarkable is not only they recognise house prices rise (because of inflation) but also the FTHBI program tells the buyer that the gov't is too into the game of making $$. Anotherwords, the gov't and the buyer goes hand in hand into buying a house and when the house changes hands or after 25 years, both investors will get paid back. This is very different to the process we have in NZ where IRD assesses taxing capital gains on a house by using a bright-line 5 year test or if the buyer intended to purchase the house as an investment / speculation where the gains are taxable.

I would say it's unfair to use the EU examples of interest rate controls as during the formation of the EU, they've completely ignored key factors such as the formalisation of past debts between different sovereign nations. The United States of America through civil wars in the past HAD collectively formalised their debts and therefore, the controls of interest rates can apply as a whole nation. This is not happening in the EU and a good example is to look at the relationship between Italy and Germany on their bonds, that is, Italy on it's own has massive debt and seeks more loans. The ECB says ok we'll lend you at 2% but the global open market asks that Italian issued bonds should pay at least 8%. This is not gonna work so the ECB loans to Italy and the German citizens get screwed out by propping Italy up (because Germany as a whole is the largest economy in the EU); how they say 'austerity measures'? NZ will not fall into that model but instead, a gradual erosion of standard of living (via a long term weakening of the NZ currency to the USD) will occur before interest rates will get to zero. Hopefully I would be long gone back overseas before this occurs.

Don't assume your parents were wrong about being prudent with debt and having cash. When 2008 hit, it was only those that HAD the savings and cash set aside that benefited the most. Those that borrowed and over leveraged had the most to lose. Jim Cramer (CNBC sensationalist) time and time again says you need cash reserves to buy at times of crisis. Hindsight 2008/2009 were good years to buy either in real estate or in the stock market. What is more compelling is this - where are people investing their pension $? Are they being blind buying NZ shares or US listed shares? Because the model we have in NZ is strongly tainted towards investing into NZ shares which by far, are way way more riskier than buying US listed shares. I mean in the past 5 years if you held NZD currency instead of USD you would of lost over 20% on the exchange rate. It's a fat move by ex-NZRB minister Michael Cullen to push NZ into Kiwi Saver. Oh and if you look at the Scandinavian countries, they don't force their residents to buy their own shares, their gov't pension funds have huge positions in US listed equities. What NZ should be doing is aligning their tax structures to be similar to abroad so investments abroad and within NZ are transparent and equal. But instead, you have corporate taxes that are higher in NZ than abroad. You have restrictions on NZ residents having foreign brokerage accounts (ie FMA). You have tax policies that coerce funding to stay within NZ (FIF). When I add all these factors up, it doesn't look very good in NZ.

You know 20 years ago NZ use to be a magnet of attracting wealthy migrants having none of those restrictions or tax laws. But recently when I see these people selling up land around NZ, that tells me the wealthy migrant is moving abroad. Now it may seem to the locals that they don't care for such migrants, it's important to know that if too much $ leaves NZ, then the NZ currency will get weaker which affects everyone.

Quote:

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Originally Posted by SBQ

On the Canadian front for 'doing something about' the problem of 1st home buyer ownership, it seems the Cdn gov't is taking it all the way to the bank so that low income or 1st time home owners can get their 1st home. Unlike NZ, we've stood flat and done absolutely NOTHING about making homes more affordable for the 1st home buyer.

https://www.cmhc-schl.gc.ca/en/media...uyer-incentive

and for more beefier details:

https://www.moneysense.ca/spend/real...yer-incentive/

"The federal government launched a new national program on September 2, 2019, that it says will help thousands of families across the country buy their first home. Aptly named the First-Time Home Buyer Incentive (FTHBI), the program offers eligible buyers up to 10% of a home’s purchase price to put toward their down payment, thus lowering mortgage carrying costs and making home ownership more affordable."

C'mon Ms Ardern, why aren't you doing anything about the issue of home affordability in NZ???

And the eligibility for FTHBI is pretty reasonable:

"are not only people who have never owned a home before, but also homeowners who have gone through a divorce or breakdown of a common-law partnership, or those who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the past four years."

And the Cdn gov't will:

"The government will loan buyers 5% of the purchase price for a re-sale home, or 10% for a new one. That works out to a possible $50,000 on a new $500,000 home, or $25,000 on a $500,000 resale property. "

This is on top of the 5% down payment the 1st home buyer needs to have. The FTHBI portion is payable after 25 years with no interest BUT the capital gain value of the house the Cdn gov't will also get the benefit; that is the home owner under this scheme SHARES the capital gain with the gov't, likewise in a crash (not likely house values would be less after 25 years) the gov't will share the loss. But it's interesting to see the Cdn gov't is making a bold move to tell 1st home buyers that they are willing to take the risk in lending. Again:

"Buyers don’t have to make ongoing payments and are not charged interest on the loan. But they do have to repay the incentive, either when they sell the house, or after 25 years—whichever comes sooner. "

---

Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)

Rent to buy instead of Shared equity,
5% deposit with govt insured loan, check, with price and income caps, check
Second chancers included, check.
NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.

But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.

Quote:

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Originally Posted by Vagabond47

Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)

Rent to buy instead of Shared equity,
5% deposit with govt insured loan, check, with price and income caps, check
Second chancers included, check.
NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.

But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.

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Maybe cut immigration until the infrastructure and number of houses catches up.

Quote:

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Originally Posted by Aaron

Maybe cut immigration until the infrastructure and number of houses catches up.

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Yeah, no need for wide open taps on immigration, a bout a third of what we get now is enough.

Quote:

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Originally Posted by Vagabond47

Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)

Rent to buy instead of Shared equity,
5% deposit with govt insured loan, check, with price and income caps, check
Second chancers included, check.
NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.

But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.

---

Not at all similar to the Cdn model where the gov't provides a loan up to 10% (on a new build; note on existing home it's only 5% so there is the emphasis for developers to build more supply). The loan appreciates (or depreciates in a market collapse) at time of sale or in 25 years if the house has not changed hands. This is not a 'grant' where the funds don't have to be paid back as in the NZ case (IMO $5K or $10K is a joke to the cost of buying a house in NZ which is around 1% of the value of the house? Give me a break). Did I not mention the taxation on capital gains in Canada?

Having just recently purchased a house in NZ, the disclosure to IRD is relatively vague. In Canada you must disclose the use of the house ; intent ; purchase for investment? ; etc. and it's a LOT more difficult to game the system there than in NZ. What we see in NZ is relatives, family members are buying houses in each of their name and claiming as their own personal residence while they conduct renovations with INTENT to flip the house in 2 to 5 years time. THIS is the reason why you have a bubble and not the 1st time home owners wanting to get in.

I've been hearing the same story that the housing bubble caused by excessive immigration. Well i'm finding houses are coming down since the ban on foreign buyers. With AML, it makes buying houses even more difficult so I expect long term, houses aren't going to go up much. On some part, the NZ gov't is at fault for not making the construction of new houses more affordable ; over-regulations (ie RMA, Council restrictions ; and recently Maori protests of land use north of Auckland) sets the attitude that "Yes we want affordable houses but.... not in my back yard". Nothing will change and the losers will be the next generation when they go buy their own home... going into more debt". Remember Auckland house prices are not unique - same deal in Vancouver. But what I see happening there is a hell of a lot more than what NZ is doing.

Quote:

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Originally Posted by Aaron

I guess these might all be factors. Tax policy around capital gains including housing has been consistent for many years without house prices getting too high. I would suggest that after each central bank intervention when the economy(borrowers) gets over extended with lower rates and easier debt means people are now comfortable becoming over-extended financially knowing that central banks will drop interest rates and assist refinancing. Another couple of financial crises and you will get paid to have a mortgage with negative interest rates like in Denmark. No limit on house prices then and then overextended borrowers are no longer overextended. People saving money though are screwed. I guess that's the game and I am upset as my parents taught me to be prudent with debt and to save for the future.(Worst advice ever since about 1987)

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Case in point the Brains Trust at the Aussie Reserve Bank warning against.... shock horror.... people paying down debt and how it is bad for the economy. WE NEED MORE DEBT AND HIGHER HOUSE PRICES SO WE CAN BORROW MORE IN A VIRTUOUS CYCLE OF GROWTH. What a bunch of f**ktards.

https://www.msn.com/en-nz/money/fina...cid=spartanntp

Quote:

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Originally Posted by SBQ

Not at all similar to the Cdn model where the gov't provides a loan up to 10% (on a new build; note on existing home it's only 5% so there is the emphasis for developers to build more supply). The loan appreciates (or depreciates in a market collapse) at time of sale or in 25 years if the house has not changed hands. This is not a 'grant' where the funds don't have to be paid back as in the NZ case (IMO $5K or $10K is a joke to the cost of buying a house in NZ which is around 1% of the value of the house? Give me a break). Did I not mention the taxation on capital gains in Canada?

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Agree, we should have taxation of some sort on houses. I prefer TOPs deemed rate of return tax, as the landlord class can't ignore it if they never intend to sell, as they can with a CGT only on realised gains, while still being able to borrow against the unrealised capital gains of the property.

Note that for a couple buying the grant is $10k (or $20k for a new build). And $20k is 3.1% minimum, since the price cap is $650k for a new build in Auckland or Queenstown, less elsewhere. For many it is the deposit that is the problem. Even a couple earning $50k each ($765/week take home each, after tax and kiwisaver) can reasonably easily service a 90% mortgage on a $650k property ($680/week mortgage payment, 45% of the couples take home pay). Those further down the income ladder are indeed rather stuffed, but funding more loans isn't the answer, either increasing their income somehow , or dropping the price of property so the so the prices aren't stupid multiples of income.

Turning more people that want to buy into actual enabled buyers just pushes up demand and does nothing for an already tapped out supply chain here in Auckland. Maybe Vancouver is different, but at the moment Auckland is building faster than it has in decades, and the builders are flat out. We need to improve the speed with which we can build (prefabrication or automation?), and free up the supply of buildable land (RMA/ council zoning etc)

Quote:

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Having just recently purchased a house in NZ, the disclosure to IRD is relatively vague. In Canada you must disclose the use of the house ; intent ; purchase for investment? ; etc. and it's a LOT more difficult to game the system there than in NZ. What we see in NZ is relatives, family members are buying houses in each of their name and claiming as their own personal residence while they conduct renovations with INTENT to flip the house in 2 to 5 years time. THIS is the reason why you have a bubble and not the 1st time home owners wanting to get in.

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The flippers have to have someone to sell to, that is willing (or forced by situation) and able to pay the price they are asking, if there was adequate supply compared to demand, they would have a much harder time trying to sell an overpriced renovation, and also would not be willing to pay high prices for properties to buy to renovate. Again, the problem is a problem of supply and demand, and also that of the tax/cost advantages of the investor over the home owner. At the end of the day, they buy 1 property, improve it, and sell 1 property having a net 0 long term effect on supply; they aren't the reason for the shortage of property.

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I've been hearing the same story that the housing bubble caused by excessive immigration. Well i'm finding houses are coming down since the ban on foreign buyers. With AML, it makes buying houses even more difficult so I expect long term, houses aren't going to go up much. On some part, the NZ gov't is at fault for not making the construction of new houses more affordable ; over-regulations (ie RMA, Council restrictions ; and recently Maori protests of land use north of Auckland) sets the attitude that "Yes we want affordable houses but.... not in my back yard". Nothing will change and the losers will be the next generation when they go buy their own home... going into more debt". Remember Auckland house prices are not unique - same deal in Vancouver. But what I see happening there is a hell of a lot more than what NZ is doing.

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Ah, now here we go.. you turn down the demand with the foreign buyer ban (although China cracking down on money flows out of China may be the real reason) , and prices stop increasing, and even start falling.
And yes, the councils are indeed a big part of the supply problem, limits on increasing density of buildings, and charges for permits and development contributions etc push the prices up.
Its not the flippers, although they are certainly taking advantage of the loopholes in the system to make outsized low taxed or untaxed gains.

On the supply side 49 Auckland apartment developments that were planned to actually deliver last year didn't - abandoned, deferred, sites onsold (Colliers).

That indicates more about finance issues than council issues as all 49 were already consented.

Apartment buyers have been more for rentals in the past, overseas buyers similar or hold for capital gain, or both.

Balloon economics - poke one side and then ....

Not surprised, Kiwis generally aren't a big fan of apartments. The amount of apartment blocks needing remediation hasn't done their image any good, and when you are shopping for property and look at apartments, and discover $5k pa Body corp levies you lose interest real fast.

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Originally Posted by Vagabond47

Not surprised, Kiwis generally aren't a big fan of apartments. The amount of apartment blocks needing remediation hasn't done their image any good, and when you are shopping for property and look at apartments, and discover $5k pa Body corp levies you lose interest real fast.

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Friend of mine lives in a 90 apartment complex, very nice, well maintained, not cheap to rent or to buy. 88 are rentals. This is Wellington central - big rental shortage here.

If not bought off the plan as rentals or for owner occupiers, nobody should be surprised if the development falls over. Big question - in a shortage why are investors not buying (existing or new)? Government policies have plenty to do with it.

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Originally Posted by artemis

Friend of mine lives in a 90 apartment complex, very nice, well maintained, not cheap to rent or to buy. 88 are rentals. This is Wellington central - big rental shortage here.

If not bought off the plan as rentals or for owner occupiers, nobody should be surprised if the development falls over. Big question - in a shortage why are investors not buying (existing or new)? Government policies have plenty to do with it.

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A lot of the apartments that were planned were luxury apartments catering to the overseas buyer market, when that got knocked on the head they discovered no local was going to pay $800k+ for a city apartment (eg. https://www.trademe.co.nz/browse/lis...?id=1423232571 ) , but thats what they needed to make the project work.

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Originally Posted by artemis

Friend of mine lives in a 90 apartment complex, very nice, well maintained, not cheap to rent or to buy. 88 are rentals. This is Wellington central - big rental shortage here.

If not bought off the plan as rentals or for owner occupiers, nobody should be surprised if the development falls over. Big question - in a shortage why are investors not buying (existing or new)? Government policies have plenty to do with it.

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Fully agree. Need to question why most of these high rise apartments or condos are going bust well before they start or finish? Quite often i'm told there are great similarities to the housing problem between Auckland and Vancouver but they're so far apart. Vancouver constantly is building high rise after another and each time I visit every year, I see 1 petro station knocked down and replaced with a condo (with business premise at ground level). The surprising thing is these building projects are mostly SOLD OUT well before they start digging.

NZ is far too expensive to build - only fools would pay over $800K for 66m2. Last year visiting Auckland my uncle (who works at Alk city council) told me that there are countless of projects going under... meaning "they're not financially viable". It seems that they whole NZ real estate market depends on higher and higher prices to fuel any building. But what we have is a shortage of buildings with investors running away from building projects.

As I said before, NZ's remoteness makes construction ultra expensive. In Canada, economies of scale is achieved being next door to the USA. I'm thinking the world realises the cost of living is just too high in NZ that when they look at the salary pay.. the #s don't stack up.

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Originally Posted by Vagabond47

A lot of the apartments that were planned were luxury apartments catering to the overseas buyer market, when that got knocked on the head they discovered no local was going to pay $800k+ for a city apartment (eg. https://www.trademe.co.nz/browse/lis...?id=1423232571 ) , but thats what they needed to make the project work.

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No idea if they were high end or shoe boxes. But one thing we do know is that LVR changes for investors coincided with a major drop off in them buying. Bank lending to the sector started dropping sharply from mid 2016 and remains well less than half that level. (Reserve Bank c31 report.)

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Originally Posted by artemis

No idea if they were high end or shoe boxes. But one thing we do know is that LVR changes for investors coincided with a major drop off in them buying. Bank lending to the sector started dropping sharply from mid 2016 and remains well less than half that level. (Reserve Bank c31 report.)

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Minor problem with that theory, LVR restrictions don't apply to new builds, for Owner-occupiers or investors.