nz shares or property

[Jay]

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

and your ability to repay as well.

[JBmurc]

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

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

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

[kiora]

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

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

[Bjauck]

Wow, so should we steer clear of all houses?

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

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

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

https://www.stuff.co.nz/environment/...-years--report

[fungus pudding]

As confirmed by JB they will extend revolving credit or OD secured over property for investing for income .......

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

[SBQ]

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

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

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

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

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

[SBQ]

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

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

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

[dobby41]

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

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

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

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

[SBQ]

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

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

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

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

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

[SBQ]

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

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

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

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

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