nz shares or property

[skid]

The average New Zealander because they have never experienced a property market collapse in the last 30 years or so (yes values went down by like 5 or 10% in 2008, but nothing massive), many New Zealanders "hate" shares, and wouldn't consider it an investment after the 1987 crash... because of this many have their money tied up in property, and many more "want there money tied up in property" as it is on a seemingly endless road to success with no downside/risk...

The next paragraph is mainly relating to Auckland... One leading economist described Auckland's property market as "a giant Ponzi scheme" as residents (and investors) pay each other to get in and drive prices up and up, once these new apartment buildings "come online" and unusually strong migration drops off, Auckland property may not have the big double digit increases it has enjoyed, on average, for decades (I am a bit wary of the medium term fundamentals...)
If you are going to do something, do it before the RBNZ new regulations come into affect 1 October (I think?) and this will require 30% gearing instead of the current minimum of 20%... be aware of the new regulations brought in by the government as well (not sure on these or when they are being implemented)

I am not sure either how NZ shares will go over the next year, but as always, on average shares generally make a better return than property, which shares will do better than others is always a better question.

Im not so sure either would be a sure winner these days---im just wondering which share if I had put my $64000 in (1984) would be worth 1.3mil now--cant say the cash flow is great though(rent-expenses)---it will still be there in X years though and there is no executives with their noses in the trough

[kiora]

Im not so sure either would be a sure winner these days---im just wondering which share if I had put my $64000 in (1984) would be worth 1.3mil now--cant say the cash flow is great though(rent-expenses)---it will still be there in X years though and there is no executives with their noses in the trough

By my rough calculation it works out out at 20% compounding return/yr
Infratil is close to that

[BeeBop]

By my rough calculation it works out out at 20% compounding return/yr
Infratil is close to that

My historical past 5 yr return on sold shares is between 15 - 20% annualised depending on which market (UK, US or NZ). This does include the down years. Overall, as I run both property and shares, on a straight non-leveraged return my shares do better but as I am only leveraged for property, wealth comes from good property. I keep a portion of money in the sharemarkets and when I deem my investment to be over my fair value, I sell it and put it into property principal reduction.

[Harvey Specter]

Overall, as I run both property and shares, on a straight non-leveraged return my shares do better but as I am only leveraged for property, wealth comes from good property.

Why are you allocating your debt against propety? Just because thats what it is secured over?

Consider it different way.

You have property worth $X, and shares worth $Y. Deduct from that portfolio debt of $Z (which just happens to be secured over property to give you a low interest rate).

My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

[Bjauck]

...
My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

That is the advantage of (real estate) property...you can easily borrow money against it...so I guess you could argue that the profits derived from shares bought with the mortgage moneys should be allocated as being derived from the real estate.

The current NZ tax system plus ability for investors to leverage all add up to owner occupiers being gradually priced out of the residential property market in NZ (esp Auckland).

[Harvey Specter]

The current NZ tax system plus ability for investors to leverage all add up to owner occupiers being gradually priced out of the residential property market in NZ (esp Auckland).

Its not the Tax System!!! Its the banking system which allows for much lower interest rates for property.

I have debt secured over shares and it is treated exactly the same as debt secured over property, the only difference is the interest rate is 1.2% higher and the loan to value is much lower (and not even allowed on some shares).

[Bjauck]

Its not the Tax System!!! Its the banking system which allows for much lower interest rates for property.

I have debt secured over shares and it is treated exactly the same as debt secured over property, the only difference is the interest rate is 1.2% higher and the loan to value is much lower (and not even allowed on some shares).

It's both. You have to pay more in interest because shares can individually be more risky and prices fluctuate more.

You are able to more easly get amortgage against real estate for a greater percent of capital value which coupled with the tax system means you can become negatively geared and end up getting an income tax refund whilst earning leveraged capital profits on your real estate investment.

[macduffy]

Its not the Tax System!!! Its the banking system which allows for much lower interest rates for property.

I have debt secured over shares and it is treated exactly the same as debt secured over property, the only difference is the interest rate is 1.2% higher and the loan to value is much lower (and not even allowed on some shares).

That's true. The capital that banks are required to hold in respect of their loans for property is much lower than that required for loans for "riskier" purposes. Makes sense - except perhaps when property bubbles develop!

[skid]

Why are you allocating your debt against propety? Just because thats what it is secured over?

Consider it different way.

You have property worth $X, and shares worth $Y. Deduct from that portfolio debt of $Z (which just happens to be secured over property to give you a low interest rate).

My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

that depends on whether you are going for absolute maximum profit or more of an element of saftey(in terms of more equity in your properties)
Its hard to see what the economic future is atm but there is certainly real chance that things could get ugly and that is not an environment you want to be over leveraged in--even with low interest rates,paying off a greater % of your debt on property is not a bad place to be.


Meanwhile --Train to Hamilton--Is a rush hr delay for freight more important than helping to solve the housing crises? (especially considering some of the massive housing projects in all ready overcrowded Auckland to solve the housing crises ,but at the same time ,add to the traffic crises.---no easy answers --I wonder how a rail upgrade compares to a major road work (like the Northwest motorway extension incl tunnel)
Hamilton is pretty well equipped with the hospital and all--train line would also incl. Huntley.

[BeeBop]

Why are you allocating your debt against propety? Just because thats what it is secured over?

Consider it different way.

My guess is you are probably overweight in Property yet your returns on an EBITDA basis are probably alot lower.

You have property worth $X, and shares worth $Y. Deduct from that portfolio debt of $Z (which just happens to be secured over property to give you a low interest rate).

You could argue the counterfactual that without the property, you wouldn't be able to get debt, which is a far comment. Always compare like for like, while being mindful of the benefits of each.

Absolutely fair comment and well worth me including in my tracking.

So even if I subtract my current WACC (5.21%), the returns are still good 10% to 15% with the 10% being my NZ portfolio (which has a LVR of 35%). And yes, I am well overweight in property, running an overall share portfolio of between 5 and 10% of the property (excluding our Kiwisaver untouchable). The problem for me is, I have no "professional" financial/investment training (but have been investing for more than 20 yrs) and am working totally solo due to location and situation. The time I need to put into the shares is very very high as I need to ensure that my overall return is better than the mortgage rate (I don't include capital gains for properties). The shares give me international reach and better liquidity. When the portfolio gets larger I sell and reduce debt. So far the process has been working and I don't feel confident enough to put more money into shares - someone can live in a house when everything goes wrong but when a share goes "belly-up" it merely goes to a $0 value (Aero Inventory case in-point as one of my early zeros due to accounting fraud!).