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  1. #16
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by mfd View Post
    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.
    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.
    Last edited by JBmurc; 10-06-2019 at 10:44 PM.
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  2. #17
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by sanctus671 View Post
    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?
    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 ??
    People don't have ideas, ideas have people

  3. #18
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    Quote Originally Posted by SBQ View Post
    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.
    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.

  4. #19
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    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.

  5. #20
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    Quote Originally Posted by mfd View Post
    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.

    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.


    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.

    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).




    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.

    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.

  6. #21
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    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

  7. #22
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    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.
    Last edited by iceman; 11-06-2019 at 05:23 PM.

  8. #23
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    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

  9. #24
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    Quote Originally Posted by kiora View Post
    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
    Or fix 1 year at a time as those rates are constantly significantly lower than floating

  10. #25
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    Believe this or not
    https://www.interest.co.nz/business/...risis-lowering
    Check out Fig 10 for forecast.Ouch for savers.

  11. #26
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    Quote Originally Posted by kiora View Post
    Believe this or not
    https://www.interest.co.nz/business/...risis-lowering
    Check out Fig 10 for forecast.Ouch for savers.
    Some of these economists seem determined to drive us into negative rates territory.


  12. #27
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    Quote Originally Posted by SBQ View Post
    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.
    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.
    Last edited by Schrodinger; 15-06-2019 at 10:41 AM.

  13. #28
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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.
    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.

    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.
    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.

  14. #29
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    Quote Originally Posted by sanctus671 View Post
    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.
    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.

  15. #30
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    Quote Originally Posted by Bjauck View Post
    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.
    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).

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