Which way will the property market go now?

[JBmurc]

A question was put to me by a couple in their 70s. Based on the current market value of their rental property the yield is less than what they can get at the bank.

So they are thinking of selling the rental and avoid the hassle of tenants etc yet still maintain an income off the money.

For an older couple this seems to make sense but you have to assume Adrian does not debase the currency further in the next downturn or continue to suppress interest rates and at current inflation rates your real yield is negative.

Does anyone have an opinion. Is it a good idea to sell the rental to invest in fixed interest(probably bank term deposits)? You might be investing into a new trend of falling asset prices as retirees cash out.

This also could be a sign that a predicted downturn in financial markets is arriving as older people sell down their investments to enjoy their remaining years. This has not been the case to date, but it sounds like a reasonable argument to be bearish on financial markets at current valuations. But like anything in investing today a lot will depend on the central banks. Currency and fixed interest is OK as long as you are getting a return on your capital and it is not being inflated away.

Depending on what they paid for the property prob walk away with 100-200% Cap gain as well ... why wouldn't you take the cash and spread the risk ..IMHO I'll say to any older couple why not put the funds across say three Yield investments plays .... third in Zagga get 8-9% return short term 1-2yr peer to peer lending ... third Bank term dep 5% ... and third in say shares that say average 6% yield ....

then you have great flexibility- de -risk from holding one asset that could be burnt flood Earthquake .. tenant destruction

[SBQ]

A question was put to me by a couple in their 70s. Based on the current market value of their rental property the yield is less than what they can get at the bank.

So they are thinking of selling the rental and avoid the hassle of tenants etc yet still maintain an income off the money.

For an older couple this seems to make sense but you have to assume Adrian does not debase the currency further in the next downturn or continue to suppress interest rates and at current inflation rates your real yield is negative.

Does anyone have an opinion. Is it a good idea to sell the rental to invest in fixed interest(probably bank term deposits)? You might be investing into a new trend of falling asset prices as retirees cash out.

This also could be a sign that a predicted downturn in financial markets is arriving as older people sell down their investments to enjoy their remaining years. This has not been the case to date, but it sounds like a reasonable argument to be bearish on financial markets at current valuations. But like anything in investing today a lot will depend on the central banks. Currency and fixed interest is OK as long as you are getting a return on your capital and it is not being inflated away.

You've left out the tax issue that the 70s aged couple would face by not holding real estate. The rental house will grow in capital gains 100% tax free... while anything in the fixed income asset class has RWT rates. Yes it is a hassle to deal with tenants when you're in senior age, but so is paying a large portion of the gain in taxes if that investment approach was done abroad (ie Aus, Canada, US - all that have CGT). With the recession talk coming down hard, it would be hard to believe NZ listed companies would be in good position where owning such shares would be a better return for the level of risk?

I'm not waiting until i'm 70 to find out what I should have done decades ago. Wise words from Warren Buffet says one always beats inflation by investing into productive assets (fixed term bank TD interest returns are not really productive assets). After all, he lives in a modest home and has 99% of his wealth in equities or businesses. That approach regardless of how old you are has worked better in the long term than any mix 40/60 that so many financial advisers always tell their clients (a la Kiwi Saver approach). Own businesses that can weather inflation, and enjoy living anywhere in the world without a worry about rental properties is my game.

[Logen Ninefingers]

...and there are only two things that can bring that about ,,,lower demand, or increased supply.

And both if those are happening.

[fungus pudding]

And both if those are happening.

What does that mean? Both what?

[LEMON]

"What does that mean? Both what?"

Increased supply of homes and less people wanting to buy lol

[Logen Ninefingers]

Interest rates have gone up again today.

[Logen Ninefingers]

‘Reserve Bank Governor Adrian Orr is calling on banks to lift deposit rates as much as they have lifted mortgage rates, saying their tardiness is boosting their profits and preventing the benefits of the higher Official Cash Rate (OCR) flowing to savers.’

[Bjauck]

‘Reserve Bank Governor Adrian Orr is calling on banks to lift deposit rates as much as they have lifted mortgage rates, saying their tardiness is boosting their profits and preventing the benefits of the higher Official Cash Rate (OCR) flowing to savers.’

That's not how it usually works in NZ. Property owners get their leveraged capital gains, Australian shareholders get their fat dividends from NZ, and NZ depositors go backwards after tax and after inflation. A real benefit to savers would be to only tax real interest earned from deposits.

[Logen Ninefingers]

Banks are offering sneaky deeply discounted home loan rates ostensibly via ‘mortgage brokers’ - but now the cat is out of the bag every man and his dog is asking for them. This makes a mockery of the Reserve Bank and its attempts to tighten. What is extra sneaky is that the retail banks were making out that they were complying, while thumbing their nose at the Governor via these heavily discounted rates. Added to this, the banks Term Deposit and On-Call Savings rates are nowhere near as attractive as they should be, resulting in the Reserve Bank having to call them out on this as well. It seems that retail banks have clear ideas as to where Kiwi’s should be putting their money, and residential property is still the place they are to be herded towards. Ultimately it may be that banks need more regulation to get them to comply with the overall thrust of monetary policy. Needless to say, they are a very important part of the financial system but seem to want to ‘go rogue’ while maintaining a veneer of compliance with the Reserve Bank.

[Joshuatree]

Have deposit rates lifted a bit since?
Differing opinions ATM.Some cite the increasing immigration,the big builders build rates for residential slowing right down ,the property stock for sale at a low and the cost of new builds going up so much. For these reasons some think we are near a bottom in property prices.Interest rate increases near a top another point.

Opposing views are inflation,recession,mortgage resets leading to stress and mortgagee sales,poor sentiments and fear.Thoughts?