Which way will the property market go now?

[RTM]

The problem NZ has is that although NZ house prices are falling and interest rates are rising, house prices here are still far too high, along with rents. We therefore have a deep structural problem which will see badly needed skilled workers and younger people going elsewhere. The only way to correct this imbalance is via further steep falls in house prices. And these falls must be very steep indeed at this point.

Yes....either that or multiple years of high inflation and flat house prices.....
Not sure it's going to be politically acceptable to either/any party to let the price collapse.
Our financial structure that has let house prices gains enjoy more or less tax free capital gains over the years is coming home to roost.
Interesting times ahead.

[JBmurc]

Yes....either that or multiple years of high inflation and flat house prices.....
Not sure it's going to be politically acceptable to either/any party to let the price collapse.
Our financial structure that has let house prices gains enjoy more or less tax free capital gains over the years is coming home to roost.
Interesting times ahead.

Yes we had low inflation for years while we seen out of control property inflation in values so makes sense the inverse can happen ...and we could see flat to minor increase in property values for the rest of the decade...

[Aaron]

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.

[fungus pudding]

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.

It depends on the couple and their situation. They may want to unload the hasssle of being a landlord, and have sufficient assetts to last them the rest of their days. CU+SU. (cash up and spend up) Do they have family or friends they would like to bequeath things to? It's such an individual thing. I've heard it said that wise planning is to aim to have your last cheque bounce - but sadly the demise of the cheque book beat my own demise. Pity.

[Aaron]

It depends on the couple and their situation. They may want to unload the hasssle of being a landlord, and have sufficient assetts to last them the rest of their days. CU+SU. (cash up and spend up) Do they have family or friends they would like to bequeath things to? It's such an individual thing. I've heard it said that wise planning is to aim to have your last cheque bounce - but sadly the demise of the cheque book beat my own demise. Pity.

I guess for their situation it makes sense. It would only be a bad idea if inflation stays elevated for a long time while interest rates stay low but even then I guess the capital would last long enough to see them out although their kids might be unhappy. To know for sure what is the best decision you would need to see into the future.

[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]

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.