Negative Gearing

[rmbbrave]

All you really need is a good salary, preferably a stable one. An ALT's salary of 3.6 million a year is probably not enough.

The banks that provide these loans are not Japanese eg NAB, Lloyds in Honk Kong but you have to be earning money in Japan.

I don't know about transferring the loan to a new property.

[moimoi]

rmbbrave.....is your lender in japan taking a mortage over the NZ property?

or are you raising the lending against an existing property in japan to make your purchase down here??..

[ronaldo]

You are correct in saying its almost impossible to find properties that have a positive cash flow.Thats due to the fact that rent increases havnt kept up with house price increases.10 years ago I purchased a 2 BRM rental in Ak for $73000 a reasonable price at the time.It was let for $180/week(a positive cashflow) & almost typical of the period.Being my first I was nervous about the purcase & with hindsight wished I had bought a few more.The property would now be worth $200000 & rent for $240/week.If only we had a crystal ball!

[foodee]

Good on you Ronaldo.
The numbers are different but the game is still the same. +ve cash flow solid well located dwelling will keep on keeping on.

cheers

[Dough Boy]

Hi all,

Adding to the topic of foriegn currency home loans. Our family trust took out Hong Kong dollar mortagages on property in NZ and AU about mid 2002 when the NZD and AUD were at their lows. Last year neutralized the currency risk and by converting back some mortgages to NZD or AUD or converting NZD cash to HKD cash.

The reason we went into foreign currency mortages was that we believed that the NZD and AUD were very low and could not fall much further, also rental return versus interest rate was 10% to 2% so a 8% further fall would be covered by the yearly rental cashflow, also were earning HKD so was able to hedge the risk.

At moment we would be very adverse to making a bet on the currency either way as the interest saved could pale in comparison to the exchange rate losses, also planning to pull out of Hong Kong.

However if the mortgage is modest and you earnings are in the foreign currency of the mortgage any exchange rate losses are essentially hedged.

One word of caution this is very lucrative but is very sensitive to your currency positions and future cashflows. You need to know very well your future earnings / savings to know where you stand in terms of currency risk 1 to 3 years from now. We actually under-estimated our future HKD cash position when we converted back last year and overshot a neutral currencey risk position by NZD70,000!

[Dough Boy]

Hi all,

Adding to the topic of foreign currency mortgages. Our family trust took out Hong Kong dollar mortagages on property in NZ and AU about mid 2002 when the NZD and AUD were at their lows. Last year we neutralized the currency risk by converting back some mortgages to NZD or AUD or converting NZD cash to HKD cash.

The reason we went into foreign currency mortages was that we believed that the NZD and AUD were very low and could not fall much further, also rental return versus interest rate was 10% to 2% so a 8% further fall would be covered by the yearly rental cashflow, also were earning HKD so was able to hedge the risk.

At moment we would be very adverse to making a bet on the currency either way as the interest saved could pale in comparison to the exchange rate losses, also planning to pull out of Hong Kong.

However if the mortgage is modest and your earnings are in the foreign currency of the mortgage any exchange rate losses are essentially hedged.

One word of caution this is very lucrative but is very sensitive to your currency positions and future cashflows. You need to know very well your future earnings / savings to know where you stand in terms of currency risk 1 to 3 years from now. We actually under-estimated our future HKD cash position when we converted back last year and overshot a neutral currency risk position by NZD70,000!

Another point, banks normally have a clause in the mortgage to make a margin call on a exchange rate loss! So you should only take out these mortgages if don't need the money and have the ready cash available to back it up.

About hedging with a futures contract, basically we found that the cost of the futures contract reflects the interest rate differential assuming no bias in the market for the exchange rate to change, i.e. not worth the cost, or else we could all get rish for no risk!

[Tim]

Is it still possible to find positive geared properties, or if so is this the rubbish that no one wants

[R2]

Thanks for the common sense account DB, agree with your assesment totally. Currently settling another prop in NZ and sure as hell won't be financing it from offshore.

Tim, I think you're right and many Aucklanders will be living in them next year.

[cinnabar]

why does everyone want to be a landlord (single risky asset exposure to a single currency) in a country whose currency is about to dive? If I was in Japan I would take advantage of the non res status to some extent- ie if you wanted funds to buy a house on your return etc, but for long term growth nothing would beat a global shares portfolio. From an investment perspective everywhere else is looking a bit more attractive, NZ has had a great run, time to move on.

[duncan macgregor]

cinnabar, Good on you being a new poster welcome.Sorry but most NZ property owners have made at least 10 pc pa let me repeat that 10 pc pa that over the last fifty years plus rent. In my case the rent paid the mortgage so to go back to the sums my 10 pc on 100pc increased by 100pc every 10 years. i dont know you are probabely smarter than me, i will let you tell me why i am so rich and stupid. macdunk