Property on the rocks

[ari]

quote:You must have forgotten I am not in rental. Remember that land at Russell I bought 2-3 years ago for $250k. You said it was a bargain and you were right - it is now worth $1m. So good call!

I'm sure buying land even today is a good investment, hope so as I've just signed for 8 acre block 20 mins from North Shore.
Interesting re your Russell land.... we have almost 1/2 acre just over an hour Sth at popular surf beach...might just have to revisit the value

[ari]

In a nutshell....
[quote]quote:Unlimited Magazine: Bursting bubbles

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By Donal Curtin
Friday 17th February 2006

The housing market has been demonised in recent months: if the alarmists are to be believed, New Zealanders are borrowing bucketloads of cheap money, plunging into an overvalued and speculative housing market, and tapping into home equity to support a spending habit we can't afford. The Reserve Bank's at its wit's end: the spending splurge based on the increase in families' housing wealth has caused inflationary pressures, and the bank's attempts to rein in the housing market haven't worked.

Indeed, higher interest rates not only haven't brought the housing beast under control but have contributed to other problems (notably, the high Kiwi dollar). As a result, Treasury is now devising some new bludgeon that might beat some belated sense into house prices.

But two parts of this story seem, to me, to be seriously wrong: that New Zealanders are feckless with debt, and that the housing market has gone into a speculative mania.

It's true that some of the statistics on debt and savings look bad - particularly the estimate that in the year to March 2006 New Zealand households spent $1.14 for every $1 of after-tax income. On the other hand, the data show the average household is no more leveraged than before. Over the past year, house prices and housing lending have risen by roughly the same percentage, so the proportion of the value of the house that is the family's home equity hasn't changed (in the year to October house lending was up 16% and in the year to November national house prices were up 15.4%).

So if you had a $400,000 house with a $200,000 mortgage, and it becomes a $500,000 house with a $250,000 mortgage, the house, the loan, and the home equity have all gone up 25%, plus you've had a lump sum of $50,000 to spend (which is where the $1.14 comes from).

So from a balance-sheet point of view, households are in no riskier a position than before. From a cashflow or loan servicing perspective, while it's true that borrowers have had a bit of luck (such as a mortgage war between the banks), it's not obvious they're going to run into serious problems even as rates rise. Banks generally don't lend unless you pass a serviceability test, and in any event household incomes have been rising strongly with wage, salary and employment growth.

The second part of the story that is questionable is that the housing market has lost touch with economic fundamentals.

The housing market is actually behaving as it always has - and its normal behaviour can include pronounced cycles, up and down. And that cyclical behaviour lies in the way house buyers think about the cost of borrowing.

Arthur Grimes and two colleagues from Motu Economic and Public Policy Research recently did a sophisticated analysis of the housing market (see www.motu.org.nz). Perhaps the most important thing they found was that the housing market is a predictable mechanism. That, in itself, would lead you to be careful about assuming there's something irrationally exuberant going on.

Over the long haul, real house prices respond to three things - real economic activity, the cost of finance, and housing stock - in the ways you'd expect (growth is good for prices; expensive borrowing and increased housing supply are bad). But the really interesting thing is that 'cost of finance' bit. What matters for house prices is not the banks' mortgage rates, but the 'user cost of capital', which is the real mortgage rate, less house buyers' expectations of real house price gains. And that makes sense: you might not borrow at all, even at a low interest rate, if you thought house prices were going to fall, but you might well borrow, even at a significantly higher interest rate, if you thought house prices were going to rise strongly.

What the data c

[Mr_Market]

Does anyone have any idea of how much foreign investment there is in NZ property? Now that the dollar is falling presuambly they will be keen to sell up and repatriate their money. Does anyone have any anecdotal evidence of this?

[JBmurc]

just brought 6 sections 4500sqm in total cost me all of 90,000 (15,000ea) who said land was overvalued ,certainly not in invercargill
might build me some new rentals
-didn,t think you could even subdivide(fully serviced) free land at 15,000 per section
once they find the oil JBMURC will be

[GB]

That a bloody nice deal jb - good stuff

[A J]

quote:Originally posted by JBmurc
once they find the oil JBMURC will be

Exactly what I was thinking when watching Close Up tonight, lol. Good to see I'm on the investing wave length.

Cheers
AJ

[duncan macgregor]

quote:Originally posted by JBmurc

just brought 6 sections 4500sqm in total cost me all of 90,000 (15,000ea) who said land was overvalued ,certainly not in invercargill
might build me some new rentals
-didn,t think you could even subdivide(fully serviced) free land at 15,000 per section
once they find the oil JBMURC will be

Well done but on the surface it is a great deal, but what are the numbers. Rental property rents out at what?. How much to build a good rental property?. Versus how much to buy an existing property to rent. You simply cant say because you got a bargain with sections that the numbers are right. I would think that the cost of building a house would be roughly similar over the whole country and we all know that rents are not. I would think [not that i know] that the better prospect would be to buy an existing home in a cheaper part of the country rather than build, and visa versa in a dearer part.
Let us know a few numbers we are all interested good luck. macdunk

[ari]

quote:just brought 6 sections 4500sqm in total cost me all of 90,000 (15,000ea)

I just bought one block of 30200m2....@ $18.046 per m2...and I am more than happy
Obviously not in Invercargil!

[duncan macgregor]

TAURANGA, I take it thats your hometown where you bought. The cost of building would be no higher than invercargil, the expected rents would be much higher, that covers the extra land cost. Better for you to build, and him to buy existing i would think. Lack of supply in your area over supply in his. macdunk

[ari]

quote:TAURANGA, I take it thats your hometown where you bought

No.....next address Waitoki. So much for the downturn, certainly not with land prices. New (titles Dec last) lifestyle development 5km from Silverdale on ramp, have all but sold..10 sites, 2 left.
And 10km the otherway to Waitoki sees a 1ha block go on the market this week for $550k