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  1. #11
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    da Player, if you are going to work overseas for 3 years or longer. One idea to consider is to sell your house. Buy another with minimum deposit and bank the remainder of your equity. Register for a non-resident AIL exemption.

    That way you'll clear over 7% on a bank term deposit (currently), have carry-forward tax losses from the property you're renting out to offset earnings when you repatriate and have a hedge against property increases which will hopefully be the case.

    I agree with Trackers - flat for a year and then away again. Whenever there are drops in price they bounce back in a couple of years anyhow.
    http://www.smallcaps.co.nz

    Profit & Loss is Opinion; Cashflow is Fact

  2. #12
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    I do not have much experience in the residential property market (other than my own house).

    What I observe is that this market is driven my emotion more so than most (although all are to a certain extent). Can not imagine people accepting a loss on houses unless it is forced upon them (ie reloaction, bank etc). People will tend to sit and wait, so long as you can pay the mortgage then any loss is 'on paper'.

    Higher interest rates as fixed interest loans expire will hurt and I imagine at least 1.5% is being added to the interest cost as these loans roll over. I fail to understand people buying rental houses at a 4% yield, this is a capital gain play that has probably worked well in recent years but leveraging an investment at half the cost of bank funding will never appeal to me. You are forced to top up deficit from other sources of income (assuming largely debt funded which most seem to be).

    Like others here I do not belive there will be a crash as people have an emotional attachment to there house assets and simply will not accept a loss. Maybe they will take longer to sell and in some areas that is happening already. Housing is an illiquid asset so if you have to get out fast then losses are possible.

  3. #13
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    No crash. There is no reason for one. Low unemployment & interest rates etc. The only problem would be when Provincial finance type outfits start offering housing finance to the non credit worthy. Even then it would only effect the bottom end. All that said it still pays to buy smart.

    As far as rental yields being low, they will catch up in due course. There are tens of thousands of individual landlords in NZ, hence inefficiencies with rent rises. I.E they don't all put rents up at the same time. This fact will not cause a crash either.

  4. #14
    Senior Member Halebop's Avatar
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    Last time I looked interest rates were nudging towards double digits. Can $30,000 in interest payments on a $350,000 Auckland house be considered "low"? This is over half the national average take home income for couples.

    While it may seem compelling to think people will not sell into a slump we haven't yet experienced a market where more investors (including lenders) are more concerned with capital preservation than capital growth. With 1/3rd of housing stock owned by investors it only requires the banks say so to sell, as many "well financed" investors discovered post 1987.

    This boom is fed by a combination of financing, demographics and hype. I'm yet to see any of these factors defy gravity forever. 50 year mortgages on Campbell? If the difference between boom and slump is finding more punters by "saving" them $200 a month then $200 is a pretty fine margin to fund the house of cards. A correction sooner rather than later would be healthier for everyone.

  5. #15
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    Good points Halebop, sales could be forced by the bankers. If that happened then very quickly the correction could be ugly. I tend to agree any correction would be better sooner rather than later.

    In your $350k example I would guess the weekly rental might be $350 which is $18,200 pa. There is a significant short fall in meeting the interest bill (assuming 100% debt funded) before you have meet the rates, insurance and R&M. This will hurt very quickly if you lose confidence (or your bank does) in the certainty of your other income sources, which are very necessary in this example, or capital growth.

    I think one thing NZ'ers are going to have to accept is that only a realtively small portion of us (say 1/3 maybe 50% at most) are realistically going to be able to afford a house of their own. A lot of people seem to be prepared to commit to enormous mortgages which leave stuff all wiggle room when something goes wrong. I have always seen the house as a lifestyle asset as it provides me with stability as no one can kick me out. Perhaps what needs to develop in NZ is longer term residential leases to give certainty of tenure to both sides. At the same time the NZ investment culture would need to change so people could invest in equities both domestically and internationally as a way of increasing their invested wealth. I am however a realist and expect that this is a situation NZ as a whole will not accept for some time.

    Just before you think I am anti property I most certainly am not. Commerical property is where I have my most significant investments so my comments with respect to residential should be seen as those of a layman not an expert.

  6. #16
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    the Sydney property market has been 'robust' for a decade...7yrs of straight cap gain and then a stabilising, but not a crash.
    \"death&taxes t.o.s.b\"

  7. #17
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    Three key factors need to change before a crash:

    - Monetary policy is, in effect, loose. Inflation is running at about 4%. Mortgage rates at about 8% - its only a 4% margin. First sign of a tightening of monetary policy that will control inflation is evidence that the government is controlling inflation. Like that will happen anytime soon.

    - Immigration would have to turn negative. Not likely in the short term.

    - Unemployment would have to rise to a significant historical level. Not likely in the short/medium term.

    Even if all three happen - a crash is only likely as a consequence of a bubble boom in prices. There is no evidence that price activity over the last 5 years is a bubble.

    Having said this - holding property with high gearing for investment purposes is likely not to be a good idea over the short to medium term.
    Do not consider my postings as investment advice. I am here to share research and to speculate on what might be. The boundary between fact and conjecture might not always be clear - best to treat all comments as speculation.

  8. #18
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    I'm a nay-sayer.
    A little growth for a couple of years then a rise - situation-normal over the long term.
    The rental market c/w the buy-your-own is increasing.
    "After 9" Chris Laidlaw, Nat'l Radio 101.7FM this sunday on this topic.
    As the "Kiwi dream" becomes more ellusive/illusive rental property will become more attractive to investors. Some over-extended newbie punters will fall by the wayside and the banks will suggest cashing-up and cheerfully taking a profit.(That's my uninformed ob'.)

    Here are the stats - REINZ self-interest but worth a look.
    http://www.reinz.org.nz/reportingapp...rt&RFCODE=R100

  9. #19
    FEAR n GREED JBmurc's Avatar
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    [quote]Originally posted by Enumerate

    Three key factors need to change before a crash:

    - Monetary policy is, in effect, loose. Inflation is running at about 4%. Mortgage rates at about 8% - its only a 4% margin. First sign of a tightening of monetary policy that will control inflation is evidence that the government is controlling inflation. Like that will happen anytime soon.

    - Immigration would have to turn negative. Not likely in the short term.

    - Unemployment would have to rise to a significant historical level. Not likely in the short/medium term.

    Even if all three happen - a crash is only likely as a consequence of a bubble boom in prices. There is no evidence that price activity over the last 5 years is a bubble.

    Having said this - holding property with high gearing for investment purposes is likely not to be a good idea over the short to medium term.

    I agree with your points, and as of locally(Queenstown)I belive its a great time to buy property with many homes well under replacment cost ,And IMHO (built 4 homes here now)as long as sections prices don,t fall alot, inflation is running at 4% so cost to build is only getting alot more expensive
    I know off one prime property that was advertised at 2,000,000 last year and as of the lastest property press is still for sale but for [xx(] $799,000 [xx(] going have to check it out
    "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future." — Carlos Slim Helu

  10. #20
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    15 Portree Drive Quail Rise JBMurc???

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