Population Growth and Growth in Property Values

[duncan macgregor]

[quote]quote:Originally posted by minimoke

1, do you think he could have saved $173,000 any other way with his deposit.

DM
If I may answer your first question – it is “yes”

Sorry to bore with numbers but heres how:

Back in 1995 it is likely a 25% deposit would have been needed to buy the home.

25% of $258k = $64,500. Put this away and get a 4% net return over 12 years gives you $37,000

Your 75% mortgage ($193,500) would cost $20,300 a year in interest at 11%. But RMB’s dad could have rented a house for say $200 back then. Had he rented he would have had $10,516 in cash extra a year.

By renting he would also have saved $1,000 in rates/ insurance a year.

$11,516 x 12 = $138,192 + $37,000 interest received + $64,500 initial cash = $239,700 equity

With your way he has $431,000 - $193,500 mortgage = $237,500 equity

[/quote
MINIMOKE, Fair enough, but the only hope the average guy has is to invest in property. If I had bought a house when i first arrived in NZ it would have cost me approx $8,000. Now if i were a total bum,that house would keep me in my old age with a reverse mortgage.
We are not talking about the astute investor who makes this or that, in business, shares or what ever, but JOE BLOW. NZEALAND has more JOE BLOWS than any country that i have ever visited. Give me an Indian kid off the streets of Bombay and i will show you a potential business person above your average every time. MACDUNK

[rmbbrave]

Unfortunately that little Indian kid is unlikely to do business legally.

Chances are he'll end up a millionaire or in jail or both.

2 Indian members of my cricket team have just been arrested for fighting with a Japanese car dealer over a deal that went sour.

One of these blokes (the millionaire one) has already been arrested for sending stolen cars to Dubai.

[rmbbrave]

Millions of dollars of drug lords' loot confiscated
30 September 2006
By EMILY WATT

The Government has seized $25 million of criminal property including jewellery, motorbikes and nearly $20 million of real estate as the confiscation of drug lords' loot picks up pace.


Police issued restraining orders on the property of a record 41 more criminals last year, up from 15 cases five years ago.

Property seized includes $4.8 million of farmland, $300,000 of motorbikes, $1.1 million of cars, $2.8 million of cash, $600,000 of jewellery, and one piece of art worth $14,300.

Under the Proceeds of Crime Act, the courts can seize assets amassed through criminal activity. The assets are then sold and the money goes to the Crown.

Last month, the Crown seized $1 million each from former Mr Asia drug boss Darryl Leigh Sorby and alleged anti-terror soldier Robert Charles de Bruin in Auckland High Court. The pair were convicted in May of importing and selling almost $12 million worth of ecstasy.

Sorby lost a property at Paparoa, in Northland, a yacht, a Subaru Legacy and $210,000 in cash. De Bruin will have to sell a property for which he paid more than $420,000. He also stands to lose $379,000 in cash. It is understood the pair are appealing against the order.

Despite a steady increase in the number of restraining orders each year, only $1 million was confiscated last year, and a further $2 million is waiting to be sold.

It usually takes 3½ years after issuing a restraining order till before property is confiscated because of delays waiting for a conviction and any appeals.

The Government is promising bold new powers for police to seize "tainted" property, and to lower the threshold for proving property was obtained as a result of criminal activity.

The new Criminal Proceeds (Recovery) Bill, approved for introduction to Parliament by the Cabinet this month, will let police seize property even if the offender is not convicted. The onus will be on the criminal to prove the property was legally obtained.

Detective Sergeant Darryl Brazier, of Tauranga, who has prosecuted several drug lords, said crooks were taking increasing pains to conceal their loot, such as registering a car in a partner's uncle's name.

"We're talking about very industrious people who know full well any display of wealth is going to draw attention of the authorities."

He said police worked hard to identify any assets during an investigation.

The Government is hoping the new law will be as successful as that in New South Wales, which has averaged 100 restraining orders a year in 13 years, and netted $103 million.

How is this property sold?

You might be able to get a bargin.

[duncan macgregor]

Property is sold at public auction with anything like that. Its exactly tha same as a mortgagee sale, it gives the appearance of all square and above board. macdunk

[rmbbrave]

Too many eggs in housing basket

Monday October 2, 2006
By Brian Fallow


New Zealanders seem to be in the Mark Twain camp when it comes to diversifying their assets.

"He said he believed in putting all his eggs in one basket, then watching it like a hawk," says Professor Richard Herring. "He went bankrupt. A wonderful writer but probably not a good investment adviser."

Herring is professor of international banking at the University of Pennsylvania's Wharton School and this year's Reserve Bank professorial fellow at Victoria University.

To his expert eye, New Zealand households' eggs are perilously concentrated in the housing basket.

"The vulnerability of the household sector is that they have a heavy concentration in housing, which is highly leveraged [debt-financed] and leveraged in such a way that they bear an enormous risk of rising interest rates. All those things are fixable."

Herring is not predicting a housing bust. Or ruling one out.

"Has the boom gone too far? We genuinely do not know. My interpretation of the evidence is that it is ambiguous. If you continue to have a stable interest rate scenario and a very robust economy with strong growth, it should all work well. But there are some indications that the household sector is pretty stretched.

"But even if we don't believe the housing boom has gone too far in New Zealand, we should still be worried about the household sector's portfolio concentration in housing. Because it really doesn't require a prior boom to cause a problem in house prices. It can happen for purely exogenous [external] reasons. But it would be worse if it had been preceded by a boom."

Between 1973 and 1980, as the country reeled from oil shocks and Britain's entry into the European Common Market, real house prices fell almost 40 per cent.

But because it was an era of rampant inflation, nominal house prices disguised the bust. They were more or less flat.

"As I talk to New Zealanders, it seems to me that the crisis that is in everybody's mind and memory is the stock market crash in 1987, not the housing slump that extended from the 1970s to the 1980s."

A study by the International Monetary Fund of 14 countries found housing slumps occurred once every 20 years on average. They are less frequent than sharemarket crashes but last twice as long and do twice as much damage to the economy.

Japan, Herring notes, has only recently emerged from a housing bust that began in 1990.

An OECD study found that house prices, relative to disposable incomes, were above their long-term averages in 11 of the 16 countries looked at.

New Zealand's multiple, where prices are 4.5 times incomes, rates as very high by international standards.

"A more relevant measure of affordability might be the cost of servicing debt, which of course depends on interest rates as well as prices. In most OECD countries the fall in interest rates has more than offset higher house prices. Australia and New Zealand are the key exceptions."

Paying the mortgage consumes a larger proportion of New Zealand household incomes than in most other countries.

"But it is not unprecedented. In the latter half of the 1980s New Zealanders managed to service even heavier debt."

High levels of mortgage debt, relative to incomes, and the fact that even fixed-rate mortgages are for what are by US standards very short terms, make New Zealand, with Denmark, the country most exposed to a rise in interest rates.

So why are New Zealanders so devoted to housing as an asset?

"Well, it has been very profitable. People looking back see nothing but increases in the nominal price of housing."

Since the economy was liberalised - and comparisons further back are problematic - the performance of the housing market has been remarkably strong, Herring says.

"Maybe not as strong as people think, because they tend not to evaluate these things with sufficient rigour, but nonetheless there is an impression that it is a very safe asset."

While people are v

[Dean Letfus]

quote:This guy is dreaming if he thinks his 35 houses and flats (which would be worth about 35x300,000 = $10 million now) will be worth over $100 million when he dies in 40 years time

As I am "this guy" can I correct you. I said my portfolio would be worth 100 million minimum. I never said I wouldn't buy any more property. The fact is I have purchased another 1.4 million doallars worth of property since September when the article was published and will have purchased 100 million dollars worth of propery before i die. That property could be worth who knows how much due to growth over time.
And even if I don't I never have to work again ever, and neither will my kids, thanks to 2 years of property investing :-)

[Halebop]

Good luck to you Dean. History and demographics tell us:

Your own appetite for debt and risk will reduce with age.

Residential property investors migrate to other forms of investment as they mature. The long term returns from residential even with favourable demographics just aren't that good.

Statistically over 40 years you will face 2 major property slumps* (Yes, even in New Zealand). Because the cause of the slumps will vary, we cannot know the outcome. But if it is something that impinges on cash flow (Like lower rents or higher interest rates or both) then a debt funded expansion is sure to cause some difficulties at some point.

Financial shocks, although rare, modify even your lenders appetite for risk. Post 1987 there were plenty of property investors with adequate cash flow who had property sold from under them for substantial losses by banks who didn't want the risk or who themselves were forced to correct their lending ratios.

To maintain that trajectory on house price performance we need to maintain the ratio of bums on seats (via Net Migration and Net Mortatility) and maintain the amount of capital available for lending (Itself fueled by Demographics) and the benign lending and interest rate scenarios that pool of capital has created (5% or even 0% house deposits?!). Another impact is Productivity. New Zealand has a poor record of productivity growth so will require a sea change in thinking to deliver here, particularly if labour pools shrink while the cost demands of an aging population grow. On the upside New Zealand is a relatively attractive place for immigrants and we have new government policy that seems to be encouraging a higher birth rate (the jury is still out on the sustainability of that one).

"The future belongs to those who believe in the beauty of their dreams". Those who "do" will reap the rewards so good luck to you, because most people don't make that effort, don't have the ambition or lack the willpower to even live within their means let alone accumulate capital. Just don't underestimate the power of being in the right place at the right time, there is a reverse side to that coin.

[rmbbrave]

quote:Originally posted by Dean Letfus

quote:This guy is dreaming if he thinks his 35 houses and flats (which would be worth about 35x300,000 = $10 million now) will be worth over $100 million when he dies in 40 years time

As I am "this guy" can I correct you. I said my portfolio would be worth 100 million minimum. I never said I wouldn't buy any more property. The fact is I have purchased another 1.4 million doallars worth of property since September when the article was published and will have purchased 100 million dollars worth of propery before i die. That property could be worth who knows how much due to growth over time.
And even if I don't I never have to work again ever, and neither will my kids, thanks to 2 years of property investing :-)

Hello Dean,

Welcome to Sharetrader.

The Herald article quoted you as saying this:

"Auckland house prices double in value about every 7.8 years so it doesn't matter whether my loans are interest-only or principal and interest combined,"

...and concluded this...

He expects his portfolio to be worth $100 million to $200 million by the time he dies".

If what you say is true (house prices double in value about every 7.8 years) then your $10m (approx) worth of property will be worth $160m in 2038 when you will be aged 76 and hopefully still around.

2006.....$10m
2014.....$20m
2022.....$40m
2030.....$80m
2038.....$160m

In fact you won't need to buy any more property to get your $100m+ potfolio. The only thing you need to happen is for property to double about every 8 years.

In my opinion the crazy part is "the value of property will double about every 8 years". This simply will not happen.

In fact our small sample of six properties has shown it hasn't happened in the last 10-17 years either. Doubling every 8 years means an annual growth rate of about 10% and our little sample shows an average growth rate of 5.76%

RMB1 1995 2006 4.77%
RMB2 1996 2006 7.91%
Trak 1993 2006 7.39%
PT1 1990 2006 4.87%
PT2 1989 2006 5.13%
MM 1996 2006 4.5%

As you own a fair few houses please add some of them to our sample. You can get a free QV report until October 8 (1 per email address). Only houses that have had no substantial capital improvements. You might be suprised by the results.

[duncan macgregor]

quote:Originally posted by Dean Letfus

quote:This guy is dreaming if he thinks his 35 houses and flats (which would be worth about 35x300,000 = $10 million now) will be worth over $100 million when he dies in 40 years time

As I am "this guy" can I correct you. I said my portfolio would be worth 100 million minimum. I never said I wouldn't buy any more property. The fact is I have purchased another 1.4 million doallars worth of property since September when the article was published and will have purchased 100 million dollars worth of propery before i die. That property could be worth who knows how much due to growth over time.
And even if I don't I never have to work again ever, and neither will my kids, thanks to 2 years of property investing :-)

Good on you DEAN, some of the people here are blind to how easy it is to make money in the real world. I look on property as increasing in value at an average of 10pc per annum. Lets give MBBRAVE another little sum to work out.
Next door is a seven acre paddock valued and bought 11 years ago at $65,000. It was rented to the farmer next door on the other side for grazing at whatever the rates cost. Upkeep is Zilch now has a valuation of $350,000. I find that capital gain on average is ten pc.
I think you will find DEAN that even when you become rich the same people will tell you that it was only luck.
I would like to ask a question and that is after your initial start do you have any of your own real money involved?. Most property investors take their own money out and play with the banks money.
macdunk

[rmbbrave]

"I look on property as increasing in value at an average of 10pc per annum."

All the way forward to the year man first lands on the Moon, with no leverage, I suppose Dunk?


From our small sample above the average is 5.74% over the past 10-17 years, when the NZ population has been growing at 1% a year.

Why don't you do a valuation at QV on a HOUSE with no substantial capital improvements that you know and give us a sample of 7.

Farmland on the edge of cities bought a while ago can show massive gains. I know a plumber on the edge of Hamilton who bought a small farm 25 years ago and has been selling bits of it to developers. He has $5m in the bank and still a fair bit left.

But we can't all go buying farmland on the edge of cities can we? Also you need income to pay the bank back for the loan. So it isn't an example that is relevant for most people. Most people buy houses in cities.

10% per year gain is about what you get on the sharemarket Duncan without leverage so there is nothing amazing about your neighbour's paddock.