Auckland housing market

[vorno]

Renting and playing the stock market are by far the best bets right now as a) rents are far below mortgage costs (unless you have a substantial deposit) and b) QE is still washing over the globe. Unfortunately, the vast majority of my generation have already fallen into the "real estate and debt are the only investments out there trap". Most don't know any better.

I tend to disagree - the last time I did a quick calc the average AKL house prices increased by ~$200 a day (based off a few I was looking at). A lot more than I make in a day that's for sure!

So, if you could balance out the mortgage payments then you can make a fair amount of money, if you don't have the cash - effectively making money off lending.

However, if you were to invest say $500,000 on the sharemarket then of course the risks & gains would generally be a lot better.

[dingoNZ]

Leverage being the key difference - try find a bank willing to give you a $400k loan with $100k initial capital to put down on the share market, they will laugh you out the building. Unless you have a decent chunk of security...

[Schrodinger]

I tend to disagree - the last time I did a quick calc the average AKL house prices increased by ~$200 a day (based off a few I was looking at). A lot more than I make in a day that's for sure!

So, if you could balance out the mortgage payments then you can make a fair amount of money, if you don't have the cash - effectively making money off lending.

However, if you were to invest say $500,000 on the sharemarket then of course the risks & gains would generally be a lot better.

If you run the numbers BFG is right. However it comes down to how good you are on the market. If you make only 10% CAGR on the market I would go housing as it is more stable (currently) and you can get 10% without lifting a finger.

[Te Whetu]

Leverage being the key difference - try find a bank willing to give you a $400k loan with $100k initial capital to put down on the share market, they will laugh you out the building. Unless you have a decent chunk of security...

Yes, but not too difficult to get 40-50% leverage across a share portfolio (interest at ~7.2% without negotiating). Interest is tax deductible, assuming a marginal tax rate of 33%, this is equivalent to a post-tax cost of borrowing of 4.8%.

[vorno]

Leverage being the key difference - try find a bank willing to give you a $400k loan with $100k initial capital to put down on the share market, they will laugh you out the building. Unless you have a decent chunk of security...

Indeed... land will always have a value!

[mikeybycrikey]

Indeed... land will always have a value!

You'd think that but then you get the Christchurch earthquake and the red zone. I'm pretty sure one of many Auckland's volcanoes might have something to say about land always having value too.

[artemis]

... After a couple of years of travel and kicking about the empty nest, those 69 year olds will be initiating the downward spiral anytime about now. We’ve seen a secular bull market in housing for 20 odd years, in part pushed along by the wealthiest generation in history pumping 73% of their free cash into the housing market. Perhaps we will now start to see a secular bear market of similar duration whilst they now suck it out again ?

In NZ trusts are a major factor in home ownership, a factor often overlooked, probably because it is a bit nebulous. There are up to half a mill trusts in NZ - Law Commission's best guess as who really knows? (Answer, nobody.) Many if not most will contain one or more houses, usually including the family home. Trusts can of course sell their assets but it is not as simple as an individual owner selling. Partly because the settlor/s no longer own the properties and partly because the intention of trusts usually includes protecting assets for the offspring. Not to mention the implications of many trusts being poorly set up and/or managed.

And again, it is common for parents to own property which is rented to their children. (Tax benefits anyone?) The kids will inherit one day, so are effectively the owners anyway.

That is potentially a truckload of properties which may not end up on the market.

Downsizing is not inevitable either. Can hire a lot of gardener, cleaner and handyman for the cost of selling, buying and moving. And people with large houses often like them a lot. I live in a street of large houses - almost all have only 1 or 2 people living in them. Occasionally someone sells up and buys an apartment. Not often though. Some have put in private cable cars in order to stay in their homes (this is Wellington!).

[skid]

In NZ trusts are a major factor in home ownership, a factor often overlooked, probably because it is a bit nebulous. There are up to half a mill trusts in NZ - Law Commission's best guess as who really knows? (Answer, nobody.) Many if not most will contain one or more houses, usually including the family home. Trusts can of course sell their assets but it is not as simple as an individual owner selling. Partly because the settlor/s no longer own the properties and partly because the intention of trusts usually includes protecting assets for the offspring. Not to mention the implications of many trusts being poorly set up and/or managed.

And again, it is common for parents to own property which is rented to their children. (Tax benefits anyone?) The kids will inherit one day, so are effectively the owners anyway.

That is potentially a truckload of properties which may not end up on the market.

Downsizing is not inevitable either. Can hire a lot of gardener, cleaner and handyman for the cost of selling, buying and moving. And people with large houses often like them a lot. I live in a street of large houses - almost all have only 1 or 2 people living in them. Occasionally someone sells up and buys an apartment. Not often though. Some have put in private cable cars in order to stay in their homes (this is Wellington!).

The Demograghics can also be nullified by immigration.

[Jay]

Downsizing is not inevitable either. Can hire a lot of gardener, cleaner and handyman for the cost of selling, buying and moving. And people with large houses often like them a lot. I live in a street of large houses - almost all have only 1 or 2 people living in them. Occasionally someone sells up and buys an apartment. Not often though. Some have put in private cable cars in order to stay in their homes (this is Wellington!).

Not just the elderly that need cable cars or some form of for some of the houses I have seen in Wellington recently.

Yes can cheaper to get someone to do the "chores" than living somewhere like a retirement village where you can get them to take care of that for you, plus they are more comfortable in their own home.

[brend]

And again, it is common for parents to own property which is rented to their children. (Tax benefits anyone?) The kids will inherit one day, so are effectively the owners anyway.

If they are really renting the property from the trust, the rent being charged must be at a market value otherwise IRD will have issues with that if deductions are claimed. However if they a renting the property in their capacity as discretionary beneficiary of the trust its likely no rent is being paid and there should be any claim for tax deductions. Its possible that the trustees resolve to require the beneficiaries pay of all outgoings on the property and maintain it to a standard.

The kids might be final beneficiaries of the trust but they don't own it, the trustees do.