OnPoint by Keith Ng

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OnPoint: Lies, damn lies, adjectives

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  • Idiot Savant,

    Why are they dependent on one asset class in the first place?

    Because they're old enough to remember 1987. Sure, a rental property or your own home may not be the most productive investment, economically speaking - it doesn't employ anyone, and managers don't get bonuses from it. But it is safe. you won't lose your money because the managers are crooks and the market rigged in favour of insiders.

    And that's why the proposed land tax won't see a flood of people heading to create a (bonus-generating) asset bubble on the NZX: we just don't trust those scumbags. It speaks volumes that people thought that finance companies making loans on cars and property speculation were a safer bet than the stock exchange.

    Palmerston North • Since Nov 2006 • 1717 posts Report Reply

  • Keir Leslie,

    But it is safe. you won't lose your money because the managers are crooks and the market rigged in favour of insiders.

    Really quite untrue by the way. Sometimes properties sell for less than you paid for them. This isn't a huge problem in NZ, but it can and does happen, and it is a big problem in Southern Europe.

    Pretty much all investments carry risk. There's no way out of that, and as a rule the rate of return is closely related to the risk involved.

    Since Jul 2008 • 1452 posts Report Reply

  • Danyl Mclauchlan,

    Sometimes properties sell for less than you paid for them

    But if you invest in a property you actually get a property, which has some value; if someone tries to rob the house or burn it down you can call the police. If you invest in a New Zealand company the directors can just take all of your money and give you back nothing and there's really no legal recourse.

    Wellington • Since Nov 2006 • 927 posts Report Reply

  • Keir Leslie,

    But if you invest in a property you actually get a property, which has some value

    How do you mean? If you live in the house yes, there's value in that. And you can rent the house out as a productive asset. But then, shares return dividends and so forth. Property isn't valuable in some magic inherent way.

    (Yes, there's the use-value, but the accounting for that's different from the accounting for investment.)

    If you want safe, there's gilts.

    Since Jul 2008 • 1452 posts Report Reply

  • Keith Ng,

    But if you invest in a property you actually get a property, which has some value; if someone tries to rob the house or burn it down you can call the police. If you invest in a New Zealand company the directors can just take all of your money and give you back nothing and there's really no legal recourse.

    Well they can't *really* do that. But that's the point of investing in funds anyway, that the risk is spread among many investors, many companies and many assets, so that when low probability events strike (such as a company going completely bust), it doesn't wipe out your savings. Many eggs, many baskets, etc.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Keith Ng,

    If you want safe, there's gilts.

    Doesn't protect you against the collapse of the economic system though. Nor does gold.

    Ammo and Tamiflu, that's where it's at.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • George Darroch,

    A prediction: nothing serious will be done.

    WLG • Since Nov 2006 • 2264 posts Report Reply

  • Keir Leslie,

    Er, I am using safe to mean risk-free in the technical sense that Solvency II uses it, I think. (There! That's me out the woods.)

    More seriously, yeah, nothing is really risk free.

    (For instance, you are taking on the risk that you won't be able to enjoy the assets in the future owing to death/infirmity/etc.)

    Since Jul 2008 • 1452 posts Report Reply

  • Danyl Mclauchlan,

    <i>A prediction: nothing serious will be done.</i>

    I think they'll close most of the loopholes - goodbye LAQCs - but I can't imagine they'll bring in a land or capital gains tax.

    Wellington • Since Nov 2006 • 927 posts Report Reply

  • Robert Harvey,

    On this morning's RadioNZ news an item about how a capital gains tax will hurt the 'most vulnerable' -- in this case it's renters, since landlords will have to increase rents to cover increased tax liability. Far more serious IMHO is the prospect of an increased GST rate, or a rate which varies across different market sectors. This is likely to have ramifications well outside any forecast envelope.

    Westmere • Since Nov 2006 • 66 posts Report Reply

  • Idiot Savant,

    Well they can't *really* do that. But that's the point of investing in funds anyway, that the risk is spread among many investors, many companies and many assets, so that when low probability events strike (such as a company going completely bust), it doesn't wipe out your savings. Many eggs, many baskets, etc.

    None of which does you any good if your fund is run by a crook. Which is what happened in 1987, and more recently with finance companies.

    Palmerston North • Since Nov 2006 • 1717 posts Report Reply

  • jeremy gray,

    Don't forget the Ric Barker post on red alert - http://blog.labour.org.nz/index.php/2010/02/02/tread-carefully-mr-key/ . Labour arguing for landowners not paying tax?

    New Zealand has one of the least affordable housing markets in the world, and is one of the few OECD countries without a capital gains tax. House prices need to come down, which sucks for investors, but the otherwise home ownership won't make sense for the younger generation. Capital gains tax should have been implemented in the boom years where investors were making money hand over fist to slow things down.

    point chev • Since Apr 2008 • 44 posts Report Reply

  • Andy Fraser,

    I expect tinkering with LAQC's rather than their elimination. And a rise in GST will be signaled. How else can they increase the tax on people who qualify for WWF? {which is untouchable now to my mind}

    Invercargill • Since Jun 2009 • 33 posts Report Reply

  • Lucy Stewart,

    On this morning's RadioNZ news an item about how a capital gains tax will hurt the 'most vulnerable' -- in this case it's renters, since landlords will have to increase rents to cover increased tax liability. Far more serious IMHO is the prospect of an increased GST rate, or a rate which varies across different market sectors. This is likely to have ramifications well outside any forecast envelope.

    Leave the tax alone, or the poor people get it, in other words?

    Wellington • Since Nov 2006 • 2105 posts Report Reply

  • George Darroch,

    Don't forget the Ric Barker post on red alert - http://blog.labour.org.nz/index.php/2010/02/02/tread-carefully-mr-key/ . Labour arguing for landowners not paying tax?

    I won't forget it.

    WLG • Since Nov 2006 • 2264 posts Report Reply

  • Rich of Observationz,

    we just don't trust those scumbags

    Yeah, we prefer the home grown kind, who must be trustworthy coz they went to Auckland Grammar and once scored a try against Scotland.

    The main advantage of property is that you can borrow a large percentage of its value and are under (in effect) no obligation to take action if that value drops against the loaned amount.

    Try that with shares: 50% maximum, payable on demand and with a margin call the moment the price drops.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Craig Ranapia,

    Don't forget the Ric Barker post on red alert - http://blog.labour.org.nz/index.php/2010/02/02/tread-carefully-mr-key/ . Labour arguing for landowners not paying tax?

    Certainly does put a whole new gloss on "for the many, not the few" doesn't it? :)

    This man is no bludger, no rack rent landlord, he is not highly leveraged gambling on capital gain to off set other costs, he is a hard working Kiwi and a saver. He has done what was asked of him and now he fears that he is to be punished some how for doing the right thing, saving prudently.

    Lor' fuck a duck -- this is just begging for someone to go through the register of pecuniary interests and point out that plenty of rather well-paid MPs aren't exactly disintered where a capital gains tax is concerned...

    Still, if Labour wants to get all Rand-roid and argue that all tax on investment income is theft, I say go to -- perhaps it is a cunning plot to slaughter the whole ACT caucus when Roger Douglas' head explodes. :)

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • Pete Sime,

    It really is now or never for National to introduce the land tax, they still have the political capital to spend and while it will probably cost them a few percentage points in the polls, any negative effect will wear off by the next election, all other things being equal. Labour will be honour-bound to vote against it if it comes in via the budget, because they can't be seen to support the government on confidence and supply. However, I can't see them campaigning against it next year except maybe calling for a tax credit for low-income owners on the family home.

    Dunedin • Since Apr 2008 • 171 posts Report Reply

  • Craig Ranapia,

    disintered

    Um, that should have been "disinterested". The only way any "plenty of MPs" would be "disintered" (sic) is if we have a hitherto well hidden multi-party zombie caucus. Which would explain a lot, but is still implausible...

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • Keir Leslie,

    Well hidden? Well, hidden.

    Since Jul 2008 • 1452 posts Report Reply

  • Keith Ng,

    On this morning's RadioNZ news an item about how a capital gains tax will hurt the 'most vulnerable' -- in this case it's renters, since landlords will have to increase rents to cover increased tax liability.

    Hmmm, I got distracted and didn't get to this point in the post.

    Landlords will have to pay tax - and may try to pass it on to renters - but at the same time, property prices will fall, making purchasing more viable. If interest rates are hitting rock bottom and property prices fall, landlords need to stay competitive and won't be able to raise their rent very much, if at all.

    I'm not sure if it's PR crap or whether they're actually delusional, but they seem to think that are the sole provider of housing in New Zealand, and that if they sold their properties, it'll stop housing people or something. They don't seem to consider "not renting" as an option.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Just thinking,

    (sound from outside) knock, knock, crack...

    (Roger Douglas appears through a broken window) -
    Roger Douglas - Brains, brains

    Mum & Dad Kiwi - No Roger there are no Brains here, we invested in leaky Auckland Uni Student accomodation.

    Roger Douglas - brains?

    Mum & Dad Kiwi - No Roger.

    Roger leaves despondent.

    Mum & Dad Kiwi - whew glad that's over

    Bill English appears at the window.

    Mum & Dad Kiwi - Hi Bill.

    Bill English - Brains, brains.

    (Fade out.)

    Putaringamotu • Since Apr 2009 • 1158 posts Report Reply

  • Keith Ng,

    None of which does you any good if your fund is run by a crook. Which is what happened in 1987, and more recently with finance companies.

    You're right. It's hard to appreciate the impact of these things when I didn't live through it.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Keith Ng,

    Don't forget the Ric Barker post on red alert - http://blog.labour.org.nz/index.php/2010/02/02/tread-carefully-mr-key/ . Labour arguing for landowners not paying tax?

    Here are three questions a landlord has to answer before they get an ounce of sympathy:

    1) How much has their property appreciated in value since they bought it? (Probably quite a lot.)

    2) How much tax have they paid on this appreciation? (Nuthin' - we don't have a capital gains tax.)

    3) How much is 0.5% of the property's unimproved land value? (Probably not much.)

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Kumara Republic,

    Once again I draw the McMansion-busting ace of spades from my apartment deck.

    The southernmost capital … • Since Nov 2006 • 5443 posts Report Reply

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