Hard News: The Best Country in the World: Selling fast!
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Amazing. Is this the peak of a trend that will unwind, or a permanent change? I don't know, but sometimes I think I'll stay in the renting classes forever.
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Amazing. Is this the peak of a trend that will unwind, or a permanent change? I don't know, but sometimes I think I'll stay in the renting classes forever.
Wait a decade or so - all the baby boomers with investment properties will start to sell them to free up the cash to live on in their retirement. But there'll be a glut of houses hitting the market, so prices will be low.
Well, that's one theory.
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Amazing. Is this the peak of a trend that will unwind, or a permanent change?
You would like to think that average incomes should buy average houses in the longer term (supply and demand would match them up) but I guess that's based on a bit of a dream that everyone just owns the one home for their family. When wealthier investors are buying a large chunk of the properties to then rent out, the average income and the average property value don't need to be associated at all...
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They have to be "associated" more than this, tho. The wealthy investors need a return on their money, and if rents can't pay the mortgage, and everyone's relying on capital gains, it's an untenable spiral. Which it is.
Of course wealthy off-shore investors make it worse. But buying into the current market is a bit too much like buying Brierleys shares in 1987 for most investors, I think. -
David 'What does the P stand for' Farrar
Peter.
Darn, I was hoping a game would ensue.
RB - I appreciated your cheerful headline and the ensuing report on this cheerful country. The thwacking of cricket balls indeed. I can only assume the august Herald is saving such reportage for after it single-handedly elects John Key next year.
The front page the day after the polls might read something like:
"Key elected Prime Minister: sets out plans for next eight terms in office" (pages 1-8).
"Illustrious incoming cabinet includes luminaries Williamson, McCully" (page 9).
"At home with New Zealand's greatest Prime Minister" (pages 10-16 - full colour spread).
"New Zealand declared greatest place on earth" (see our new Lifestyles Sections B-V).
Slightly more seriously, the last time I saw the local media turn so toxic towards an incumbent government, run free daily publicity for the opposition, and in fact function as the opposition,this happened. A function of the gross distortions that FPP produces, sure, but I have a eerie sense of deja vu.
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David 'What does the P stand for' Farrar
Peter.
Darn, I was hoping a game would ensue.
Oh, like "David 'P or pure or crystal methamphetamine or crystal or meth or ice or tina or burn or crank or yaba and what you should do if you suspect your teen is using' Farrar"?
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They have to be "associated" more than this, tho.
Agree that the prices /income/rental/capital-growth association is out of whack at the moment but that could be "balanced" by significant rental increases - unfortunately house prices could still be out of line with average incomes if this happens... e.g. the wealthier half own 80% of the property and the other half long term rent from them, with their existing deposit savings being subsumed into greater rents. As I understand it, this is the situation in markets like the UK...
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Oh, like "David 'P or pure or crystal methamphetamine or crystal or meth or ice or tina or burn or crank or yaba and what you should do if you suspect your teen is using' Farrar"?
What are you trying to say, Robyn? ;-)
I'm sure DPF's usual commentators would have some excellent advice on raising teens in this dangerous age, though. Of great help to googlers world wide. Of course, once Johnboy is is in charge, we won't have this problem. Or any others, presumably.
Alternatively, the Herald and it's "your views" section might make KB irrelevant.
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Gareth: why would rents- adjusted to the reflect the current price of property- take up a significantly smaller proportion of people's income than mortgage repayments? (Unless owners are counting on capital gains, which we all know they are.) The issue is then that people simply can't afford to pay the rental price.
Since what has been happening is fairly clearly based on "hope" with regard to future prices continuing to go up, it's a bubble- encouraged by easy access to loans. Unless someone- Mr Key?- can significantly improve the average wage and salary take, it's gone past sustainable already. -
...easy access to loans
Que? Access in a formalistic sense, perhaps, not in the sense of "being able to make the repayments"?
And given that the Reserve Bank is on record as saying that it thnks tax cuts will be inflationary, I don't see Mr One Key Policy doing a great deal about this sort of thing:
Variable Rate 10.55% p.a
1 Year Fixed 9.65% p.a
2 Year Fixed 9.40% p.a
5 Year Fixed 8.90% p.a
Source: ASB -
what you should do if you suspect your teen is using' Farrar"?
What should you do if you suspect Farrar is using your teen?
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What should you do if you suspect Farrar is using your teen?
Check under your teen's bed for John Key's "Enthusiastic for New Zealand" DVD.
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Slightly more seriously, the last time I saw the local media turn so toxic towards an incumbent government, run free daily publicity for the opposition {yadda, yadda, yadda}...
You've opened an Australian newspaper at random this year? Just saying... Please, dc red, on the partisan tip I'm gagging for the government to consume itself in a paranoid sulk of Muldoon-esque, nay Nixonian, proportions. Not only amusing - in a blackly comic kind of way - but just feeds the perception that a long rest on the opposition benches would be the best option for everyone.
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re: property
I'm predicting a huge 'price correction' in housing this year -- but I've been saying that for the last 3 years. The difference now is that interest rates are up and that is making investment properties unprofitable for those on low/middle incomes. These are the people who bought in to a rising market on the basis that you 'couldn't lose' and that it was worth topping up the mortgage $100 a week because after a year that $5200 you'd chipped in would provide you with a $10,000 capital gain.
Admitedly that's a great return on your 5K but the problem now is that your property is no longer appreciating even 5k a year, and you've still got to top up the mortgage. But your fixed rate has expired and the floating rate is 10+%. And council rates have gone up too, and the water cylinder blew and it cost $1500 to replace. So you're chipping in $200 a week to the mortgage now.
So, people like me have got their money sitting in Rabobank at 8.2% on call, biding our time, waiting to swoop like vultures on the poor couple who thought they'd climb the property ladder, but now they've got a baby on the way and they can't afford what they've got.
The only solution is to put a capital gains tax on investment property. That will have many negatively geared investors bailing out quick smart. A more palatable political solution might be to ban foriegn investors from owning residential property. Most countries have some limits on what 'foriegners' can own, but we don't and that's why our market is attractive to them. Whilst I don't believe 'foregn investors' really hold much sway over residential prices, I have observed many who just buy/hold/sell for capital gain. But the same is true for NZ investors - in a rising market it's money for jam. Especially if you're not declaring your profits. If IRD trolled the banks they could ping a lot of people.
But don't forget that the councils are doing their bit too to push up house prices. If you buy some land and build a house you have to pay a (in Auckland City) a 7% levy. That means a new $450,000 house and land package will retail for $481,500. If you buy a house and subdivide the section you still pay 7%. And that's assessed on BOTH the value of the 'old' house and section PLUS the new house and section.
And what do councils do with the 7%? Well, in Auckland City they've just paid $20million to buy the Placemakers site in Cook Street (adjascent to the motorway) to build a new park. This will benefit apartment owners in the area, although there are relatively few, and I'm sure they'd prefer Victoria Park - only a block away. No doubt more apartments will be built now - this must have been great for the commercial building owners adjascent to Placemakers.
Meanwhile the Council have deferred an upgrade of Pt Erin Pools and a new pool for Avondale. I wonder what the community would prefer? A wind blown park on a slope next to the motorway in the arse end of town or more/better pools for kids?
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Since what has been happening is fairly clearly based on "hope" with regard to future prices continuing to go up, it's a bubble- encouraged by easy access to loans. Unless someone- Mr Key?- can significantly improve the average wage and salary take, it's gone past sustainable already.
And what certainly isn't helping is the fact that home loan availability is still skewed towards the traditional 'quarter-acre paradise', at the expense of apartments and infill housing.
If Mr Key gets in, I hope for the sake of the country that he encourages the development of livable apartments, rather than McMansions and urban sprawl.
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a new pool for Avondale
Bastards. That would have actually helped bring my property value up, and would absolutely certainly have been used a hell of a lot - there's an awful lot of kids in Avondale. I'd settle for something as choice as Pt Erin is right now in a flash, although obviously an indoor heated one would get a lot more use all year round.
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The only solution is to put a capital gains tax on investment property.
Or enforce the existing one! If you buy a second property for capital gain (pretty accurate definition of investment property), you are liable to pay tax on that gain once it's realised. Just doesn't seem to be widely enforced...
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Slightly more seriously, the last time I saw the local media turn so toxic towards an incumbent government, run free daily publicity for the opposition {yadda, yadda, yadda}...
You've opened an Australian newspaper at random this year? Just saying... Please, dc red, on the partisan tip I'm gagging for the government to consume itself in a paranoid sulk of Muldoon-esque, nay Nixonian, proportions. Not only amusing - in a blackly comic kind of way - but just feeds the perception that a long rest on the opposition benches would be the best option for everyone.
Well I don't (and haven't) lived in Australia, so whatever media you might be referring to aren't my 'local' media. And if they ran an anti-government campaign as virulent as that run by the NZH over the last few weeks, please feel free to point us all in the right direction.
Good luck with your dream of Nixonian reactions though. I'm sure you'll be riveted to hear of my dreams about another crowd-pleasing policy announcement from Tony "well-rested on the opposition benches" Ryall.
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Did you know that in this blessed land, you'll still find homes, "and we mean proper houses you can move into -- for less than US$50,000!"?
Sure, the houses are in Tokanui -- but the people of rural eastern Southland are even friendlier that the people who live in cities.
The plumber who came to my rental to fix the broken water cylinder asked to pick my brain about property investment, since I was one. He's a young guy with a wife and 2 kids under 5, working for wages for a plumbing franchise. At the beginning of the year he bought a 2bedroom unit in Mt Wellington as his first home, with a 2 year fixed mortgage. The agent who sold him the house came to him 2 months ago to encourage him to invest in rental property. Everyone was doing it and it was the way to secure your future. The agent has been hounding him a lot it seems.
He said the agent had recommended a property in Tokoroa, which only needed a $25 a week top up. I then proceeded to recite to the plumber ALL the reasons the agent would have given him for investing in Tokoroa. The plumber laughed because I had nailed it exactly. I told him to tell the agent to F off, and that the best way to secure his future would be to put ALL his spare money into paying off his mortgage ASAP.
LONG STORY SHORT: agents are paid when they sell houses. If they can convince you that your unit in Mt Wellington has increased in value by $15,000 (on paper only, mind you) they will then look for an 'investment property' you can buy on $15k deposit. And if that house can only be found in Tokoroa they will try to convince you to buy it. And they will show you some great figures to back up that investment.
But why would you rely on a commission agent (who may or may not own/be associated with the property he's trying to unload) to make that decision? What's the unemployment rate in Tokoroa? Why have capital values risen? Could it be that a bunch of Aussies bought a lot of property there a few years back and Property Investment Gurus on both sides of the Tasman have been flipping those same properties to 'clients' for years?
It's people like that plumber who did buy investment properties that are going to feel the pain when the property market turns.
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Property investment in NZ and Australia is not driven by the savings of Kiwis and Aussies. It's largely funded by domestic banks borrowing from international institutions. It's essentially a Ponzi scheme run on borrowed money. It's an accident waiting to happen, and no doubt the day of reckoning is getting closer every day. In the case of Australia, at current rates of debt growth, each Aussie will owe $2 for every dollar they make by 2015.
As I type, the ASX is being slammed by the meltdown in Centro caused by lack of credit. It's shocking to know that they were running so close to the bone. However, it's also a reflection of how many Antipodean families survive (paycheck to paycheck) in 2007.
Many people feel it's like comparing apples to oranges, but Japan's experience is good food for thought. Prices were highest in Tokyo's Ginza district in 1989, with some fetching over US$1.5 million per square meter, and only slightly less in other areas of Tokyo. By 2004, prime "A" property in Tokyo's financial districts were less than 1/100th of their peak, and Tokyo's residential homes were 1/10th of their peak.
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Total thread-jack. Am I the only one alarmed that the US is now letting Turkey do bombing runs inside Iraq?
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Thread-jack 2: I got my Forest & Bird newsletter today, and the Riroriro (or Grey Warbler) won in a "surprise victory."
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The headline reads like an NZ First press release.
Property investment in NZ and Australia is not driven by the savings of Kiwis and Aussies. It's largely funded by domestic banks borrowing from international institutions. It's essentially a Ponzi scheme
Bingo. Plus the fact that like it or not, most Western economies have turned into ones that assume two incomes per household. Two folks working because they can and now because they have to.
But by all means blame it on those pesky furrnurs if it makes you feel better.
(I do agree the conference Russell writes about is crass and some attendees a bunch of hypocrites).
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Well I don't (and haven't) lived in Australia, so whatever media you might be referring to aren't my 'local' media. And if they ran an anti-government campaign as virulent as that run by the NZH over the last few weeks, please feel free to point us all in the right direction.
Oh, FFS, could it just be even marginally within the realms of possibility that:
1) New Zealand Herald readers aren't all a pack of fuckwit drones utterly incapable of independent thought?
and,
2) The Government might be slightly responsible for their own misfortunes?
Hey, as I said, if Labour wants to believe its all the fault of the media out to get them, fine. It works for me, because you can't effectively come up with a solution when you're in total denial about the nature of the problem. It would be nice if I could blame the media for the 2002 election result, when National received its lowest share of the popular vote ever - but the only problem is that it just wasn't true.
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(I do agree the conference Russell writes about is crass and some attendees a bunch of hypocrites)
dey is not Hypocrites, dey is Capitalists!
I recently got a letter from Westpac invitiing me to participate in a great new investment offer: perpetual, deeply subordinated notes from giant French Bank__ Credit Agricole SA __callable after 10 years.
Hmmm ... that name rings a bell? Oh yes, here's what the NZ Herald said a few weeks ago:A book build will be held today and tomorrow to price the notes but lead manager First NZ Capital gave an indicative range of between 9.37 and 9.57 per cent - around 130 to 150 basis points above the swap rate.
However, Credit Agricole's notes issued in the US are trading around 220 to 230 basis points above the swap rate, suggesting buyers are paying too much, one professional bond trader at Agricole's roadshow said yesterday.
The bond trader said New Zealand mum-and-dad investors had a history of paying too much for such issues.
Institutions were unlikely to touch it as they could obtain better priced paper elsewhere.
So basicly the banks won't be buying it themselves, but they're happy to sell it to you.
Oh yes, the thing that stuck out in the original Herald story (but missing from the online piece linked above) was the use of the words Junk Bonds.
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