Why house prices are up and ownership is down

[flyernzl]

I suspect you are also perpetuating the misconception that everyone who does not live in the house they buy is an investor.

To me, there are investors and then there are speculators.

I would say that few, if any, current non-resident house sales in Auckland are to investors.

Most if not all would be to speculators.

There is a current thread running on this board about a fellow who has recently bought a property in Te Atatu and who is renting out that property.
By his own figures, he will be losing $13,000 a year by doing so.

He has entered into this deal betting that house-price inflation will continue and that the property will be worth more than what he has paid for it at some time in the future.
No-one right now can guarantee that this will actually occur.

Therefore he is a speculator not an investor.

(This misconception is not confined just to property transactions - the TAB laughingly calls their clients 'investors' when they are obviously not. They are gamblers - i.e. speculators.)

[speights boy]

Therefore he is a speculator not an investor.

What is the cutoff line for your investor / speculator cut off definition ?
Is it some exact figure ?
Is it some arbitrary cash flow figure?

If the person whose purchase you quote joins APIA, do you not accept that they are a long term landlord if they say they are ?

True speculators (renovating flippers) by definition sell.
Who are they selling to ......FHB, movers, investors ?.....The question of percentages remains.

[speights boy]

There is a current thread running on this board about a fellow who has recently bought a property in Te Atatu and who is renting out that property.
By his own figures, he will be losing $13,000 a year by doing so.

He has entered into this deal betting that house-price inflation will continue and that the property will be worth more than what he has paid for it at some time in the future.
No-one right now can guarantee that this will actually occur.

Therefore he is a speculator not an investor.

What if the deal was cash flow positive by $1 per year ?
What difference (by your definition) would that make ?

What if the person in your example didn't borrow to purchase and so are then well cashflow positive .
Are they still speculators by your definition, or are they investors ?

[Maccachic]

Hmm do they exclude holiday homes or are they included as investments too?

[flyernzl]

An investor, by definition, spends capital to gain a regular return.

Your grandmother may well go for maximum security and put her money into NZ Government bonds, which return around 4% per annum and are (for all practical purposes) as secure as you can get.

Therefore we may assume that any rational investor looking at an investment that is less secure than these bonds would require a higher return as compensation for the increased risk.

So we could extend that and say that any astute person investing their money knowing that they will get less than that benchmark interest rate does so in the expectation that they will gain in some other way.

This 'some other' may well be non-financial, a personal buzz from assisting a relative or helping create a community project. Within the framework of our current discussion it is probable that they settle for a lesser interest return (or even a negative return) in the expectation that the capital value of the asset they have bought will increase over time and outstrip the weekly bleeding of cash.

If I buy the Government bonds, put money into some other fixed-rate investment, or buy a residential investment that from the start returns me 4, 6 or 8% I could assume that I would continue to get that return unless I am hit by some unforseen event - a socialist revolution, a run on the bank, or the house falls down.

If I buy a residential property where the outgoings each and every week exceed the market rent that I can get then (assuming that I do this knowingly) I am betting that some event in the future is going to change things in some way so that I do get a market rate of return.

I am gambling that this event will occur. There is a risk that it will not. Auckland may well be hit by bubonic plague next week, half the population may die and property prices crash. Sure that is unlikely, but continued appreciation in property prices cannot be 100% guranteed.

In summary, an Investor bets that things will stay the same and a Speculator bets that they will change.

Note that I am not saying that Speculators are bad people. They have their part to play in the economic landscape of the country. The trick is to know when you are investing, when you are speculating, and when the market is favourable to one or the other.

Right now, my view is that Auckland property is a speculators market.

[flyernzl]

What if the deal was cash flow positive by $1 per year ?
What difference (by your definition) would that make ?

What if the person in your example didn't borrow to purchase and so are then well cashflow positive .
Are they still speculators by your definition, or are they investors ?

If they could have put that same capital into some other secure investment which would return them a greater rate of return, then (by the argument outlined above) they are speculating.

Hmm do they exclude holiday homes or are they included as investments too?

Of course, as is the case with many holiday homes, the non-financial lifestyle enjoyment to be gained from the property may well be judged to worth the sacrifice of the potential extra cash income.

That is a personal choice ony those directly involved can make. I have no problem with that.

[artemis]

How many res property investors buy a property and then rent it to family? Who knows, at least I have never seen any data on this. And how would this be collected anyway? Anecdotally, I know some who have done just that (including me). The owner gets the tax advantages. The tenant gets stable tenure, and probably the property or part of by inheritance, eventually.

Seems to me a better option to help family than providing part of the deposit, or even joint ownership with family.

In practice, these purchases fall in the first home buyer category but would never be counted as such, even if they could be identified.

[speights boy]

Right now, my view is that Auckland property is a speculators market.

Ok. (note not including traders / flippers here).

So the President of APIA writes that investors are not to blame for price increases.
You say those buying as landlords currently are speculators.

Next time you see Andrew can you ask him is he also using this investor / speculator definition as justification for his claim that investors are not affecting AKL prices ?
What is his view if all buyers of rentals are taken into account. Are they as a total group affecting prices ?
What is your view ?

Also, do you think IRD should treat these auckland speculators differently from investors ?

[speights boy]

If I buy a residential property where the outgoings each and every week exceed the market rent that I can get then (assuming that I do this knowingly) I am betting that some event in the future is going to change things in some way so that I do get a market rate of return.

I am gambling that this event will occur. There is a risk that it will not. Auckland may well be hit by bubonic plague next week, half the population may die and property prices crash. Sure that is unlikely, but continued appreciation in property prices cannot be 100% guranteed.

In summary, an Investor bets that things will stay the same and a Speculator bets that they will change.

Note that I am not saying that Speculators are bad people. They have their part to play in the economic landscape of the country. The trick is to know when you are investing, when you are speculating, and when the market is favourable to one or the other.

Right now, my view is that Auckland property is a speculators market.

Start taxing property gains properly, says economist

Andrew Bruce, Auckland Property Investors Association president, also said capital gains tax was already in place but needed to be implemented.
However, landlords were generally over-taxed, Bruce said.

[Bluekiwi]

Start taxing property gains properly, says economist

Thats a sham !!!

He's just grumpy since he thinks its more economical to rent than buy house 5 years that would have doubled in price.

If he cant get his home economics right how can he be good at his day economist job.

[cube]

If they could have put that same capital into some other secure investment which would return them a greater rate of return, then (by the argument outlined above) they are speculating.

Doesn't that classify all investment returning more than Govt bonds as speculation - seems a bit harsh.

[crackennz]

I reckon all we need is for the Chinese to stop buying

I thought Brits were the leading percentage of dwelling purchasers be foreigners in NZ?

But I do agree.....even though the govt claim that it is such a low percentage of dwellings (not land/farms) owned by foreigners but no one can actually give a reasonable figure.....at which percentage does it become a problem, 10%, 20%, 50%?

I did a wee web search last year relating to foreign dwelling purchases and it seemed to me it was roughly around the 10% mark......personally to me that seems high since I think it equated to a city approx the size of Wellington (150k dwellings).
However it was a very rudimentary search so shouldn't be taken as gospel....I really would like someone in govt to allocate (200k maybe) so a couple of researchers can nut it out for a year.....finding out cannot be that hard despite there being many foreign owners who eventually become residents....

Thoughts anyone or am I way off the money.....