The property and economic boom is here!

[Rosco]

I'm sick of the media being constantly negative. Isn't there something good happening in NZ and the world

Here is some recent negative points from the media, with the positve spin added.

1) Average farm losing $100,000 income - BUT their interest rate has also dropped from say 10% to 7%. So if an average dairy farmer owes $3,000,000 thats $90,000 interest saving per year. Plus interest rates are set to reduce further, therefore I'm sure the long term interest savings will out weigh the income drop!

2) Low number of building consents - Fantastic news, so long term there will be a shortage of houses, therefore rent and house prices will increase.

3) Households are feeling the pinch? - Surely if a household owes $300,000, and the interest rate has dropped from 9% to 6%, that will save the household $9,000 per year or $173 per week. How can things be that bad?

4) Some tenants might struggle to pay their rent - True, but every property investor will shortly start to save $$$$ on their mortgage. Say average investor mortgage is $200,000. Drop 3% in interest, so save $6,000 in interest per year or $115 per week. So the $6,000 saving will last 17 weeks at $350 per week, if a tenant leaves. I'm very happy with this equation.


I think that property prices are on their way up. There is so many cashed up investors out there trying to buy at the moment, and I'm even starting
to hear about competition when buying an investment property.

Lets stop all the negative talk and start to focus on the positives. Interest rates are down and we can now buy postive properties. If you can buy, I think now is the perfect time. Too many people wait for the market to be at the bottom of the cycle and then miss it!

I even heard this excuse for not buying the other day, "I don't want to buy just yet as interest rates are still going down". So why not buy now and go on floating for a few months, then fix? Some people are just idiots!

Ross

[Gatekeeper]

Here's some positives for you Rosco.
If property as an investment becomes unpopular, people might put their money into something that is actually productive, makes lots of money and helps NZ out, creates employment and export dollars. That would be great!

Property prices might come down a lot, so the dream of owning your own home becomes more attainable, helping families feel they have a stake in the country, all good and great for NZ. They might save for that home and create real capital that can be lent to other enterprising productive New Zealanders, therefore cutting back on foreign funding, wonderful.

Buying each others houses is not a productive enterprise. Hence where we are today.

[Orkibi]

Good on you Rosco, as long as one buy at a discount with Cash flow and equity buffer you can't go wrong. IMHO

[MikeO]

How is property not productive?

Here's some positives for you Rosco.
If property as an investment becomes unpopular, people might put their money into something that is actually productive, makes lots of money and helps NZ out, creates employment and export dollars. That would be great!

Property prices might come down a lot, so the dream of owning your own home becomes more attainable, helping families feel they have a stake in the country, all good and great for NZ. They might save for that home and create real capital that can be lent to other enterprising productive New Zealanders, therefore cutting back on foreign funding, wonderful.

Buying each others houses is not a productive enterprise. Hence where we are today.

Correct me if I'm wrong but the assertion that property is unproductive is actually b#llsh#t. Houses give people somewhere to live. They are a productive asset which provides housing services. How is that not productive?

I agree that buying each others houses isn't a productive enterprise (it isn't creating a new asset just transferring ownership). But neither is buying each others shares, bonds, gold whatever. What is important is what the seller does with the proceeds regardless of whether they have sold a house, shares, a business whatever (e.g. do they invest it in productive assets like a new house, warehouse, machine, whatever) or do they blow it on consumer goods.

[Gatekeeper]

How many people who got into property investment over the last boom actually built something other than a shack on the back (MD).
Very few I'd think.

But good to see you agree that shuffling ownership papers, does little for your country.

[mattnz]

Mike, I agree with Gatekeeper. If a NZ bank was to obtain funds overseas to lend in NZ would it be better for them to lend an extra $100k to me to pay $600k for the same house that the previous person bought for $500k, or is it better for NZ's economy that house prices remain constant and I have that same $100k to start an exporting business that employs people and adds real value to the economy.

There has been alot said lately about how the US got into this mess, and alot of it is because they have turned into a so called service and consumer economy. They used to actually produce things of value as the manufacturing power house of the world. Now they are simply the world's foremost consumers that dont produce anything and thought they were getting rich when they had their housing boom.... before the crash. If instead of buying houses off each other and using the extra "wealth" to buy more consumer goods, they had invested that money in real productive assets, they wouldnt be in this mess.

I think that it is really important to recognise the difference in mortgage servicability between an interest only loan on a $500,000 property at 5% interest as we are likely to see soon, when compared with buying that same asset for $250,000 at 10% interest. It's the same holding cost (for now) but an entirely different investment.

In NZ we have hugely overinflated asset prices, and those that suddenly get excited by mortgage rates that the rest of the world see as normal interest rates in normal times are likely to get burned. If you buy an "investment" property for $500k at 5% interest when there is alot of housing stock on the market, then the money printing presses create significant inflation internationally and they suddenly have to increase interest rates as they did in the '70s to compensate, what position does that leave you in when interest rates are jumping up rapidly to 10, 15 or 20%?

There were already too many people trying to sell their overpriced $500k assets, even when interest rates were low, now that interest rates are back up again, who can afford a $500k "investment" property at 15% interest? At 5% interest it was cashflow positive based on $30k per annum rent, but it is now losing $45k per annum. In this scenario there is only one way for house prices to go, and that is down, and really really fast.

Buy real value based on the asset prices, not on some potentially temporary aberation in the mortgage market.

[Sinical Cyd]

a wonderful post...

Mike, I agree with Gatekeeper. If a NZ bank was to obtain funds overseas to lend in NZ would it be better for them to lend an extra $100k to me to pay $600k for the same house that the previous person bought for $500k, or is it better for NZ's economy that house prices remain constant and I have that same $100k to start an exporting business that employs people and adds real value to the economy.

There has been alot said lately about how the US got into this mess, and alot of it is because they have turned into a so called service and consumer economy. They used to actually produce things of value as the manufacturing power house of the world. Now they are simply the world's foremost consumers that dont produce anything and thought they were getting rich when they had their housing boom.... before the crash. If instead of buying houses off each other and using the extra "wealth" to buy more consumer goods, they had invested that money in real
productive assets, they wouldnt be in this mess.

I think that it is really important to recognise the difference in mortgage servicability between an interest only loan on a $500,000 property at 5% interest as we are likely to see soon, when compared with buying that same asset for $250,000 at 10% interest. It's the same holding cost (for now) but an entirely different investment.

In NZ we have hugely overinflated asset prices, and those that suddenly get excited by mortgage rates that the rest of the world see as normal interest rates in normal times are likely to get burned. If you buy an "investment" property for $500k at 5% interest when there is alot of housing stock on the market, then the money printing presses create significant inflation internationally and they suddenly have to increase interest rates as they did in the '70s to compensate, what position does that leave you in when interest rates are jumping up rapidly to 10, 15 or 20%?

There were already too many people trying to sell their overpriced $500k assets, even when interest rates were low, now that interest rates are back up again, who can afford a $500k "investment" property at 15% interest? At 5% interest it was cashflow positive based on $30k per annum rent, but it is now losing $45k per annum. In this scenario there is only one way for house prices to go, and that is down, and really really fast.

Buy real value based on the asset prices, not on some potentially temporary aberation in the mortgage market.

perfect common sense...residential property as an investment vehicle will be in terminal decline...this obsession will be stymied by legislation sooner rather than later.It is a waste of resource ,speculative and non productive.

[princess]

I'm with Rosco.

through my IP, i have invested over $100k into the economy, through tradesmen, engineers, surveyors, council fees, landscapers etc.

We've improved the property, subdivided it, and all the time whilst providing housing for a couple in their 50s who would otherwise be sent to a pensioner flat with HNZ.
Its certainly NOT been an excercise in paper shuffling! Guess you would call us long term traders rather than investors though.

I'm happy to see Rosco's post - we'll be selling both properties soon and will be more than happy to provide buyers with good quality, well priced properties that they can buy with the cheapest money available for many years.

Bring it on!

[Badger]

I'm with Rosco.

through my IP, i have invested over $100k into the economy, through tradesmen, engineers, surveyors, council fees, landscapers etc

Thats only a service economy nothing is underpinning it by way of production.

We've improved the property, subdivided it, and all the time whilst providing housing for a couple in their 50s who would otherwise be sent to a pensioner flat with HNZ. Its certainly NOT been an excercise in paper shuffling! Guess you would call us long term traders rather than investors though.

Thats great, but it dosnt make a economy. Subdividing up whats left leads to crammed living and other society problems in hard times. 50's is pretty young for a pensioner flat?

I'm happy to see Rosco's post - we'll be selling both properties soon and will be more than happy to provide buyers with good quality, well priced properties that they can buy with the cheapest money available for many years.

Bring it on!

Good luck with those assumptions, I think reality will be dishing up a different paradigm, about what a real economy is...and I seriously doubt it will be heading back to the good ol'e days...

[SmallBrain]

And the largest real productive sector in NZ, the farmers, is heavily laden with debts...

edit: "real productive" as earning foreign currencies, so that we can import stuff.

[Badger]

Thats how the debt based fractional reserve banking system works.

Untill the way we do banking changes nothing will change!

Cathrine Austin Fitts

[muppet]

Badger, can you with your vast knowledge of things financial, define what a real economy is in less than 100 words please so that we have something to compare with.

[Badger]

Badger, can you with your vast knowledge of things financial, define what a real economy is in less than 100 words please so that we have something to compare with.

Why dont you?

I already have last year...

[Rosco]

Why are most of you on property talk?

Wow and ow my god. You would think the sky is falling.

Just curious why most of you are on property talk? If you think the property is so bad, why are you looking at this website?

I think property prices will be a lot higher in 5 years than they are no. In 10 years, I'm positive they will be higher than now and in 20 years I'll guarante property will be worth a lot more than today.

So if you can hold a property long term, then you will win with property. If the property is positive and producing cash, then you can afford to hold. So how do you lose?

I'll even put my money where my mouth is! If any of you want to sell me a NZ property at a high valuation today, with settlement in 20 years, then I'm very keen. I'd even give cross security over other assets, so that you know I'm not going to run away!

Any takers?

[princess]

Hi Badger -

yeah nasty huh, when you turn 55 , Housing NZ decides you don't need a proper house any more and your next stop is a pensioner flat. 2 bedrooms, the cupboard door is wider than the hallway, and when you open the windows they hit the next door unit.

Our subdivision just brought the section size in line with the suburb we are in, where the average site is 550- 600m and ours was over 1100. Hardly crammed living!

But thanks for the clarification on productive, if you mean exportable, count me out. I kinda see those services as pretty important to NZ's economy - we can't export everything!