Auckland property investment a dying game

[marklowes]

"Something in the order of about 50% of investor activity that involves borrowing from the banking system takes place at LVRs of greater than 70%. Most of that is concentrated at LVRs of between 70% and 80%. There's very little currently happening at LVRs greater than 80%," added Hodgetts.

Source

50% or so between 70-80% LVR (assuming 'very little' = close to zero at LVR greater than 80%). Thats a lot. Shows how most investors like to keep equity at or close to 20% to be using their equity 'efficiently', so as pirces in auck rise, and their equity gets too far above 20%, they buy another to bring it back down. Now the level is 30%, they'll have to wait until equity gets to say 40% in current portfolio before buying another to bring it down to 30% again. And every new purchase 'absorbs' an additional portion of equity so takes longer to recover or 'recycle' the deposit in order to buy the next.

E.g buy at 500k with 100k dep, reno to recycle deposit so can buy again at 500k in Auck Vs region:

Loan	Value	equity	LVR	% equity		Added value required by reno before can buy again
$900k	$1125k	$225k	0.8	0.2		$125k
$900k	$1286k	$386k	0.699	0.3001		$286k

More than double the value needed from reno before equity is recycled in Auckland Vs. outside Auckland in this example. Ouch.

[PTILoveYou]

Part of the cycle really.

The best purchasing time was few years ago when the market was flat, or just beginning to rise.

Now it is not really the time to buy aggressively unless you have deep pockets or very high incomes... well this is in Auckland anyways.

[marklowes]

Bigger portfolios (say 10 properties @ ave 500k each) sitting at 20% equity means it's going to take even longer before you can buy in Auckland again:

Loan	Value	equity	LVR	equity		Added value required by reno before can buy again
$4500k	$5625k	$1125k	0.8	0.2		$125k
$4500k	$6430k	$1930k	0.699	0.3001		$930k

[genius]

Instead of needing $100k for a $500k house.. you now need $150k - this difference is easier to cough up with a bigger portfolio due to a larger portfolio size - housing inflation would make it easier for a larger portfolio!!!
RBNZ has given 9 months to get existing portfolio from 80% to 70% - so bigger portfolios aren't affected.
I do agree that the investors can't buy as much as they previously could

[PTILoveYou]

The bigger limiting factor is serviceability and income.

This is very hard to overcome.

And even if you could borrow, you are still buying negative gearing (100% financed) in 90% of suburbs in Auckland...

[marklowes]

Instead of needing $100k for a $500k house.. you now need $150k - this difference is easier to cough up with a bigger portfolio due to a larger portfolio size - housing inflation would make it easier for a larger portfolio!!!

Thats assuming a starting point of zero debt.

Larger portfolios under 30% equity will find it much harder to be in a position to buy again. See my examples above.

[soundslegit]

The knee jerk and ill thought out reaction by the Reserve Bank tells us one thing.

The government have no desire to stop what is regarded as the biggest threat to the housing issue.
As predicted by Tony Alexander from the BNZ who forecast of 56,000 immigrants this year following another bumper year of 50,000 the year before, with the majority coming to Auckland.
The infrastructure simply can’t cope with the numbers that are coming and many don’t want such huge numbers, it is too many and too fast.
It’s a running joke among foreign investors that this is no more than a legitimate ponzy scheme.
The LVR lending policy requiring 30% deposit targets New Zealander investors, who pay tax and employ fellow New Zealanders.
The Reserve Bank claim they can identify who are owner occupiers, and that this will slow the market down. Rubbish
The Reserve Bank simply doesn’t have the resources to monitor any of this.
There needs to be a stop to unchecked, untaxed foreign ownership.
Simple Really!!!
Write, phone, and make a noise.

This is our country.

[genius]

"Something in the order of about 50% of investor activity that involves borrowing from the banking system takes place at LVRs of greater than 70%. Most of that is concentrated at LVRs of between 70% and 80%. There's very little currently happening at LVRs greater than 80%," added Hodgetts.

Source

50% or so between 70-80% LVR (assuming 'very little' = close to zero at LVR greater than 80%). Thats a lot. Shows how most investors like to keep equity at or close to 20% to be using their equity 'efficiently', so as pirces in auck rise, and their equity gets too far above 20%, they buy another to bring it back down. Now the level is 30%, they'll have to wait until equity gets to say 40% in current portfolio before buying another to bring it down to 30% again. And every new purchase 'absorbs' an additional portion of equity so takes longer to recover or 'recycle' the deposit in order to buy the next.

E.g buy at 500k with 100k dep, reno to recycle deposit so can buy again at 500k in Auck Vs region:

Loan	Value	equity	LVR	% equity		Added value required by reno before can buy again
$900k	$1125k	$225k	0.8	0.2		$125k
$900k	$1286k	$386k	0.699	0.3001		$286k

More than double the value needed from reno before equity is recycled in Auckland Vs. outside Auckland in this example. Ouch.

Bigger portfolios (say 10 properties @ ave 500k each) sitting at 20% equity means it's going to take even longer before you can buy in Auckland again:

Loan	Value	equity	LVR	equity		Added value required by reno before can buy again
$4500k	$5625k	$1125k	0.8	0.2		$125k
$4500k	$6430k	$1930k	0.699	0.3001		$930k

$930k/$6430k = 14.4% housing inflation required for next property
$286k/$1286k = 22.2% housing inflation required for next property
As I said, larger portfolio value makes next property purchase easier using your own figures!

Also, only your new purchase needs to be at 70% LVR not your entire existing portfolio - there's time for that - by then the entire portfolio would be at 70% anyway.

[marklowes]

$930k/$6430k = 14.4% housing inflation required for next property
$286k/$1286k = 22.2% housing inflation required for next property
As I said, larger portfolio value makes next property purchase easier using your own figures!

Also, only your new purchase needs to be at 70% LVR not your entire existing portfolio - there's time for that - by then the entire portfolio would be at 70% anyway.

Ok. So you can reno you're entire portfolio too increase value by 14.4% across all 10 easier than renovating a single property to increase its value by 22.2%?

You are assuming capital gains at a time everyone has been kneecapped. I like to work on value add that i can control, hence easier to raise 280k than 930k through renos, as stated in my figures

[flyernzl]

It depends on the part of the life-cycle that you are at. (Horrible english, yes I know).

When you are building your portfolio you may well be at 80/90% LVR.

Once you have attained your goal and sat back, your equity rises with inflation and your LVR drops.

Many long term investors are at 50% or thereabouts, and I know some who are completely mortgage free.

[PTILoveYou]

It depends on the part of the life-cycle that you are at. (Horrible english, yes I know).

When you are building your portfolio you may well be at 80/90% LVR.

Once you have attained your goal and sat back, your equity rises with inflation and your LVR drops.

Many long term investors are at 50% or thereabouts, and I know some who are completely mortgage free.

Agree .

[Wayne]

Still trying to work out what the title has to do with the thread?

[PTILoveYou]

Still trying to work out what the title has to do with the thread?

Yeah it is a strange title isn't it?

As long as there are humans around in Auckland, and we are in a Capitalism society, there will always be property investment.

[genius]

Ok. So you can reno you're entire portfolio too increase value by 14.4% across all 10 easier than renovating a single property to increase its value by 22.2%?

You are assuming capital gains at a time everyone has been kneecapped. I like to work on value add that i can control, hence easier to raise 280k than 930k through renos, as stated in my figures

1) Nobody has been kneecapped - overseas buyers and experienced PI's will continue buying regardless - an ANZ survey given to the RBNZ expects 12% Auckland housing inflation for the next 5 years
2) My point is if I don't do renos and am only interested in buying more property (which is my situation and most other larger portfolio PI situation), then it's easier for a larger portfolio investor to do so as mentioned earlier. AS far as I know, only few investors with a large portfolio reno each property to recycle deposit and hold it (mainly because you need significant income to be a rich PI and nobody has the reno time if you're that rich lol)

[PTILoveYou]

2) My point is if I don't do renos and am only interested in buying more property (which is my situation and most other larger portfolio PI situation), then it's easier for a larger portfolio investor to do so as mentioned earlier. AS far as I know, only few investors with a large portfolio reno each property to recycle deposit and hold it

Agree with that.

I recently bought a property just under $700k, the mortgage is going to be $650k

No reno needed as it is in average to good condition.

My LVR barely budged, going from 45% to 49%. I'm quite surprised by this lol.