The returns on property don’t seem worth it anymore

[Purple Property]

With our two rentals we are getting approximately 4% net rents after all expenses (not including mortgage interest).

I can’t imagine property prices going up above inflation forever so let’s assume long term appreciation of houses goes up 3% a year.

Without leaverage and after paying tax this investment would earn 6%

I can go an dump money into an index fund and earn 9% with no hassle

I’m beginning to question investing in residential property in NZ it just doesn’t seem viable without capital appreciation any less than 6% or so...?

[elguapo]

Without leaverage and after paying tax this investment would earn 6%

I can go an dump money into an index fund and earn 9% with no hassle

The sharemarket has always outperformed residential housing longer term, and requires far less work. This should not be a surprise.

[Purple Property]

The sharemarket has always outperformed residential housing longer term, and requires far less work. This should not be a surprise.

Not when house price increases have far exceeded inflation and you have 65-90% borrowings at purchase

[elguapo]

Not when house price increases have far exceeded inflation and you have 65-90% borrowings at purchase

Nonsense. Leverage can be used on shares just as much as property, and sharemarket returns exceed those of property. The data on that is clear for many decades.

[OnTheMove]

Nonsense. Leverage can be used on shares just as much as property, and sharemarket returns exceed those of property. The data on that is clear for many decades.

Id agree and Its the one thing Im glad Im into outside property.

I think NZ investors in property have run out of places where they have used they inflation money from Key that they should have lost in the property market in 08 and instead took that as a sign to invest more, and have shuffled it around NZ and are now facing the push back line, or resistance line shares terms, on affordability. IRate rises should be interesting. I think they should stay low for 2020? But beyond that is a guess.....

That could be the trigger for Bloombergs prediction, and it wouldnt be an unfair one. I just dont want it impacting my PPOR which is about 20% below MV in purchase price. So Im semi protected. And if anything Aucks has already had a significant drop and now a plateua. its the rest of the countries turn.

If people cant find ways to invest outside of property then that tells me they really only got "lucky" due to John Keys rate drops and cash injection. Thats where the inflation sits. The problem is people need to either cash out and spend large on retail or the markets drop to decrease that unatural inflation caused by a PM who I think had the best intentions (although his $20m property at peak of the market hmmmm lol).

There is a time and a place for all investment types, including cash under the mattress, but I prefer the idea of gold under there as Im a part time hobbyist prospector, so a number of bars would look cool :-)

One of the big ones im interested in is when are we going to see the NZ dollar shift back to its 70c to 90c fluctuations we use to see prior to about 2009 to the AU. Its been high for a long time now. Is it simply Iron Ore isnt selling? Sounds like China wants to get going again with those Trump negotiations or it was just Trump "Being" a president.......

[Cpt707]

Bloody waste of time and effort dumping your spare pile of bank deposit cash into a 'shitty' piece of overpriced plot of land in NZ....The "real estate land" of 'Deadline' method of selling this garbage goes on forever....NO TRUST anymore so walk away and NO DEAL...!!!!

[JBM]

Everything works in cycles those that can look outside NZ into the likes of the Australia Resources companies on the ASX will do very well last two trading days I have seen my portfolio increase over 8% I also see the AUD moving many percent over the NZD as investment around the world floods into the Country’s mining + O&G sectors.. If one only has eyes for property then some of the mining towns that boomed during the last Bull market 2000,s will do very well safest investments closer to Perth ... IMHO NZ property has had it boom next cycle to pullback to flatline for the 2020s and let NZ household incomes catch-up

[Bluecoat]

Everything works in cycles those that can look outside NZ into the likes of the Australia Resources companies on the ASX will do very well last two trading days I have seen my portfolio increase over 8% I also see the AUD moving many percent over the NZD as investment around the world floods into the Country’s mining + O&G sectors.. If one only has eyes for property then some of the mining towns that boomed during the last Bull market 2000,s will do very well safest investments closer to Perth ... IMHO NZ property has had it boom next cycle to pullback to flatline for the 2020s and let NZ household incomes catch-up

The issue with buying Australian properties is the amount of stamp duty and taxes its almost not worth it.

As for picking ASX minting stocks, few of them could do well, but speculative to buy rather than a few k's worth .
Problem is if you want to purchase say 200K , you might as well invest in managed funds which give you 7-10 %

[Cpt707]

Thanks for your very measured overview. With the comfort of hindsight I would concur. Present day 'vendors' expectations of unrealistic 'asking prices' are being stretched by their real estate agents. The 2020's property market will no doubt unfold where any 'success is survival'....

[Perry]

I find it odd that no one has mentioned (in this thread), one of the significant reasons PIs give for being PIs: hedging against inflation.

Or have I missed a mention of that?

[OnTheMove]

Everything works in cycles ... IMHO NZ property has had it boom next cycle to pullback to flatline for the 2020s and let NZ household incomes catch-up

100% agree JBM. And this was my point about some people getting lucky on ridiculous growrth like Welli median doubling in 3 years on the back of Auck investors reaching the resistance line on Affordabilty.

Auckland has plateaued bouncing 8% on Q3 then dropping off a again. If it was a really liquid asset Id actually be putting my money on that cycle. Change the below graph to Auck and you will see what I mean.

https://www.interest.co.nz/charts/real-estate/median-price-reinz

There is no justifiable reasoning for a lot of the towns that are experiencing insane prices outside investment. Which again tells me a lot of people got lucky and dont know anything but how to buy and sell a house (no disrespect to those who have a lot of skills, just saying there are a lot who expect NZ to double in 3 years forever).

As JBM points out, ASX has done well, and as somebody else said the other day the share market is understandably outperformed property over the long haul.

If you dont understand how to do your own portfolio, managed funds is an easy option, I just let my Aus super do its thing as I dont have time to manage a large portfolio. But just for transparency sake, my 10 year performance roughly bang on 10% under a "Balanced" portfolio

10%, 10%, 3%, 15.75%, 14%, 11%, 5%, 12%, 11%, 8%

Yes the GFC hurt, which is where if I was under Self Managed Fund I could have saved some dollars.

want to purchase say 200K , you might as well invest in managed funds which give you 7-10 %

Indeed Bluecoat, if you are not comfortable investing in bluechips, managed funds a great way to do it. An old aussie friend is paid $1mPA as a lead financial analyst who places $ to Stocks for managed funds. A lot of money behind him, so high stress. But its less Rocket Science than it looks. Nothing wrong with 7-10% Bluecoat, good times imo :-). And stocks are leverageable. Of course there is risk, but at the moment cities of 200k capita nearly matching median property price of a city of 2M capita is flappn risky imo.

JBM this is very interesting as Ive been awaiting the world to start pooring money into iron ore orgs on the back of China looking to start development again.

Aus has a healthy economy even when its not trying. once it gets going likely NZ will end up 85c to the AU, when NZ i performing well, when its not, back to the 70c which Ive been on the bad and good side of haha.

There is US stock exchange.

Currencies.

Precious metals.

Its a LONG liist what we invest in. Trying to force NZ to provide insane returns will only achieve one thing, justification of our status as #2 most likely country to have a major correction.

Im just hoping Auckland is slowly chipping away at mitigating its risk with the longer this plateau continues.

Not trying to sound a guru or an advisor as Im not. Far from it, just a guy who studied economics and then never used it (If only I could go back to what I wanted to study).

Im just backing up what JBM is saying in that everything runs its course and the last 20 years is extreme volatility that the NZ market has never observed. Perhaps it is time.

[JBM]

Yes Currently got over $300k AUD invested through my own company .. yes investing in smaller 7mill to 100mill companies has more risk as to why I don't put all my funds into one or two companies but hold 9-10 on average .. my trading goal each year is to make around 100% pa I've done that twice over the last 14yrs of trading looking good again for the 19/20fy my average just over 20%pa since 06 (Mostly focused on the smaller end sub 100mill --resources + Energy companies)

I still like to invest in property but more so in commercial 9%+ net yields (only holding one at present purchased with 10.5% yield)

Would like to sell our current family home and build another one with a two bed flat attached here in central Otago and AIRBNB it for extra cashflow..

But I couldn't think of a worse major investment at present that BUYing a Res. rental property on a low yield... with the new tenant rules etc landlords will continue to be kicked to the approval of the rental voters... very brain dead investment for the next decade IMHO and not one I'll be investing in over the above unless a screaming good seal came along(unlikely)

[Bluecoat]

You can still invest in some regions for a 7-9% yield. Only issue is now you have to work for it and costs of keeping is ever increasing - what you receive din your hand a decade ago is very different to what you get now with the same yield comparatively.

Houses with section to develop is what I am considering.
the share market IMHO is overvalued with debt feeding the frenzy- i would be very careful pouring the money in this cycle. All of this can quickly evaporate in a volatile market.
Sometimes the best thing is to do nothing.

[Bluecoat]

I find it odd that no one has mentioned (in this thread), one of the significant reasons PIs give for being PIs: hedging against inflation.

Or have I missed a mention of that?

does it matter these days - with inflation tracking 1.5%. Still better than term deposits.
Property investment is more tangible than shares. The fact you can borrow from the bank to get started also amplified potential gains (although it would also magnify losses).

[Perry]

Inflation seems to be any figure someone wants it to be. Especially the gummint - when it's to its advantage. Seems the HLPI is pertinent, as well.

Long ago, a few of us on here did some (highly anecdotal) calculations on inflation. The formula we came up with was / is:

To get the real rate of inflation, take the CPI, multiply by two and add two.

So, using your figure of 1.5% x two = three. Add two and the real rate of inflation is 5%.