Island Life: Green Acres
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I'm just under the half-way point between 20 and 40 and would love to imagine myself earning $70,000 a year in the near future in NZ in my line of work. Except that I can't.
This is just jealousy from old, overweight boomers who have lost their looks. Deep down they know that only a small minority of upper-middle class kids can put together the sort of cash being asked these days.
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I earn more than 70K, it's not important how much. And I rent. Buying an overinflated asset that will yield less than a bank deposit in income, while relying on a greater fool for my profit does not seem like an investment operation to me. It's speculation.
My rent is far from crippling when you look at the value of the house I live in. It's not me who's suffering - it's my poor old landlords, who are getting a poor return on their capital, unless they're substantially geared.
The VP of the Property Investors Federation has a vested interest in the younger folk buying houses. His business is based on a continual supply of greater fools. Perhaps a more financially aware youth have realised that houses are a lousy investment unless you have sufficient capital and chutzpah to trade for income while not paying tax on it.
Personally, my money is in a mixture of cash and shares, mostly in Australia. Every single dollar I have returns to me more than in would from a house, and my money is spread over a large number of assets, not a couple. I'm ungeared and proud.
I expect terrible things to happen in the next year or two as the bubble implodes, and then, only then, will I buy a house. I would view public statements from the Property Investors Federation as signs of the impending doom. Immigration is falling, inflation is rising, and the the bottom of this pyramid scheme we call "property investment" is running out of new recruits.
On the tongue in cheek suggestion: if we're going to become Australia's farm, we'd better stop building houses on the best agricultural land...
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My income is low enough that I qualify for an accommodation supplement from Work & Income.
But this means that I can live within walking distance of work (healthy, yes) and I can also - gasp - buy one or two lattes a day.
I have a nice amount in my savings account, more in my work retirement fund, no debt, and I still buy crap off Amazon and too many songs on iTunes.
The thing is, I don't really want to buy a house. I'm happy with living in a good rental and not having the terrible burden of a mortgage. I know property ownership is big deal culturally for people, but I could take it or leave.
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merc,
I thought the idea was for the Government of the day to borrow heaps of money offshore, spend it on the oldies who voted them in for just that and then have the grandchildren try pay it off? National Party manifesto 101.
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Regarding that dry land to the west, I was only semi-jokingly suggesting the other day to some co-workers that we should beef up the military to repel the inevitable hordes of Aussie boat-people that will arrive within the next couple of decades...
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We suffered, oh how we suffered, on our meagre single income, to buy a house.
Then it doubled in value in 2 years, and hey presto! Revolving mortgage = pretend rich = lattes everyday.
I don't know what anyone should take from this.
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All this property talk is a little depressing, which possibly is partly the point (on the part of the media commentators). Happily I am deferring that decision for a year or two, and while I do that I'll keep investing my money.
Beats living like a student just to fit a stereotype about what Kiwis should be.
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I live in a spacious three-bedroom house in Hataitai. I figure it's worth at least half a million dollars, given that there's a granny flat underneath. Half a mill? There's no way in hell I would have that kind of money. If I was to buy a house, the only thing I could afford would be a one-bedroomer in Cannon's Creek, and I have no intention of living there. By the time I retire and have no income, I would have inherited my share of my parents' properties - why should I buy a house that I didn't want to live in before then?
Or, you know, until I find a millionaire partner...
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That could be your project for the coming year: gentrify Canon's Creek. keep us posted.
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like joanna i'm living in a place that must easily be worth half mil. i like in the very centre of wellington, and pay no body corp fees, no rates, no nothing but rent.
i take all the money i would have to pay on a mortgage to live here, subtract the rent, put the remainder in the bank.
i blow the rest on <strike>fast cars and fast women</strike> eating well and cleaning living.
let's face facts. until someone has the balls to bring in a capital gains tax on houses, it will continue to be "investor city", and none us student-loan-types will be able to afford homes.
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Sheesh does anybody here own a house?
I do. 30 years old, married, baby. bought 3 years ago for 205,000 in a mediocre west Auckland suburb.. Now worth over 300,000. My mortgage repayments are about what we would be paying in rent for the same house. The only extra costs are rates and the odd bit of maintenance.
So lets see, 95,000 plus minus about 8 thousand in rates and thinsg need a fixin equals 87,000.
87,000 divided by 3 years equals 29,000 dollars earnt a year thus far.
I'm not quite sure where I could have invested a few thousand dollars a year of disposable income to earn a few thousand percent on it a year.
The arse is not going to fall out of the housing market. At worst it will stall for a bit. Our population isn't falling and demand isn't going to disappear anymore than people are going to stop watching TV, or stop wearing clothes in public.
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Here's a few things to consider, Yamis.
1. Your profit is unrealised. You can only see that return on your investment if you sell the house, or borrow against it. When you say "at worst it will stall for a bit", that's glossing over the reality of being unable to realise your profit when you want to, or having to sell at far less than you want to.
2. Your investment is in one house. There is no diversification there.
3. Your return is high because you are highly geared (ie you have a mortage and not that much equity). If you were not geared, you could have got the same return or better in the New Zealand or Australian sharemarkets over that period.
4. Because you are geared, you are vulnerable to rises in interest rates or changes in your ability to service the debt. And if these things happen in a period of market decline, you will be forced to sell at the worst time.
5. "I'm not quite sure where I could have invested a few thousand dollars a year of disposable income to earn a few thousand percent on it a year." But it's not just a few thousand dollars a year that you have invested. A correct accounting of your investment includes your deposit.
I happily accept that your choice has worked out for you, but in fact you are exposed to a number of risks that we non-owners don't worry about.
(PS: I'm moving to Hataitai in a week. Hi, nearly neighbour Joanna!)
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dammit. stephen got there first.
i was going to say to yamis, don't count your chickens.
plus, you're not including the cost of serving the mortgage, including rates.
most $200k houses will cost over $200k in interest over the lifetime of the mortgage. what most people don't do is subtract that cost from the "profit" on their investment.
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Housing prices have dropped before, not just stalled. To assume they will always go up is naive.
What saddens me is when I look around Freemans BAy and see all that wonderful council housing and state housing that used to be here and is now in the hands of private owners. A better public housing programme could help adjust the market. But some sort of capital gains tax on housing sales is needed. But as already noted, our politicians don't have the guts.
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What a great idea close down NZ, apart from farms and turn it into Australia's food supplier, and move everyone to Perth to work in the mines. Hey, Why not build water tankers and ship all that wasted water in the Sth island in the sounds, fjordland etc to Aust as well.
Fuck buying a house in NZ sell sell sell.
Being a separate country.....Get over it...... -
Joanna said:
By the time I retire and have no income, I would have inherited my share of my parents' properties
I've thought this too, but then I think my parents are planning on eventually selling their properties to live off in their retirement, so perhaps all I'll inherit is my mum's ceramic cat collection.
Michael said:
What saddens me is when I look around Freemans BAy and see all that wonderful council housing and state housing that used to be here and is now in the hands of private owners.
Back when that was built, the council made a serious effort to bring good quality, affordable housing to the inner suburbs for people on low incomes. (This also resulted in the sausage flats of Mt Eden, but let's not go there).
But now, however, Freemans Bay is turning into an extension of posh Ponsonby, while the people on low incomes are being forced out further from the city centre.
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Buying each others' houses has been a poor substitute for real economic enterprise.
Except that investing in the sharemarket isn't "real economic enterprise", any more than buying a house is. It's speculation. And the reason so many rich shareholders and brokers are pushing it is in the hope of creating an inflationary bubble and getting more greater fools to sucker.
The exception to this, of course, is investing through actual capital raisings. Those actually do something. But if you buy existing shares in an existing business, you're doing nothing but gambling. Which is fine, if that's how you get your kicks - but we shouldn't pretend its helping the economy.
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dammit. stephen got there first.
i was going to say to yamis, don't count your chickens.
plus, you're not including the cost of serving the mortgage, including rates.
most $200k houses will cost over $200k in interest over the lifetime of the mortgage. what most people don't do is subtract that cost from the "profit" on their investment.
I don't factor the amount of interest into the equation anymore than a family paying 300 dollars a week in rent factors that into the void that it enters. Or rather the landlords pocket minus expenses.
Like I said, if we rented the same house we would be paying 300 a week. Our mortgage is also 300 a week.
I can't see how we are losing out anymore than somebody renting aside from the rates and maintenance which I have already factored in.
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To add to that. We will pay about 170,000 in interest over the next 22 years or thereabouts to pay the mortgage off. By that time the house will probably (based on the increases in house values over the decades) be worth several times that.
We could sell tomorrow and I would be roughly 100,000 dollars better off than I was 3 years ago for virtually no effort. Doesn't sound that dumb to me. That's more than I could save at the current rate in well over a decade.
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A better public housing programme could help adjust the market.
Yes - but can you imagine property investors (including the large number of MPs who own investment properties) taking that lying down. Or will we see an advertising campaign saying "the government wants to devalue your biggest asset"?
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I rent. I'm happy that way. I can see that a lot of people, and me in the future, might want to be confident of staying in a place and to be able to faff around with the decor not to mention install *central heating* (a wonderful invention that is used overseas to keep ones house at a constant, comfortable temperature all through winter).
It would be good to be able to rent long term with a maintenance agreement (somewhat like the deal my firm has on the office). In other words unbundle the "somewhere to live" part from the "speculative investment" part. One idea would be to get back to the days when state housing was for ordinary people rather than just the underclass.
I did own a flat in London. I bought at the depths of the 90's slump and made a 50% capital gain in five years. On which I paid how much tax - a big fat zero! At the same time, the money I actually earnt through productive work got taxed at 50%. It's much the same in New Zealand. I have never seen an explanation of why this is a fair way to spread the tax burden.
I'm sort of convinced that the property bubble in NZ will burst and there'll be a buyers market again. There are some possible reasons why it might not. Part of that is that currencies are supposed to move towards purchasing power parity in the long term. The NZ dollar is way, way below this, which implies that any NZ assets are a good long term buy - even if other factors are pushing their value downwards.
There is also the way New Zealanders love buying houses and *are* willing to impoverish themselves to pay the mortgage. This both helps keep the boom going *and* reduces the spillover into the productive economy. If more people were reducing equity and upping their lifestyle with the proceeds then that would be more of an inflationary driver. -
Here's a few things to consider, Yamis.
1. Your profit is unrealised. You can only see that return on your investment if you sell the house, or borrow against it. When you say "at worst it will stall for a bit", that's glossing over the reality of being unable to realise your profit when you want to, or having to sell at far less than you want to.
Isn't that like any investment? Fair enough though that it is a much bigger pain in the arse selling a house than it is to call your stokebroker and tell him to sell those shares.
But saying I can't realise my profit when I want to is stretching it a bit. I could sell the place in roughly a month and be renting an apartment in Korea by the end of the year with money to burn in my bank account. It's not like I'm trying to get money out of a Nigerian through the internet. And even if I sell for less than I want to I'm already being conservative. The 100,000 in 3 years profit is probably closer to 150,000 judging by the house prices of our neighbours up and down the street in the last year.
2. Your investment is in one house. There is no diversification there.
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Yes, indeed. But if the housing market bottoms out we have no urgent need to move. In 5 years, or 8 years or whatever the market will be doing what it does.
3. Your return is high because you are highly geared (ie you have a mortage and not that much equity). If you were not geared, you could have got the same return or better in the New Zealand or Australian sharemarkets over that period.
Knowing what we had and what we have, and what I earn and whats left over you'd need to be a miracle worker to have done that well on the sharemarket. But what I know about the market could be written on the back of the preverbial postage stamp.
4. Because you are geared, you are vulnerable to rises in interest rates or changes in your ability to service the debt. And if these things happen in a period of market decline, you will be forced to sell at the worst time.
We are on a 5 year fixed rate. The interest rates aren't changing anytime soon for us. Even when they do it's not a major amount we are looking at. You are raising some good points but they are kind of assuming the worst which can be done for anyone.
5. "I'm not quite sure where I could have invested a few thousand dollars a year of disposable income to earn a few thousand percent on it a year." But it's not just a few thousand dollars a year that you have invested. A correct accounting of your investment includes your deposit.
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That's true. We could have put the deposit in shares or something but we would have needed truly phenomenal luck with where they went. I assume turning 45,000 into close to 150,000 in 3 years is not all that easy. And if it is then people doing it are probably .... buying houses ;)
I happily accept that your choice has worked out for you, but in fact you are exposed to a number of risks that we non-owners don't worry about.
trust me. I don't worry about the risks ever. I didn't buy it to make money, I bought it so we could get a foot in the market before it got too big.
Cheers for the breakdown of it all though.
I've got a metro mag from about 1992 floating around with an article on Auckland house prices which I'll try and dig up and maybe chuck a quote or two in from it.
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One other thing before I threaten to take over the thread. I was actually going to blog on it but maybe not now.
One thing I love about owning is being able to do whatever we want with the place. We've added a deck and I've planted about 250 plants on the section. It's all painted how we want, we put in a ventilation system which is going great guns, the gardens are looking nice etc. It all costs money (but not a hell of a lot considering the difference it makes) but if it's being done in the right way it helps the resale value and ability. If we were renting we would have been stuck in the same crappy house we bought.
But that is all by the by. What I was really wondering is what is going to happen to places like placemakers and mitre 10 as we get less and less people owning their own home??
People renting aren't down at Mitre 10 mega buying paint, timber, plants, no more gaps, nails etc all that often. Long term will it also mean a downgrade in the quality of our houses as landlords do the bare minimum to keep the house livable?
I dunno. Just wondering.
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But if you buy existing shares in an existing business, you're doing nothing but gambling.
A contemptuous half-truth, I think. My shares are small ownership stakes in a productive enterprise, whose earnings I likewise own and enjoy in the form of dividends, and retained earnings that increase the value of the share. Through diligent analysis, I try to identify companies whose shares are trading below fair value, so as to get the best bang for my buck. Most long-lived fortunes in the market are made with that philosophy. There is an element of chance in it, but it's only gambling if every operation with an element of chance is gambling.
If I didn't buy shares in existing businesses, people who did start businesses would have no way to cash out. By Idiot Savant's logic those who start businesses could never realise their investment, while those without the opportunity to get in at the ground floor would never have a better investment than a savings account. Unless they "gambled", of course.
Many people DO buy shares in the hope of trading successfully or without regard to underlying value. Brokers encourage them to do so, in the same way and for the same reasons that real estate agents encourage business: because they make their money when clients trade, whether or not clients make a profit. Those people should be buying indexed funds or just stashing their money in a high interest savings account. They should not be encouraged to trade.
(One of my big complaints about the current government's policy in this area is that although study after study has shown that actively managed funds underperform the market and lose investors' money in management fees, the government is effectively trying to steer people into managed funds, rather than direct investment or index funds. But we digress).
Most people don't know enough about shares, or houses, or any other form of investment, to make their purchases much more than a gamble. But that doesn't mean that shares, or houses, or any other form of investment are inherently gambling.
Our local sharemarket is dwindling for a number of reasons but one of the big ones is that there are few IPOs for people like me to invest in. Another is that since we locals prefer houses, foreigners who take the longer view are simply buying out and delisting our companies. Most of my share investments are in Australia because there simply isn't enough depth in our local market for me. Since I'm reversing the flow of dividends and interest across the Tasman, I feel positively virtuous...
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I assume turning 45,000 into close to 150,000 in 3 years is not all that easy
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It's all in the leverage. You could have made that in other investments,if you were prepared to borrow to the extent that you have against your house. (Also, is 45000 your deposit + all your payments? Your deposit + all payments is the appropriate base figure).
I don't worry about the risks ever. I didn't buy it to make money,
There's no arguing with that!
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