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Rental property most popular again with investors in ASB survey

Posted in News

New Zealand investors are falling back in love with rental property after a brief flirtation with bank term deposits and savings accounts, ASB's latest quarterly investor confidence survey shows. The percentage of respondents to the survey who believed rental property gave the best return on investment out of a number of asset classes rose to 18% in the second quarter of 2009 from 15% in the first quarter. Rental property took over first place from bank savings accounts, which fell from 21% at the start of the year to 17% of investors who believed the class gave the best return in the second quarter. Throughout New Zealand's recent property boom between 2003 and the end of 2007, rental property remained well ahead of other asset classes for investors who thought it gave the best returns over savings accounts, term deposits and managed investments, unit trusts and superannuation.

However with the property market crash at the end of 2007 and the beginning of 2008, rental property as a preferred investment fell away as investors moved toward the safety of bank term deposits and savings accounts. "With early signs of more stable financial markets it's likely that a wider range of investment categories may now re-gain favour in addition to the recent safe-haven allure of bank deposits," ASB Head of Investment Services Jonathan Beale said. "House prices have continued to remain high relative to incomes, despite having dropped over the last year, and with mortgage rates being low, confidence in rental property investment has started to come back into favour," Beale said. The level of respondents who saw term deposits as giving the best investment return rose 1% over the quarter to 14% of respondents. This was still down, however, from 21% in the third quarter of 2008 when investors were seeking to put money into safer asset classes as world credit markets froze and confidence fell away. The number of investors who said they preferred managed funds, unit trusts and superannuation fell 1% over the quarter to 9% of respondents who regarded these as giving the best return on investment. Overall net investor confidence remained negative in the second quarter (see second chart). This was despite the number of respondents saying confidence was better in the quarter closing in on those suggesting it was worse. Net confidence in investing overall improved to minus 11% from minus 25% in the March quarter.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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One word - unbelievable!

One word - unbelievable!

Unbelievable is right!! .. considering

Unbelievable is right!! .. considering there are many better investment vehicles out there that give far better return than property.

Who can blame them: http://www.interest.co.nz/ratesblog/index.ph

Who can blame them:

http://www.interest.co.nz/ratesblog/index.php/2009/06/26/bernard-hickey-...

It's not difficult to see how some can interpret effective asset taxation (CGT/LVT) as a 'stick'. However, without making 'carrots' more attractive the 'stick' and the sensible arguements associated with the disciplines we need will be dodged and resisted as sure as any unreasonable force ever is.

I guess that's another way to maintain the 'status quo' - just let the carrots fester?

But property is protected by

But property is protected by the govt Matt. Key isn't going to move a finger to threaten the capital gains of National's Rump. It is so bloody obvious.

Hooray

Hooray

I was forced by my

I was forced by my girlfriend to view some open homes over the weekend. I was amazed how many people were at the open homes. One house must have had 30 or more people walking around. Amazing! Seems housing confidence is back in a hurry. Be interesting to see sales stats for the month when they available. Seems like the government will do nothing to stop money/debt pouring into housing. So, I guess, with under 20% loans available, the flood gates are open again. I still beleive a correction in house prices will come, but it may take another cycle until it happens. Lots of variables at play. I had hoped to buy my first home when I saw clear signs of a recovery (not the lowest price). I still don't think I have seen clear signs of a recovery, but I am getting tired of waiting. My situation at work has improved, maybe its time to take the plunge??? I'm not buying for an investment or to make capital gains, just don't want to make a horible loss and be without work.

I concur with you Nelson.

I concur with you Nelson. The house I found last week and came close to putting a tender on ended up selling for $40K ABOVE CV, and I was thinking about tendering $40K BELOW CV - I'm glad I didn't bother. I have the 20% deposit, even for the price it went for, but the repayments - oh my god - not pretty. I just refuse to do it. When you're spending half a million bucks you need to think about things pretty damned carefully.

What exactly are the better

What exactly are the better options? Our managed funds have lost 30k . PIE fund has lost 5k. Our shares have halved in value. Funds in bank earning stuff all. A rental property is looking increasingly tempting. Any advice appreciated. ( 20 years till retirement.)

Nelson, check out the other

Nelson, check out the other open homes and discover how the agents have been cooking the picture. Most of those turning up, are following a prearranged plan by the agents. They work for the agents. You should have been awake to this rort. It's the oldest in the book. All the great con artists use it.

there's a glut of rental

there's a glut of rental properties around auckland now pouring onto the market.
a house near me had a for sale sign on for weeks and then it sold...now the for rent sign has been out there for weeks.

borrow the money, the rates are climbing,empty rental...do the maths.
hold steady , amigos...the proportion of greedy fools is less than the everyday kiwi looking for a fair deal on a home!
the investors will be soaked up soon and then the listings will come powering on in summer and the market will slide down again.
trust me..i know these things!

Hi People I used to

Hi People
I used to be a renter for 6 years, I should say all the renters should thank the landlords for providing affordable housing. THere would be not enough houses for renters if people stop investing housing.

veedub Says: "One word -

veedub Says:
"One word - unbelievable!"

Why?
We have discussed many times how the main stream media mainly publish economist reports from self interested parties such as banks, real estate organisations at face value, and dont question them.

Wally @ 11.22am Easily the

Wally @ 11.22am

Easily the stupidest post I've seen here. Bet you can't supply a skerrick of proof this is happening.

Nelson, beware the auction room

Nelson, beware the auction room or site. The 'crowd will be packed with the same friends of the agent. The room will have fewer seats to make it look full. The same 'friends' will always be there. Try turning up with video camera and capture the crowd. After a while you will notice the same people turning up. It's a public place Nelson so they cannot stop the filming. Take along your own 'protection'.

I have a rental that

I have a rental that I listed for sale on Saturday and the open homes were well attended BUT having tried to rent it out with little success you can draw a conclusion about where the market is tracking. Stop screaming CGT for a couple of minutes which didnt stop the madness in other countries.
The demand and stability in prices has come from owner occupiers, especially first home buyers using the crazily generous and risky welcome home loans.
If it is prospective landlords climbing in to the market they will get burnt, tenants are hard to come by.
Interesting comments Wally and was just wondering what your thoughts are on the moon landing.

I must say that under

I must say that under the present circumstances I feel that (whatever a house is worth given our funny money and dishonest higher and lower echelons) it is about the only solid thing you can rely on. You can plant a garden for instance (until developers lean on the council and they raise the hight limit ).
Better to starve to death in your own home or you can hoard food and keep an iron bar handy to keep others out.

Steps, I believe it alright,

Steps, I believe it alright, and from the average Kiwi's point of view I even understand why rental property is most popular with investors. But when and where will it end? It can't keep going like this. If the last "bubble burst" (if you could even call it that) had little impact, you'd have to think the next one will be pretty spectacular. I just think it's unbelievable that people are rushing out there to take on yet more debt.

Quite right veedub, a more

Quite right veedub, a more destructive 'burst' must be on the cards. Try this link Berbard gave us today. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/585707...
Very very frightening future veedub!

Safari.. basically the options would

Safari.. basically the options would be shares (local and foreign), currencies, and the very popular ETF's all which are available to average kiwi investors. Information is readilly available on the interweb about how to get started, and the different methods and strategies to use. The key is to do your research first, like you would with any investment. Unlike property, you can start of small, and there are many 'practice' sites for you to try out without loosing any money. With more research and practice you can minimise the risks and learn to play the game, identify the trends and patterns, pick your entry and exit points to get in and out quickly back into cash.

Smoke and mirrors... Makes you

Smoke and mirrors...

Makes you wonder when the smoke machine goes bust & the mirror breaks, all in the same day (or month if you like)... Seems some answers are to be found in a couple of the good links from the top 10 at 10 today!

All valid options Matt but

All valid options Matt but better? They all involve research and constant oversight (something I don't think the "average" investor would appreciate compared to property) Also, the leverage options aren't as attractive when you consider the volitility of these markets - imagine getting a margin call when the market drops as it has in recent times.

As Safari said he's sustained big losses on his equity related investments.

The average kiwi investor prefers (IMHO) something he/she can touch see and smell.

Spidy .. but if you

Spidy .. but if you consider the average property investor would go to open homes, get lim reports, organise finance, manage tentants, deal with maintenance etc.. so how much time does all that take? I always found it strange as to why kiwi's find other types of investing "so" time consuming and difficult !?!?!

Thanks Matt S . I

Thanks Matt S . I will give your advice some thought and discuss with OH. Great blog site, most informative.

You're right Matt, but I

You're right Matt, but I guess kiwi's find it easier dealing with something that has tyres you can kick. Not sure about anyone else here but it's only been the last couple of years that I've pro-actively sought knowlege on anything to do with finance and investing. I never really learned much about it from my parents or secondary school (state secondary school) I never got the impression that this stuff was that important back then...........sigh

Safari.. there are also a

Safari.. there are also a number of free charting tools out there with technical controls, start with the basics like moving averages etc, and learn the basic patterns like double tops, head n shoulders, Elliot waves etc..

Read the trading forums, and trading pattern sites. You can pick up a lot of good tips and advice from there.

Also you can start off relatively basic, ie have foreign currency accounts and move money between them for example, or buy shares directly through your bank etc using your own cash to start. As you get more experience you can use margin lending (but be careful).

The best thing you can do is take control of your own money, don't give it to someone else to invest, they generally are experts at making your capital their capital.

And besides, it can be fun.. certainly more fun than dealing with some grumpy tenant who's not paying the rent !!

Good luck..
Matt

Interesting comments about the alternatives

Interesting comments about the alternatives esp by Matt S. A short time ago we had someone on here ( from the finance industry , I'm sure ) moaning about the financial illiteracy of the average Kiwi. Well why don't they ( the finance industry ) take a look at Bernard's comments on the "new" media and get their act together with a good educational website giving the simple ABC of the alternatives being discussed. Its no use saying the education system should do it, as they have been saying recently -- the changes are needed now not when todays school kids have some money to invest.

Safari, Matt's advice is sound.

Safari, Matt's advice is sound. Research like mad but realise you will learn more about yourself than anything else.

too late... been and gone~

too late...
been and gone~

whats up with this shoe

whats up with this shoe business that appears every now and then?
Is this some kind of spam?
Or is it some kind of bad joke?
Its f#$%% annoying!

OK now I'm over that, TD's are starting to look not too bad, creeping back up to the 4.7% mark
Given that much property would be lucky to give 5% return, plus you have all the hassles, minimal chance of significant capital gains, limited potential for rental increases and no certainty that prices will not drop again
My TD (on about 8% interest) expires next Feb, by then we should have a better picture of where things are going

Matt S - "there are

Matt S - "there are many better investment vehicles out there that give far better return than property" - I've invested in them all and property has won every time, you are looking at absolute prices and putting in entirely your own money and forgetting about things like leverage, depreciation, tax refunds etc etc.

Nelson & veedub - yes the market is very active right now and no I am not a real estate agent!
REINZ June 2008 figures - median price $340,000 - volume 4,305 - days to sell 53
REINZ June 2009 figures - median price $340,000 - volume 6,040 - days to sell 41
market crashed as predicted by some? no. market picked up a little? yes.

Safari - "Any advice appreciated. ( 20 years till retirement.)" - buy a rental with a 20 year mortgage and it will be freehold by then regardless of what house prices do. If you have the deposit or equity, buy more than one and they'll also be freehold in 20 years. Preferably, shop around and find ones that pay for themselves, it was easier at the start of the year but always possible, sometimes it might mean a paint & tidy up is needed.

David - if you can't find a tenant it means the rent is too high, either due to the condition of the property, location of the property, or an oversupply of rental properties in that particular location. You can fix the first problem, you can avoid the second problem by buying in a decent location in the first place, you can't do anything about the third problem except reduce the rent.

Matt S & Matt in Auck - yes property is more hassle than any other investment, but it is the "hands on" part that enables better returns. It is a "Real" thing, and "Real" things require maintenance and cause hassles, but "Real" things can also be improved, renovated, subdivided etc. I can't put a lick of paint on a term deposit or a share and instantly increase both the value of it and the yield I get for it.....

With Fitch downgrading its rating,

With Fitch downgrading its rating, and our increasing foreign debt I'm investing offshore. The kiwi is too high at the moment to be sustained, Bollard has said one way or another it WILL come down, meaning if our export earnings remain poor, our foreign debt keeps accelerating, and eventually our dollar will be valued less and less as no one wants to risk investing in the next Iceland.

And buying more property now leaves you exposed to the above scenario in two ways, firstly the high interest rates as government attempts to attract back the foreign dollar, and also plunging property prices in real terms (i.e. bars of gold worth), as the kiwi becomes worth less and less and affordability decreases more and more.

Bollard recently:
"He said interest rates were a blunt instrument to curb borrowing, and expected to see prudential policy playing a greater role in monetary policy settings, by offering "a more direct approach to constraining excessive or misdirected borrowing and lending behavior.""

So looks like some moves to prevent the above scenario are in place lets hope it happens sooner rather than later