Not sure I would have wasted my time rebutting anything Dean Letfus said.......

@ doubter
"The taxes changes mean that, in the longer term, the stock of housing is likely to be smaller than it would otherwise have been."

The possibility of losing too many of our builders to Australia might reduce the rates of new home building here but I fail to see how the proposed tax changes could do so.

doubter Says:

April 20th, 2010 at 11:56 am
Gareth, I agree with most of what you say, but you need to look beyond the short term.
The taxes changes mean that, in the longer term, the stock of housing is likely to be smaller than it would otherwise have been.

If houses aren't selling then I see no reason why availability should decrease, unless sellers refuse to sell until they get 2007 prices (or higher). But then our beloved "market forces" will sort them out.

In the face of an increasing population, this is likely to moderate any house price reductions and reinforce any tendency for rents to rise.

Wishful thinking on the part of desperate real estate agents and property investors. The NZ population isn't increasing greatly. What is increasing fast is the number of old people who will be looking to downsize, or move into retirement villages. That population shift will significantly outpace any other in the foreseeable future.

There'll are plenty of houses to go around. Most sellers won't be able to hold out forever, and the market will force them to sell at a reasonable price, rather than the unrealistic price they still hope to get.

This is a major consequence of an unbalanced, mismanaged economy for years…..

http://www.youtube.com/watch?v=FmeZgiw_a6w

…YOU young bloggers here should bring it back to here – sustainability

http://www.youtube.com/watch?v=9sEZ-wdFegU

..stop going around a circle day after day talking about the property industry and demand actions for a balanced economic strategy plan from our politicians – wake up Kiwis!

Walter (tired here)

Jacko Says:

April 20th, 2010 at 12:30 pm
@Gareth, you’ve got it all wrong, as I’m sure you will be told very shortly by the likes of Andrew King, Olly Newland and some regular PI contributors to the threads on this site, like Dave Smyth. Personally, I think you got it all right, but it’s clear even at this stage, that government will be listening more to the people I’ve listed here, rather than yourself, why else would John Key have dismissed most of the TWG’s work in this area? Why do they take more notice of the PI crowd than people like yourself and the TWG, why?

http://www.interest.co.nz/ratesblog/index.php/2009/08/05/have-your-say-h...

Vested, conflicted interests?????? Who knows??????

"Hands up all those MPs and other pollies who don't hold significant property investment portfolios. Anyone? Oh come now, there must be someone here in parliament who isn't a property investor, surely?! No...?"

@Didge and Andy M,
Think back to your econ101.
What happens to the demand curve when you remove a subsidy?
And how is the market clearing quantity supplied affected?
Holding other factors constant, the only way that you could avoid a quantity response would be if the supply curve was completely vertical i.e. the supply of houses was infinitely price inelastic.
More prosaically, the activites of property investors do have an effect (albeit small) on the amount of property that is built, even if they very rarely build new properties themsleves. They bid up decile 1 and decile 2 prices, and this enables some sellers to build new properties that they would not otherwise be able to afford.

A subsidy removal doesn't effect the shape of a demand curve when it is income dependent ( in this case, the ability to pay a maximum rental amount. That changes with income not availability), doubter. Tenants will just move 'down the curve'. ie: rent a lesser quality property for the same rental outlay, leaving more upper end properties fighting for fewer tenants - ergo - a reduction in rents at the top end compressing rents generally? We may even see a flatter curve!

@Jill: maybe try rebutting his logic instead of name calling? though if previous posts are anything to go by, that's unlikely (use of logic, let alone getting it right that is).

regards

Nicholas Arrand

You've got no grasp of the rental market if you think that removing depreciation will compress rents.

The landlords who benefit the most from depreciation are the high income earners who buy high quality low yield properties generally in expensive neighbourhoods close to where they live. These are the people who will sell out.

Hence less high quality accommodation in good areas!

Already we are seeing demand for quality rentals in top locations significantly increasing (while the market for low quality weakens). Availability of quality rentals is low, and prices are likely to rise sharply especially if there is a perception amongst the "intelligentsia" that they are better off selling and renting.

Lack of availability of quality homes will force up the rents of "good" homes which will in turn pull up the whole market eventually. Net result will be stable house prices and rising rents for the next few years - even with stable wage growth. Yields then improve and house prices then go up - easy!

Alot of PI's I know have added sleepouts or minor dwellings to increase yeilds. But then they would be the sensible ones taking into consideration cashflow.

@Chris J

Goddman you are ignorant. Fund managers take fees - how else do you think they earn money?? Do real estate agents not take commissions?

If you think you can do a better job managing peoples money, start up your own fund and see how long it will last. If you've worked in the markets, you'll know that most fund managers are incredibly smart people that have educated themselves immensely, work very long hours and are incredibly sensitive to the performance of their funds.

Real estate agents are motivated by commissions, nothing else. They often have nil to very little education, but are good talkers and socialites.

I know who I'd trust when it comes to looking after my money.

"Some landlords seem to see themselves as providing a social service for people who can’t afford to buy their own house." Sure, the same as supermarkets provide a social service for people who can't grow their own food. Not.

I'd further ask you, Chris-J, who "..The landlords who benefit the most from depreciation are the high income earners .... who will sell out", will sell out to? I'm not much of a one to subscribe to the Yellow Peril theory, and even if overseas absentee buyers do buy these high end properties, won't they just come back on the rental market? The overseas cost of carry is much lower after all ( cheaper rents?). If it's to local owner/occupiers, what's wrong with that, except that it is one less fish in the rental pool!

"Buzzword memorised at seminar buzzword buzzword buzzword memorised from REINZ press release buzzword buzzword memorised from Barfoot & Thompson sales flyer buzzword buzzword and lots more fatuous, empty and utterly meaningless buzzwords..."

Repeat after me: 'It's all about the fundamentals'.

Fun-da-men-tal

Incomes : prices : supply : demand : credit : etc

Potential buyer 'A' wants a home.

They have 'X' to spend.

Homes cost eight times 'X' so 'A' goes to the bank for a loan.

In good times the bank would approve that loan because 'A' was seen as a "good risk" and 'A' would buy the home.

In not so good times the bank declines the loan on the basis that 'A' doesn't earn enough.

When banks are lending and people like 'A' are buying, sellers get their asking price.

Demand exists.

Prices climb.

When banks are not lending, or when prices become too high - or both - demand subsides as potential buyers sit on their money.

Some potential buyers lose their incomes in bad times, so demand subsides even more.

Prices eventually fall as demand diminishes, although it takes a while as sellers refuse to take the hint until it becomes painful.

Potential buyers fall back on renting, while some move back home with mum and dad.

Landlords rub their hands in glee, believing that there will be a massive surge in demand for rental properties, giving them an excuse to hike rents.

And so they do.

Potential renters stay away in droves, existing tenants bail.

Some move down to less expensive properties, others move back in with relatives, or increase densities (see, I know buzzwords too!), cramming more flatmates in.

Many say "Oh sod this, I'm off to Oz!", and away they go.

Lots of elderly people, meanwhile, are dying, down-sizing, moving in with the kids, or checking into nursing homes, making more property available.

The "market" wises up to the fundamentals - at last! - and sees the PI market for what it had become: a pyramid scheme.

You seminarites can spew all of the vapid jargon you like, it doesn't alter the fundamentls in any way.

Get used to that.

The argument that depreciation should be left alone because it's clawed back when sold has no substance for a start those who don't sell never pay it back. Also claiming depreciation allows PI's to make a paper loss and reduce their taxable income and hence pay less tax than they should and also claim WFF and other tax rebates that they otherwise wouldn't be entitled to which adds up to far more than a interest free loan.

@Pete

"It was pointed out in Saturday’s Herald (Holm/Shewan/IRD) that when rental properties are sold the buildings are often valued at their written down book value and all of the capital gain is attributed to an increase in the value of the land. This avoids any depreciation claw back."

I read this article too. One thing that was missing is that if a seller wants to sell the building at the written down value the buyer has to be in written agreement (if the book value is below market price) otherwise it cant be done unless the seller actually takes the loss in the price. In other words the buyer would be at a disadvantage since he wouldn't be able to depriciate the building as opposed to buying a building were this wasn't applicable. If he does agree to this however he (or she) can only depreciate the remainder, if any. The article mades it sound like you can just sell it at book value to another and they can then depreciate what you have already depricated which isn't true.

OT but awesome - take a gander at these pics! http://www.swisseduc.ch/stromboli/perm/iceland/eyafallajokull_20100416-e...

mark.s Says:

April 20th, 2010 at 2:44 pm
@Paul the 3rd

“Mate, didn’t you hear? You can’t lose with property!”

I guess it all depends on the deal doesn’t it?

Nah I was told there's no such thing as a bad deal when it comes to property because you can't lose with property! ;)

jill Says:

April 20th, 2010 at 12:28 pm
Sorry Gareth you seem to have the mind of a fools paradise ,or a paradise run by fools, on your forecast.Wonder will you be as strident when the **** hits the fan,or better still a job?dont think anyone will continue to pay for such claptrap.

Well we will just have to wait and see because only time will tell who is the greater fool.

jill Says:

April 20th, 2010 at 1:54 pm
@Stephen. The answers are in History of well worn precedents,Time you started educating yourself instead of berating people like me who assume that literate people who blog on this web site have done their homework.Sorry Stephen you must try harder.

Poor ole Stephen. You will just have to get educated, my boy. Jill obviously has been and knows everything.

@justice

"“It’s worthwhile reminding readers that any depreciation claimed by property investors is clawed back by the IRD when the house is sold,”

ONLY if it is declared! many are not doing that. Hence I’m dobbing on all I know who aren’t."

Really? Do you have any evidence to back that up? Or was it just a joke that I didn't get?

I'm sure that when you file a tax return it asks you if you have sold any properties in that tax year. Failing to disclose this would be not only really really stupid and somewhat pointless but quite illegal and I'm pretty sure you would be caught out especally since the IRD is looking much more carefully now at PI.

mark.s Says:
April 20th, 2010 at 4:02 pm

Really? Do you have any evidence to back that up? Or was it just a joke that I didn’t get?

Yes, I DO on certain individuals. IRD get the info today.. The ones I know who are doing it are trying to avoid paying 'child support'.

@jill: "Property investors can’t get past their own vested interest"

As the piece says....

regards

Dear Gareth

You don't need to worry about Dean Letfus. He is widely perceived to be somewhat of a joke in property investment circles. Whilst he is a passionate speaker and uses God and the poor children of Fiji to pull the heartstrings as part of his slick sales pitch, he lacks content and in depth knowledge. His throw caution to the wind attitude has cost two of my friends severely - one bankrupted, the other committed suicide partly as a result of all the borrowings Letfus' teachings made him incur.

Letfus no doubt has very high property borrowings and he his probably becoming exposed now. As a result he has to sell lots of tickets to his events, and his costly $20K mentoring package (www.millionairemastery.co.nz).

It was interesting to find out Dean's true story on the PropertyTalk.com forums (http://www.propertytalk.com/forum/showthread.php?t=17353&highlight=dean+...). So don't bother about replying or discussing what such a discredited self-proclaimed 'property investment guru' and 'internet marketing guru' like Dean Letfus thinks. He only thinks of his own back pocket.

Regards
Anna Chen

Hey guys save some debate please for the 20th of May, it's still a month away...

Garetth said: Rents may rise, but that needs to be balanced against the downward pressure on house prices, improved affordability for first-home buyers...."

So increased rents + decreasing prices = increased yields (Matt in Auck and Ian C will be happy)...might be bargain time again :)

So increased rents + decreasing prices = increased yields (Matt in Auck and Ian C will be happy)…might be bargain time again :)

Sub 6% yields, assuming we return to "normal" interest rates (ie, normal economic growth) basically tells me that yields have to rise. I'll readily admit it can come from higher rents, I just don't think thats as likely as falling prices.

Ah, can't help myself:

To use tax law to make one investment less favourable than another is poor tax law.

What about using tax law to decrease favourability?

Besides, all they're talking about is changing the depreciation rate (possibly to nil), to reflect the observed depreciation (as measured by the IRD, which isn't really "depreciation" as such when you look at the way the clawback works through nominal values). They might even do it for commercial property (and by extension, this will include businesses owning their own premises), so it could be fair between building asset classes.

@Andrew King: I LOVE THIS COMMENT -
"I would have expected better from an infometrics employee. The first thing he got completely wrong was believing Dean Letfus was an expert in property."

The only thing property shark Dean Letfus is good at, is blowing his own trumpet.

will be interesting to see what the next unemployment figures show

Telstra cut 120 today, Telecom cutting 200 odd, Auckland Councils are likely to cut hundreds, that Sunrise programme or whatever its called sack a few unfunny presenters....

looking like a pretty fragile recovery

ahhhh but house prices will "edge higher"..............!!!!!!!

Point 1. Letting (and managing, maintaining, etc.) rental property IS a business, sometimes profitable, sometimes not.
Point 2. There are many businesses that are subsidized, or protected, or facilitate through a number of different ways by Governments, all over the world and including NZ, depending on how important those businesses are. EVEN IF the rental business was subsidised, this may still be appropriate given its importance.

Matt in Auck Says:
April 20th, 2010 at 8:19 pm

I didn’t know anything about this dude Leftus, just went to his website.
Spooky the similarities between the fundamentalist christianity mob and the whole “property can make you rich” movement
spooky, spooky

So what did you expect? Both are based upon blind, mindless faith.

:D

mark.s Says:
April 20th, 2010 at 4:16 pm

@Justice

"All I can say is they must be f###in stupid because they were never going to get away with that!"

Your right, they are, and even more stupid for gloating too people like me about it. Selfish too! They don't even want to take responsibility for their own childrens needs!. They would rather someone else does while they build a property empire.

"The whole system is bordering on corrupt isn’t it? Actually “bordering on” is a very kind preface

An MP with balls needs to raise this in parliament"

Is it not simply and clearly a "conflict of interest" issue Matt? For MP's to decide (them alone) what is to be done with tax laws around property? THEIR own number one investment portfolio asset!

yeah although where do you draw the line? MPs would have interests in all sorts of things they make policy on, like income tax levels
But arguably they have much more to lose / gain on law around property investment than any decision on income tax could ever have...

What do you suggest Justice? how about any MP with an investment property remove themselves from voting????

IanC Says:
April 20th, 2010 at 6:18 pm

Ah, can’t help myself:

To use tax law to make one investment less favourable than another is poor tax law.

What about using tax law to decrease favourability?

Neither can I Ian!

Property is favourable to many people for many reasons. Control, stability, self responsibility, ability to add value to name a view. Business ownership is favourable to many people for many of the same reasons. Shares are favourable because they are liquid, passive and easy to value at any given time of the day.

More people own shares (either directly or through managed funds) than own rental property. Surely this must mean that shares are more favourable, so shouldn't we use tax to reduce their favourability?

A fairly misguided article, there Gareth.

"Let’s assume that the stock of housing is fixed in the short-term"
It isn't, so why assume it is? It is constantly growing, as is the population. If there is very little new supply of rental property in a growing population it won't take long to create a shortage in that area.

"In my view, property investors are set to get off reasonably lightly, but that hasn’t stopped them from complaining that they’ve been unfairly singled out"
If tax changes target residential only, then they have been unfairly singled out. If tax changes apply to ALL property then fair enough...

Kate Says: " 'A rental property is a business not a charity.' Well, hard to say given there are so many loss making rental businesses"

And how many other businesses making losses in their early years, Kate?

@Andrew King

"More people own shares (either directly or through managed funds) than own rental property."

Your right by a massive margin too. 1.3 million in Kiwisaver . Quite a lot of $ once you take into account Govt contrubution and employer contrubutions (since they are subsidised by a tax break from govt).

@Chris_j: "How about the vested interests of fund managers and advisers who would love to charge fees on all those investments they can direct away from property?"

Indeed, but its not compulsory to use them.......

David Learah sounds like a bright and insightful chap. Its incredible how many of these idiots have popped up recently. People will always find someone to blame for their own short comings.

Paul, what makes someone insightful? why do they need to be so all insightful? you sound like a drop-kick yourself one that feels the world owes you something!

G. Brownlee Says:
April 20th, 2010 at 1:53 pm

“Buzzword memorised at seminar buzzword buzzword buzzword memorised from REINZ press release buzzword buzzword memorised from Barfoot & Thompson sales flyer buzzword buzzword and lots more fatuous, empty and utterly meaningless buzzwords…”

Repeat after me: ‘It’s all about the fundamentals’.

Fun-da-men-tal

Incomes : prices : supply : demand : credit : etc

Potential buyer ‘A’ wants a home.

They have ‘X’ to spend.

Homes cost eight times ‘X’ so ‘A’ goes to the bank for a loan.

In good times the bank would approve that loan because ‘A’ was seen as a “good risk” and ‘A’ would buy the home.

In not so good times the bank declines the loan on the basis that ‘A’ doesn’t earn enough.

When banks are lending and people like ‘A’ are buying, sellers get their asking price.

Demand exists.

Prices climb.

When banks are not lending, or when prices become too high – or both – demand subsides as potential buyers sit on their money.

Some potential buyers lose their incomes in bad times, so demand subsides even more.

Prices eventually fall as demand diminishes, although it takes a while as sellers refuse to take the hint until it becomes painful.

Potential buyers fall back on renting, while some move back home with mum and dad.

Landlords rub their hands in glee, believing that there will be a massive surge in demand for rental properties, giving them an excuse to hike rents.

And so they do.

Potential renters stay away in droves, existing tenants bail.

Some move down to less expensive properties, others move back in with relatives, or increase densities (see, I know buzzwords too!), cramming more flatmates in.

Many say “Oh sod this, I’m off to Oz!”, and away they go.

Lots of elderly people, meanwhile, are dying, down-sizing, moving in with the kids, or checking into nursing homes, making more property available.

The “market” wises up to the fundamentals – at last! – and sees the PI market for what it had become: a pyramid scheme.

You seminarites can spew all of the vapid jargon you like, it doesn’t alter the fundamentls in any way.

Get used to that.

That was so good, I quoted the whole thing!

But will any of the property investor gurus here actually get it?

Almost certainly not.

Just as you can't teach algebra to a duck.

Hi Andrew,they overdo the bit that they bought an investment property for retirement. most I know say exactly this but the truth is that they was buying for capital gains speculation (greed)....brought about with all the driving forces the market did have and now things are changing so yep they are indeed a bunch of tossers!

Julz: That's all very well and good; and all spot on. But most people don't or won't see your points. The primeveal objective of life is to 'get more than anyone else; as much as you can', and New Zealanders, amongst others, are terrified of 'missing the boat'. When all around are 'making that easy money', and you are not, the temptation becomes irresistable. Look at finance companies. A lot of people saw a risk, but the thought "if I get in and out, does it matter ?"
That's the clue, In and out. Just like '87; The Asian Crisis; Dot Com; '08, the property market here will correct. The trick was not to be a new entrant or a holder of stock on 19/10/87. The same will apply here.

Nicholas - I've not read the whole thread, but I can guess how it's gone so far. Anyway, your point:

" .... and New Zealanders, amongst others, are terrified of ‘missing the boat’. When all around are ‘making that easy money’, and you are not, the temptation becomes irresistable."

I see that I think and I've put it down to relatively low legitimacy and trust characteristics and lack of other alternative investment opportunities, and so I ask, who can blame folk for behaving as they do, within the framework and rules that exist? Sure, let's change the framework to change behaviour, but there needs to be carrots on the stick, rather than just stick on the ass - if you get m' drift. Otherwise, we'll be destined for a policy flip-flop the next time a troughing poly looks to lever some votes out of the next pain point.

Not easy stuff, and requires real leadership. Sadly NZ has few, if any of them in the right places.

Cue - 'We are Stuffed'

Cheers, Les.

"I see that I think and I’ve put it down to relatively low legitimacy and trust characteristics and lack of other alternative investment opportunities, and so I ask, who can blame folk for behaving as they do, within the framework and rules that exist? Sure, let’s change the framework to change behaviour, but there needs to be carrots on the stick, rather than just stick on the ass – if you get m’ drift. Otherwise, we’ll be destined for a policy flip-flop the next time a troughing poly looks to lever some votes out of the next pain point. "

Les from where I sit that is absolutely spot on. I only invest in things that I have a large degree of control over...after all of the goings on in the various spheres of investment I simply dont trust anybody else not to either A) Lose my money or B) generate a sub par return.

Steering investors away from property requires more than just a change to the tax treatment.

I have to say, Andrew T, you may not have a much control over property assets as you think you do. Why are we banging on about it here? Because the Government may change your rules. What control do you have over that? The big item you have control over is "When do I buy, and how much do I pay"; That's pretty much it! You do not have control over when, or for how much you sell; the next buyer does. You do not have control over how much rent you charge; the tennant does. ( on a general basis). You do not have control over how much if any, financing charges cost, the bank does; You do not have control over how long it will take to sell the property if you need to, the market does.
So I'd have to disagree with you, really, over how much control you have over a rather iliquid asset.

Les - "there needs to be carrots on the stick, rather than just stick on the ass – if you get m’ drift"
LOL :) Great comment. So we want people to invest in more productive businesses. Lets focus the discussion on ways of achieving that, rather than ways to whip the residential investor.

"I’ve put it down to relatively low legitimacy and trust characteristics and lack of other alternative investment opportunities"
True, and also the borrowing advantage available to property. I've said before, property doesn't have a tax advantage, it has a borrowing advantage. So how do we encourage lenders to lend more, and investors to invest more, in to businesses that have a high failure rate? It won't be easy.
A large amount of businesses don't exist from one decade to the next, whereas property is seldomly worth less by the next decade. This is why it's the preferred security of lenders - as far as I know it's always been that way and is unlikely to ever change. So how DO we get people to invest more in other areas, safely?

"So how DO we get people to invest more in other areas, safely?" How many ordinary Kiwis actually have anything to invest? Looking around me to friends and colleagues who have "invested" in property, they didn't exactly invest their own money (so that's not what I'd call investing). Many got a 100% mortgage secured against their family home. In other words the bank invested its own money but they didn't invest a cent (were simply betting on capital gains and in the meantime enjoying paying less tax...).

The problem with "carrots" is that they tend to remove money from the tax system, when tax revenue is tight expect social and economic imbalances to be addressed with "sticks"...

A funnermennal point in here is shurely that, whether buying or renting property, you are buying or renting the 'hood.

Example from two doors down: Rental sign up for total of two days, now has new tenants since the weekend. Yet, around the corner not twelve houses away, next to a local reserve, surf beach and Freedom Camper infestation, really cute house, the 'To Let' sign has been up for three weeks.

Different 'hood.

Murray:

True, and also the borrowing advantage available to property. I’ve said before, property doesn’t have a tax advantage, it has a borrowing advantage. So how do we encourage lenders to lend more, and investors to invest more, in to businesses that have a high failure rate? It won’t be easy.

Actually the major issue is that most property investors don't demand enough extra return* for the additional risk created by high borrowing levels. Risk vs reward is grossly out of whack.

* Except of course if you expect very strong capital gains, hmmm....

@Elly: “So how DO we get people to invest more in other areas, safely?”

Its not a straightforward question of safely, just transparency...so if I want to be safe I go bank deposit and get 4%, if I want 8% I buy Fonterra bonds (say), the difference in return should cover the increased risk....or I am accepting I might loose money because Im demanding a higher return, Im gambling.

So we as investors should be able to see all relevant information at the same time as anyone else so we can make informed decisions....

Patrick Bateman, I didn't google your name, Christian Bale did play a fairly memorable character.

Total returns from NZ property has outperformed every traditional asset class (equities/fixed interest/cash) over every period to date (longer than 18 months), for at least the past 40 years. Diversification would not have helped anyone beat the property market either so anyone who forwent buying their own home and rented instead has been substantially worse off in the long term.

The fact that prices are relatively higher now than in 1990 is no real surprise. The average house is bigger and incorporates more expensive chattels while the number of FTE workers in the household has increased and interest rates are significantly lower than the average close to 20% in the late 80s.

In general current pricing is reflective of replacement cost. Supply is not in excess. Demand is sustained and growing (through both migration and demographic changes). Much of the existing housing stock is in need of replacement or substantial upgrade (whether leaky or old). Replacement costs are constantly rising from (greater than zero) inflation pressure and will soon to step up further with GST increases. There are few new developments and tax changes are on the horizon.

Nothing adds up to significant price falls. Plenty of people are just being delusional. Prices may soften marginally over the next couple of years due to negative sentiment, however this should be seen as a golden buying opportunity due to the real constraints being put on the market.

The longer prices remain flat the more supercharged the next (inevitable) boom will be.

But we don't get to see all relevant info Elley...and insider trading is going on all the bloody time....and corporate theft is common....and this govt is moving just as fast as the previous ten, in putting in place the regulations and enforcement required...in other words they are doing bugger all and slowly at that.

Murray - I still think the return expectation is too low, given the risk implicit in 90% borrowing. Leverage works both ways.

Chris_J - property has outperformed because its still in a bubble. Bubble bursts, no outperformance. Bubble doesn't burst, outperformance remains... quite the conundrum (sp? too lazy to check).

In general current pricing is reflective of replacement cost.

Only if current section prices reflect fundamentals. I'd argue they don't.

Chris_J: Total returns from NZ property has outperformed every traditional asset class (equities/fixed interest/cash) over every period to date (longer than 18 months),

That is absolute nonsense, plucked out of thin air. Spending less than 2 minutes doing research I looked at 1995 - 2000, term deposits FAR exceeded your property median gains, and at that time floating rates went as high as 12%. 85-90 interest rates were around 16%.

errr Paul. I was comparing it with the QV index........if you think property touched term deposits in 85-90 your a fool. Term deposits averaged around 16% at the time while floating mortgage rates went over 20%.

Quite right Elley...and it's a state of affairs the govt is encouraging...you are expected to be a good peasant and go forth and splurge..on credit if possible...in property for sure!

Paul. Yield would have to be over 17% in 91-93 to get close to term deposit rates at the time.

http://www.rbnz.govt.nz/statistics/exandint/b3/download.html
http://www.rbnz.govt.nz/keygraphs/fig4.html

# Paul Says:
April 21st, 2010 at 12:36 pm

Try spending more than 2 minutes doing research next time before you make an idiot of yourself again.

The combination of the yield and the capital gain for property helped it out perform the term deposit (which has no capital gain just interest or yield).

Paul - are you offering statistics or just stating an opinion as fact?

Either way - Taxman, read Chris_J's comment carefully, he's saying "any period to date" (ie, up to today, equivalent to the peak of the bubble).

The real weakness in the argument is expecting the same outperformance, given its largely occured in the last 10 years, during which time the interest rate environment has changed materially, the # of incomes per household has trended strongly towards 2x and the availability of debt has improved markedly. None of these should be expected to continue - they are not trends that can be extrapolated (ditto declining rental yields).

And if you don't expect a repeat of the outperformance, yields are too low to justify the risk. Simple really...

Many pro shares/managed funds etc investors on this site should step back and think about things from a rental property owners point of view as your arguments are often poorly made with emotion, broad and misleading statements and incorrect information.

Then there are people like Les Rudd and Julz who are certainly not pro property, but make balanced and well reasoned points.

For those of you who believe rental property receives favourable treatment and subsidies from the tax payer, who pays the bill to encourage people into Kiwisaver ?

If renting is such a sure-fire way to make millions, why do more NZ'ers own shares and invest in managed funds?

Accounting software company Xero (Who I believe Sam Morgan is a major shareholder) is looking for investors but have said it will be a number of years before they break even. Vodka company 42 Below made losses for the four years it existed before being sold for a tax free capital gain of hundreds of millions. Why is this OK for them, but isn't OK for rental property?

(Actually a common reply to this last question is that they actually produce something. Please don't make this simplistic reply again before you consider what a productive economy is actually made up from.)

@ Pat Bateman and G Brownlee: You may know a lot about Managed Funds but, with respect, you do not understand property. You can make all the predictions you want to convince yourself that property is a poor investment. But as a Funds Manager you have a vested interest in talking down property and talking up shares and managed funds. I do not sell property and I don't care if anyone else invests in property therefore I am not trying to get people to invest in property.

What does concern me is people such as you spreading incorrect information to bolster your own self interest by making another investment more difficult. I hope people see you for what you are.

Nicholas Arrand - we paid $80K off our mortgage through leveraging.

I did misread the "to date" bit......I know housing has performed better in the last 40 years as a whole as per the article on this site a few months back.

91-92 had a negative price growth for houses didn't it? What about 87-88, TD rates average around 14%. The article awhile back also showed term deposits as being very close to houses over the last 40 years, if I recall correctly?

Paul
Even if it was next to nil the average rental yield around that time was about 9-10%

This is unreferenced opinion, not a fact (and particularly difficult to find stats for in that time period, I might add).

Andrew King
Accounting software company Xero (Who I believe Sam Morgan is a major shareholder) is looking for investors but have said it will be a number of years before they break even. Vodka company 42 Below made losses for the four years it existed before being sold for a tax free capital gain of hundreds of millions. Why is this OK for them, but isn’t OK for rental property?

Neither of these companies will result in personal tax deductions, no matter how much they lose. Neither are being sold on their tax advantages. It is hard to argue that either have been set up with the dominant expectation that they will earn returns for long term shareholders from capital gains (if you believe either business plan they eventually begin generating huge cash surpluses).

Good point about Kiwisaver .

jimmy Try this for housing vs non-housing household assets:

http://www.rbnz.govt.nz/statistics/monfin/HHAandL.xls

You'll have to guess how much is in residential property - its probably +/- $100m

Oops - $100b

Paul - Right you are. I'd love the time series behind that - can't find it anywhere (certainly not back that far).

To be honest, I don't know how anyone with a pulse can look at that particular graph and not draw the conclusion that residential housing is grossly overvalued.

# IanC Says:
April 21st, 2010 at 2:18 pm

Oops – $100b

Paul – Right you are. I’d love the time series behind that – can’t find it anywhere (certainly not back that far).

To be honest, I don’t know how anyone with a pulse can look at that particular graph and not draw the conclusion that residential housing is grossly overvalued.

Quoting myself (a new personal low).

Does anyone on the side of the property bulls care to try and superimpose on that graph their expected house price track (and change in rents, and thus resulting rental yields)?

http://www.interest.co.nz/ratesblog/index.php/2010/01/19/opinion-why-rea...

Hi Jimmy

jimmy Says:
April 21st, 2010 at 2:13 pm

Andrew,

“If renting is such a sure-fire way to make millions, why do more NZ’ers own shares and invest in managed funds?
”
Is that a count of people who invest, or the sum of their investments?? I am guessing the sum of net worth in housing is FAR greater than in shares etc.

It's both actually. Ian calculates the total value of residential rental property at $100b. Auckland University, in discrediting the Tax Working Groups calculations, estimated it to be between $50 and $100b. The NZ Property Investors Federation estimated it at $78b.

Taking the higher figure of $100b and assuming 40% equity, then the actual amount invested is around $40b. This compares to $55b in the NZSX and $61b in managed funds.

IanC says: Neither of these companies (Xero or 42 Below) will result in personal tax deductions, no matter how much they lose. Neither are being sold on their tax advantages. It is hard to argue that either have been set up with the dominant expectation that they will earn returns for long term shareholders from capital gains (if you believe either business plan they eventually begin generating huge cash surpluses).

I think you are right with your 2nd paragraph Ian, and thanks for acknowledging the point about Kiwisaver .

They are perfectly justified in making losses with the aim of eventually making profits at some point in the future. 42 Below sold the business before they ever made a profit of course, but investors are allowed to change their strategy as circumstances change.

Of course if this is acceptable for companies and shareholders, shouldn't it be acceptable for rental property owners?

Jimmy thinks it isn't for the following reason:

These are companies that are BUILDING SOMETHING UP. For rental investment, the gains are largely passive (ie derive from rent, yes some improvements can be made, but in the main it is relatively passive).

But Jimmy, if I buy a $1 share from you for $1.50, then nothing has actually been produced has it? And will you pay tax on your $0.50 gain?

The share would still exist without me, the investor, buying it from you and my investment is passive. (A hell of a lot more passive than rental property ownership!)

With respect, I think the University is likely to be more accurate with their $50b to $100b range. The NZPIF calculated the $78.8b figure by multiplying the lower quartile house price by the number of private residential properties. I would say that this is very close to the actual figure.

I don't think it is right to compare the total value of one investment with the amount actually invested in another.

If I invest $100k in the sharemarket or buy a $300k rental property with a $100k deposit, my equity is $100k either way.

40% is quite a high equity estimate to assume, so the actual estimate of rental property equity is around $31.5b. This is considerably less than the investment in the NZSX and Managed funds even with the points you make.

I don't follow your point about Today's Prices sorry.

Some people have a high tolerance for risk and others don't. Some people risk everything on a new business venture and some won't. Some will borrow to buy shares and some won't. Some people 100% finance an expensive low yielding rental property and some won't.

How exactly should we judge what is and isn't a risk and change the tax situation for each investment accordingly?

Ian and Andrew,

Are you guys looking at NZ net wealth?? or only "investment" component. I've read articles that (including the family home), NZ net wealth is heavily weighted towards property (ie in the order of 80-90%).

Andrew,

"But Jimmy, if I buy a $1 share from you for $1.50, then nothing has actually been produced has it? And will you pay tax on your $0.50 gain?

The share would still exist without me, the investor, buying it from you and my investment is passive. (A hell of a lot more passive than rental property ownership!)
"
You miss the point. First, as outlined above, i think tax on income should be the same as tax on gains. Otherwise there is more incentive to speculate and less to make profit. Shares AND ppty should both be taxed on gains at the marginal rate (which could be reduced due to wider tax base if we tax gains).
Second: I agree that ANY asset, shares or property can "enjoy" a large increase in capital value via price rises which are unrelated to income growth. The point I am making is that in a start up venture (or company taking on debt to increase output), the short term loss is often considered acceptable because the EXPECTATION (or hope) is for big rises in income as a result of increased business output, better product, more marketing budget etc. Many factors contribute to increasing the income (ie ability, hardwork, planning, great ideas, good decisions, marketing expenditure etc etc etc). These factors are not passive. The focus is to use these factors to drastically improve revenue, which will increase profit, which will JUSTIFY an increase in share price. ......

Property speculation does not operate using the above principles. When a speculator (anything below 7% yield is speculation) takes on a property with a pitiful yield, the assumption is that capital gains (NOT INCOME GROWTH) will offset the losses. There is little the speculator can do to impact the income growth without making major modifications to the property which in most cases are unlikely to improve yield much after costs. So for most its easier to do nothing except repairs/cosmetics and use tax to help offset the loss. So the speculator relies on a rise in the capital value to justify the losss, which is mostly a result of passive land value appreciation. The land rises (or falls) are in the vast majority of cases completely unrelated to any productive contribution from the landlord. The economic unit at the end of the process is still a bit of land. The speculator has done nothing to make it better or more valuable. This is to be compared with the start up business, which may have produced a better product for people to use, more jobs, more imports etc etc etc. I am not necessarily saying we should allow losses to be offset against a salary in the start up business example (why should tax payer accept the risk?), but I am more sympathetic as i realise these business can add a lot of value. Holding on to land (and charging rent on the house that sits on it) adds little value - it is for the most part just passing on something that already exists.

... or put it another way. If your landlord does not exist, the land sure as hell will. If Apple did not have people investing money in it, we would all be carrying around crappy PC devices. This does not mean of course that productive land related activities should not be welcomed (eg developemnt of new houses).

jimmy - to clarify, I've been considering it on the basis that the concern is over the marginal investment $$$ - ignoring owner-occupied housing.

I suspect the idea that owning a house and an investment property is doubling up on exposure to residential real estate is lost on most. For diversification reasons, I don't even like NZ shares as I figure "job" is correlated to NZ economy (being part of it), as are NZ$ returns...

Murray,

At the end of the day the govt has a tax take targeted in their budget. The more tax removed from the pool via -ve gearing tax credits ultimately must be paid by another taxpayer. If we broaded the tax base to exclude losses AND include CGT then the marginal rate that we allpay will be reduced. This was the sense the TWG tried to get throught to Key, with limited sucess unfortunately.

Murray,

I dont think it should only look at residential property eg margin lending accounts should be the same. If we have a CGT this would apply to shares as well, so would catch Sam and 42 below there. In terms of losses on salaries, we need to ensure that a loss on a business can not be offset against another salary not related to that business (a salary paid out as part of a business would be priced into the profit / loss of the business anyway so is already covered and the salary will be taxabl like any other salary).

IanC thanks for setting Taxman straight re my comments on NZ residential property outperforming all traditional asset classes over all periods to date longer than 18months.

Of course I'm not saying that there is any guarantee of continued outperformance, but when you think about it logically:

Assume 3% average inflation going forward, maybe even throw in 1% real wage growth. Then 4% capital growth going forward is completely sustainable. Add in a 5% net income, then a 9% total return is seriously likely to beat any cash or fixed interest returns in a 3% inflation environment! Equities may outperform but who knows and is it worth the risk? Property has regular income when you need it, businesses might not!

But you've also got to consider that if you buy property in central, desirable and growing locations, then there is an inevitable further outperformance of the general market as the underlying land gains value. This might be an extra 2%pa or maybe a lot more. That means property could give a totally sustainable total return of 11%+. Factor in the huge pools of investment cash swirling around the global economy over the next few decades and it's not hard to imagine that some will gravitate to such strong returns and drive net yields lower still, boosting total returns further for today's buyers.

I'm not advocating buying at 5% yields, but it does show that if you're picking carefully and getting say 8%+ you can't go too wrong.

One property I bought 9 years ago in Dunedin now returns 80% on the purchase price and has returned me 5 times the original price back in rent. That's from a remarkably unspectacular little property purchased at auction in 2001 (the deal obviously wasn't good enough for the 2 underbidders!). The reality with property is that you can do spectacularly well if you're careful. Just be careful. End of story.

Now Patrick Bateman, our wannabe Investment Banker, sorry to disappoint but I'm not a real estate agent, but as you may gather from above I own property (a lot of property - that's an 8 digit portfolio) so I guess I am completely biased and that probably comes across in what I write!

Before I went full time into managing my own portfolio in 2002, I was an analyst at one of the more prominent manager of manager funds. I would love to hear your credentials (do I know you?). I've done a huge amount of research on property markets and it's my genuine opinion that market is not far out of line from fundamentals and that although declines are not unlikely in the short term, any decline would likely be small and isolated. Gains being most likely in the mid upper desirable sectors of the main centre markets.

People who continue to compare to say the Californian property crash, have no grasp of where the market was in 2005/6 in those cities. When an average 90m2 bungalow in an unnoteworthy suburb fetched close to US$1m up from $200k a few years earlier based purely on "low doc"/ subprime lending to unemployed speculators it's no surprise prices could fall 40%.

I remember the likes of Charles Drace getting prime time news headlines and front page articles back in 1999, predicting prices would fall 40%, instead they rose 100%+ and who recalls who Charles Drace is? I sure anyone who read his book or paid for his advice will be a broken person today.

I've studied markets since I was 8 years old, and have experienced and researched more booms and busts than you can shake a stick at. So if "the real" Patrick Bateman has some special insight I would love to hear it, unfortunately all I hear is the same rhetoric of the "somehow" disaffected "property is overvalued" crowd that I've been hearing for the last 15 years.

Chris_J Says:

People who continue to compare to say the Californian property crash, have no grasp of where the market was in 2005/6 in those cities. When an average 90m2 bungalow in an unnoteworthy suburb fetched close to US$1m up from $200k a few years earlier based purely on “low doc”/ subprime lending to unemployed speculators it’s no surprise prices could fall 40%.

Thank you, Chris_J. People keep burbling on about 40% price drops in the US, but ignore that even after such drops median prices in the main centres are still higher than here.
Demographia has New York at NZ$642K, LA NZ$493k, Seattle NZ$459k. San Fran had a spectacular crash, yet the median there was still NZ$768k.
London NZ$587k

Japan's crash is often quoted too, yet an average apartment in Tokyo is still over NZ$700k (45m yen).

Sydney currently A$595k (NZ$794k)
Melbourne A$524k (NZ$699k)

So, is Auckland overpriced at a median of NZ$475k?

No qualifications then?

IanC - the "long post" was Chris_J ;)

Patrick Bateman Says:
April 22nd, 2010 at 8:35 am

@Chris J

Your vehement criticism of Dace says it all. Bubbles do not always pop when you think they will.

Patrick, are you saying that Charles Drace was right, and we will see prices at 40% below their 1999 levels?

IanC – the “long post” was Chris_J ;)

Ooops!!! :o Oh well, thanks to both of you - appreciate the tone of the debate (and while I probably agree with Patrick Batemen, could do without quite so much attitude)...

I forgot to add my other favourite factor that I think will be a drag on prices - are we going to increase household debt to disposable income further (again, another trend that cannot, by its very nature, be extrapolated)? At least we're a world-leader in something...

It also occurs to me reading back what Chris_J says that he is effectively recommending buying rental properties which meet "my" criteria (ie 10-20% lower price and justified by fundamentals).

I’m not advocating buying at 5% yields, but it does show that if you’re picking carefully and getting say 8%+ you can’t go too wrong.

Memories might be short, but reality is harsh. If it increases too much more, it will end badly - much of that debt is carried by a relatively small percentage of the population.

@...G Brownlee: You [...] do not understand property.

Citation required.

You can make all the predictions you want to convince yourself that property is a poor investment.

Yes, I can make all the predictions I want, but I'm not trying to convince myself of anything. The facts speak for themselves. You on the other hand prefer to believe things which make you happy.

But as a Funds Manager you have a vested interest in talking down property and talking up shares and managed funds.

A what? The only funds I manage are my own. (And very well too, if I may say so.) As for "talking things up", I'll leave that to pyramid schemers.

I do not sell property and I don’t care if anyone else invests in property therefore I am not trying to get people to invest in property.

Maybe not. But we can be forgiven for thinking otherwise. You write as if you work for Mike Pero.

What does concern me is people such as you spreading incorrect information to bolster your own self interest by making another investment more difficult.

Now we get to the good bit! Please explain which of the information in my post was incorrect.

I hope people see you for what you are.

Ah yes, the inevtiable, invariable "Pot-Kettle" rejoinder. When I remind everybody of the fundamentals, you accuse me of being a propagandist. Yet anybody reading your own posts sees either a self-deluded PI, desperately telling himself that he did the right thing, or an equally-desperate property developer, real estate agent or mortgage broker intent on talking up property in order to stave off personal financial disaster.

My guess is you're the former.

Lies, lies and damn statistics. Mine were from Department of Stats in NZ and Australia. The Sydney median was actually for the whole of NSW which intuitively is probably lower than Sydney.

I think they do demonstrate that wages in NSW are significantly higher in Auckland.

Interesting that Demographia shows household income lower - obviously they have more single worker households - in fact it doesn't gel at all with the average wage data - the median wage is higher than the median household income.

Must be all those kiwi dole bludgers over there dragging the median down :)

There is no reason to believe the next interest rate cycle will not deliver at least the same peak mortgage rates (perhaps off a lower OCR).

And if rates don't go that high, its because we're not enjoying an economic recovery. Hardly good for debt and housing demand.

I don't think NZ has the ability to choose low rates and economic recovery (see below).

Firstly, I don't think the RBNZ would try as that thinking is rapidly going out of fashion amongst global central banks, due to the obvious link to asset bubbles.

Secondly, my personal view is that NZ is ultimately too small, and has external balances that are relatively too large, to ultimately dictate the terms on which our interest rates are set (ie, I think the level of the OCR and NZ's international cost of funding would become disconnected in times of stress). I suspect quantitative easing might not work (at least not without our international cost of funds skyrocketing) for the same reason...

NA - I didn't say QE worked, I was just commenting that interest rate cycles overseas seemed to get lower and lower until practically 0% and then the QE began....

Many economists here in NZ have commented over the last few years how with higher debt levels the RBNZ now gets more "bang for the buck" meaning possibly smaller and lower OCR cycles....

Murray: Mike, Demographia use median “household” income and their data from 2009 Q3 has Auckland median at NZ$68,500 and Sydney at A$62,400

Interesting indeed, where did you get the Sydney figure from? I would like to know what the city bounds are though. Is Auckland "Greater Auckland", i.e. does it include South Aucks and the westies? Sydney is quite different than Auckland, you have complete slums right next to suburbs with only multimillion dollars houses.

Taxman - yes it is interesting that they have Auckland household incomes higher than Sydney (remembering though they are quoting $NZ here and A$ in Sydney). It doesn't quite gel with Ozzie incomes being higher, perhaps they have a lot more single income households?

All the figures are here, for Q3 2009:
http://www.demographia.com/dhi.pdf
scroll down to pages 38 onwards (45 counting the preface pages).
They quote the areas (Sydney/Auckland etc) as "metropolitan market"

cheers

With those figures murry, it puts the multiples well up. Running off the QV figures, for some example areas.

All are Meidan 3br
Avondale: 410k Multiple of 6.03
Ellerslie: 538k Multiple of 7.91
Glendowie: 711k Multiple of 10.46
Greenlane: 643k Multiple of 9.46
Kingsland: 621k Multiple of 9.13
Mt Eden: 791k Multiple of 11.63

(too lazy to do more, there are worse figures and some better all at www.qv.co.nz so these are not market prices but the QV values).

All of those multiples are in the very high levels of stress, how is the median family ever going to get ahead? How can the median family manage to ever save up enough for a deposit because rents are still pretty high (~$500 for 3br closeish to town, so 38% of income on rent alone). This is all based off the hope that they don't need a 4br (ie 2 kids + guest room/study, or 3 kids).

@Brodie - "All of those multiples are in the very high levels of stress, how is the median family ever going to get ahead?" ==> Kiwis need to start asking for a higher (read 'normal') salary and stop feeling bad about it! The answer is "average" families won't be able to get ahead as long as they keep earning far less for the same/similar job with same/similar qualifications than they would in other developed countries but at the same time still have to put up with the same/similar living costs (including housing). No wonder so many people buy lottery tickets.

Still too high Murray. I saw a property advertised in the Prop Press and had a look at its CV on the Chch council website out of curiosity. CV = 630K (dating from 08/2007, ie peak prices), today's asking price = 925K. Yeah right!! Some sellers truly are dreaming

When I bought my first ( brand new mass builder 3 bdrm brick and tile etc.) home in '75, Murray, the multiple was 2.69. That allowed us to contemplate a family, taking the multiple to 4.37. on just my single income.
I don't know what your wife (?) does, Murray, or if you have children, but the choices we had, in our early 20's to have a family, have been extinguisehed by the cost of modern day housing.
I don't know how many friends you have that are now saying "I think we've left it a bit late too have children now", but we know a few; and just as many younger ones who say " We can't afford to have a family until we've got just a bit more put away on the house"
Is it really worth it? Life is about a family, and the house is a home, not an investment. Just 6.7! And housing's not overdone?!

You are so right, but to a certain extent its hard to undo what has been done...

What I'm more interested in is understanding how people can expect growth given it will take even more incomes per household if you want to see gains like over the last decade (which a first home buyer kind of needs to see, otherwise they're going nowhere).

Murray, Mike in Welly

Stats NZ 2009 Household Economic Survey (HES), give the average household income in greater Auckland and greater Wellington both as about $90,000. It also states 10% of all households in NZ earn over $150,000PA. 20% over $113,000.

The average household pays just 15-16% of their income on housing expenses.

The NZ 90th percentile house price (guesstimated from listing prices) is probably around $750,000. But with at least 15% of the population retired (lower income than their working life) you could compare say the 88th percentile house price with the 90th percentile household income.

Just on ballpark figures then (excluding the retired): an average $720,000 house (88th %ile say) is occupied by a $150,000 income household.

4.8 times income seems not unreasonable, especially given that in most cases existing house prices are less than today's replacement cost.

Elley

Rateable values are irrelevant.

I know looked at a property recently with a GV of $989,000 in Fendalton asking for offers in the late $500s. GVs can be all over the place.

We've got 2 multi-flat conversions in Fendalton. One on the Bryndwr side a little villa in 2 flats on a 450m2 cross lease it rents at about $20kPA it's GV is $446k. On the other side of Fendalton (a superior location) right by the university we've got another in eight flats on almost a quarter acre returning $60kPA and it's GV is $489k. There is absolutely no logic to GVs. Inconsistencies build up over years of revaluations and they are seldom ironed out.

Your best to take the rateable value with a grain of salt and just to use your judgment.

I agree on the multiples, although I think its a little higher (can't prove it), but less than 6x for those houses in the $750k range.

A better question is whether you can construct a model (using real inputs) that can get a $150k pa income family into a $750k house (from FHB at a lower income to family at 40yo, in that house).

especially given that in most cases existing house prices are less than today’s replacement cost.

You keep saying this - its fundamentally misleading unless you add the proviso "assuming current section prices".

@Chris_J - CV may well be irrelevant but they are sure used by RE agents when it suits them.

Regarding the mortgage-free stats, is it "a third of all households" that are home-owners? Or does the "all households" actually include renters who would obviously have no mortgage? The 15-16% figure re the proportion of income going on housing seems very low.

NA - "Life is about a family, and the house is a home"
you are so right about that bit.

"not an investment"
I'm not so sure about that bit. For most people, their home is THE biggest investment they will ever make. A lot of people stay in the same house for 25 years whilst raising a family, and at the end of it they are mortgage free. Even if house prices had gone nowhere, it was worthwhile for them. Stability & memories for the kids, peace of mind for the parents - especially as now they don't have to pay rent OR a mortgage...

I have used AdSense but haven’t earned as I’ve expected and have switched to Text Link Ads. Now I’ll see if this earns me more…

What a novelty: an anonymous commenter accusing me of being a bad 'hypercritical' person.

Anonymous 3.27am, your tired old 'Peter's just the same as those he criticises' schtick doesn't cut it, I'm sorry to tell you. Empower Education doesn't sell property — unlike your hero, property spruiker (note spelling) Dean Letfus.

I'd be curious to see any evidence or justification for your comment that EE does 'exactly the same thing'. Your claim is nonsense.

Here are just three easy to find examples of offers Dean Letfus made to his 'students' (source: his website):

Dean Letfus selling sections in Fiji:

Coral Lagoon ~ Last Chance!!

Hi there.
I promised you one final chance to get in on this Fiji development. Well here is the info.
….
These sites are available for $95,000 NZD as full payment in advance. As previously stated you have my personal money back guarantee that you will receive freehold title of a section. They are all back sites with good elevation which is good from a breeze and view perspective and safer in the event of a hurricane. If you look on the scheme plan the lots are around 817 through to 822 more or less.

To give you an idea of the value of these sites Momi Bay next door is now selling sections in it’s subdivision which is behind the golf course. The cheapest sites are $270,000. They have no view at all and are a long long way from the water. Sites with views are selling for 500 to 700K and none of them have marina berths.

Does all this sound a bit too good to be true?? Well it is not unusual for developers to offer presales at discounted rates to get s/divisions out of the ground. The level of discount reflects the fact that the funds are being disbursed directly to the developers so potentially your funds are unsecured until title. I am sufficiently confident in the development having met with the developers on site and completing extensive due diligemce [sic] in Fiji that I am will ing to remove that risk for you by guaranteeing your funds until title.

There is VERY significant profit in these sites as soon as title is issued or close. My onselling of some now enables me to continue my work with the poor in Fiji and allows you to purchase a significant investment for much less than it’s true value. There are only a small number of sites left so please contact me promptly if you wish to pursue this offer. CONTACT ME

Oh, dear. That didn't work out so well. I wonder how the personal guarantees are working out?

Dean Letfus selling sections in Matthew Gilligan's Sponge Bay (Gisborne) and Perriam Cove (Cromwell) subdivisions

Current opportunities

Sponge Bay:
Last month we sold out the new Sponge Bay development and as expected, a few deals didn’t finalize. I found managing a waiting list to be rather difficult whilst in Fiji so this is to advise you that there are a few lots available still. Please go here, choose an available lot and follow the instructions. Strictly on a first in first served basis!! Don’t forget to read the market update at the bottom of the link page!!

Perriam Cove:
I twisted Matthew’s arm into giving me some sites at his Premier development in Cromwell. Only a few sites left, premium location in the only canal development on the lake. In fact this is likely to be the only canal development ever in the area.  More info HERE

Thank you to the many people who always ask about our work in Fiji. On our recent trip we met with the architect who is designing the new building to replace the burned down one. That is progressing well. We also noted an enormous increase in poverty, (up from 32% to 50% in 7 months), so our work there will become even more critical now. Your interest in and ongoing support of our work there blows us away, thank you all again.
... Stay safe ~ Dean, Raewyn and the Massive Action team.

According to the Gisborne Herald, Sponge Bay didn't work out so well:

"Mr Lane is also project-managing the sale of 10 sites in the Sponge Bay development.
It is in Wainui Road by the Sponge Bay turn-off and many of the lots are still on the market. They initially all sold before the market crashed and buyers were unable to settle.
Land owners Trevor Burrows and Matthew Gilligan then asked Total Property Strategies NZ Ltd to market 10 lots.
A price correction on the sites, with some now starting at $99,000, ..."
http://www.gisborneherald.co.nz/article/print.aspx?id=15798

Dean Letfus selling units in a commercial property development off the plans

Storage Zone is the first strata titled storage facility in the country. You can owner occupy or keep as an investment. Usually these storage units are owned as one lot and you can only rent them. This one you can own and use or rent to the public!!
There is only 1 other storage facility in the area and that is 100% occupied,... you cannot get in.
So Storage Zone is likely to enjoy similar occupancy, and with owner occupier options there will only be some available for rental at all.
I've checked out the developer, he is a long term serious player who builds excellent quality.

I'm buying some and I recommend it to you!!

Read the brochure below and then contact me to reserve a lot. Then do your due diligence, talk directly to the developer etc. and decide if you want to go ahead. No pressure but reserve a lot No now so you don't miss out.

Oh I nearly forgot, I have managed to negotiate this as a for you as well. Deposit bond the deposit, (you'll need maybe 20 grand equity in
a property somewhere and it can be above 80% LVR) and Massive Action and the developer will pick up the tab on the fee.

Oh and did I mention that as you are buying off the plans so you also have plenty of time before settlement ( and hopefully some rental and capital growth :-)).
This opportunity couldn't get much better :-)

This development was apparently shelved due to the market collapse/tightening finance.

These are just three examples of Dean Letfus acting as a property spruiker.

Anon 3.27am, I invite you to find anything remotely resembling this behaviour from Empower Education. You can't. We don't do it.

- Peter Aranyi 2/6/10