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Property listings drop in January for first time in 4 years; asking prices drop too
February 1st, 2010The number of new properties listed for sale on Realestate.co.nz in January fell from December for the first time in four years and asking prices on the site also fell as the market remained sluggish and favoured buyers, Realestate.co.nz reported.
Here is the rest of the release on the monthly report from real estate.co.nz below and the full report is available at unconditional.co.nz.
Alistair Helm, CEO of Realestate.co.nz, says January saw just 10,272 new listings coming onto the market, down from 10,349 in December. Even though the start of the new year traditionally shows a strong lift in listings to take advantage of increased summer activity, for the first time in four years the January figure has been lower than December.
In addition, the national asking price in January fell to $405,040, a 1.8% drop from Decembers figure of $412,319, and a further slide of 3.5% from Novembers $419,586. The January figure remains 5.6% below the market peak of October 2007 when the asking price reached $429,033.
However, while some vendors may be lowering their price expectations to expedite the sales process, buyers appear to be biding their time in the expectation that prices will fall further in an increasingly crowded market.
Alistair Helm continues, The level of sales remains static, showing no significant improvement. As a result, the inventory level of unsold houses has shot up significantly, as measured by the number of weeks of sales necessary to clear properties on the market. In December, the inventory level was 34.3 weeks, but this jumped to 40.1 weeks in January, the highest since April last year.
All three key indices from the January statistics, i.e. asking price, new listings and inventory level, show an absence of expected seasonal swings. This lack of typical seasonality underscores the state of dormancy within New Zealand property, and further highlights the fact that it continues to be a buyers market, he says.
Tags: Alistair Helm, House prices, Property Prices, Real Estate, realestate.co.nz, Unconditional
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February 1st, 2010 at 10:43 am
“All three key indices from the January statistics, i.e. asking price, new listings and inventory level, show an absence of expected seasonal swings.”
The fourth key indice is voulme of sales in January – how will that look? I guess we will have to wait a week or two to find out?
February 1st, 2010 at 10:49 am
Yes, biding your time is very wise if a buyer. Wait to see what changes are made to tax laws and watch for those OCR changes in the coming months. We all know wages can not compete with current ridiculous house prices. While I’m sure a degree of ‘feudalism’ will continue in the NZ housing market, it will become a very poor investment choice in years to come.
February 1st, 2010 at 11:39 am
Justice – the OCR will stay down as the world economy takes another dive later in the year. No way will this government bring in new property taxes and the May budget will no doubt confirm this.
Less homes on the market, not enough houses being constructed, excess immigrants, natural population growth and recession not dealing much of a blow to NZ probably means house prices and rents will rise.
February 1st, 2010 at 11:44 am
Regards asking prices – what seems to be happening in the provincial centres is that high end properties are just sitting, sitting, sitting and more and more are coming on the market each week. Good time for city/suburban dwellers to swap their middle class home on a postage stamp in the burbs (and the commuter congestion that goes with it) for a more spacious lifestyle in the provinces – and lower their mortgage repayments at the same time.
February 1st, 2010 at 1:43 pm
The Bank Manager – you are a humorous commentator. Are you being ironic or sarcastic?
February 1st, 2010 at 2:15 pm
I just got of the phone with a mate who is a real estate agent. They are trying to stop the rural market collapsing. Banks are writing asking for any chance of equity partners. National rural managers are very jumpy. He thinks the collapse in the Housing and farm sectors is unavoidable.Profits in the rural sector have vanished. However he wasn’t working so you may get a different view when he is.
February 1st, 2010 at 2:43 pm
Adrian – Neither – simply factual. I am sure I will be proved right and I will store my comment in this thread from February 1st, 2010 at 11:39 am and review the scene on the 1st of November 2010.
February 1st, 2010 at 2:57 pm
Bank Manager
In the real world profits have disappeared, no amount of wishful thinking will change this fact and the flow on consequences to our economy.
February 1st, 2010 at 3:51 pm
“Less homes on the market, not enough houses being constructed, excess immigrants, natural population growth and recession not dealing much of a blow to NZ probably means house prices and rents will rise.”
And wages sir? See for a bank manager your missing a few key issues.
1: nothing goes up forever unless wages do also
2: wages going up are inflationary and rely on a better economy and that is unlikely
3: excess immigrants? really? do they have jobs
4: OCR staying low? doubt it, growth means inflation and you clearly think growth is on the cards! Borrowing 200 million a week doesn’t help either
5: Rents don’t rise until people at the bottom have a job to pay the rent. catch 22.
I know for a fact the US intend spending another 3.8 Trillion by 2011 to try and get things a moving! Now 3.8 is nearly twice what is in current total USD circulation. Inflationary? you bet!
February 1st, 2010 at 3:58 pm
Of course if your a “bank manager” YOU NEED to sell mortgages which means houses MUST be bought and sold or your job is on the line! Banks have quotas you see and if you fail to meet that quota?, well, welcome to WINS….
February 1st, 2010 at 4:08 pm
I’ve found the same thing recently, Andrew – real estate agents are tiring of talking up the residential market as well. The past 4-6 months have been a classic dead cat bounce.
Let the real deleveraging begin – it’s the only way out.
February 1st, 2010 at 4:11 pm
All
I suspect prices got as high (proportionate to incomes) as they could in NZ in 2007.
they then dropped back 10%, now have climbed back nearish to their peak thanks to a very low OCR in 2009.
Now we’ll see them flattish for several years, with small ups and downs all over the place
Although demand will be weak as a result of property’s poor yields and limited capital gain potential as well as slowly rising interest rates, poor affordability and emmigration restarting as Aussie kicks into full gear again, supply will also be weak on the back of strong planning constraints and limited funding for developers.
Do I remember Infometrics predicintg a 20%-ish gain over the next couple of years
No show!
But similarly I can’t see 10%-plus price drops occuring either!
February 1st, 2010 at 4:29 pm
Matt,
“But similarly I can’t see 10%-plus price drops occuring either!”
I think you mean if thing stay roughly as they are you cant see it. But there are many plausible scenarios which would see a > 10% drop
- >9% rates
- > 8% unemplyment
- GFC2 overseas, seems to be looking more and more likely, but this time no money left to stimulate our economy
- tax changes
The bottom line is there are many factors that could occur to bring about a crash, and they are not all of the unforseeable/unlikely variety. Who knows what unforseen things lie in wait? All we can say for sure is the greater the debt, the greater the risk of a large crash. We have debt in spades.
February 1st, 2010 at 4:30 pm
Look again Matt at the full article on the unconditional blog. In particular the inventory analysis;
Coromandel has 206 weeks (4 years) worth of inventory.
Taupo (Central NI) has 115 weeks worth.
Northland has 160 weeks.
Central Otago has 102 weeks worth.
It’s a mass ‘wishful thinking’ exodus of the second home market – prices have got to give – and big, big time. Want a batch – wait a year and get a minimum of a 50% price reduction in my opinion.
February 1st, 2010 at 4:36 pm
But similarly I can’t see 10%-plus price drops occuring either!
I can see bigger than that BUT it depends on:
1: new tax laws
2: US economy and dollar (most important)
3: how many are forced to sell their investments to keep head above water. Renters are normally lower waged and they are normally FIRST to lose their job in bad times. If your willing to rent to beneficiaries you will be fine. Top dollar rents will go to communal tenants to keep their costs down.
February 1st, 2010 at 4:40 pm
the best we can say is there is a plausible range of outcomes rangin from muted gains at best, to 60% fall at worst. The best case scenario would still see you losing money.
February 1st, 2010 at 4:41 pm
“It’s a mass ‘wishful thinking’ exodus of the second home market – prices have got to give – and big, big time. Want a batch – wait a year and get a minimum of a 50% price reduction in my opinion.”
Kate, totally agree i feel. Massive imbalances in the economy seem to be ignored by the property investment crowd. They just can’t connect the dots
February 1st, 2010 at 4:47 pm
I very much fear the Bank Manager might be right and property prices might rise again, but I agree 100% with Kate that this is a “dead cat bounce”. A “dead cat bounce” might even happen more than once before “the big one”. But the main thing I want to go on record as saying is that I think there will be a “big one”; every “recovery” and bank managers and real estate agents talking the market up, represents to my mind, a time for smart people to bail out of property altogether.
February 1st, 2010 at 4:56 pm
PhilBest,
There’s a saying in the sharemarket floor: “the ‘best’ investment is the one no one else is doing”
Everyone investing in the one place becomes a little like putting a 5th wheel on a car!
February 1st, 2010 at 4:56 pm
justice Says:
February 1st, 2010 at 10:49 am
“Yes, biding your time is very wise if a buyer…….”
I can’t find it now, but a sane Investment Advisor in Australia was running internet ads a few months ago that said “Don’t buy a house in Australia this year unless you want to be ruined for life…………”
I don’t think that was too strong, for there or here.
February 1st, 2010 at 5:00 pm
“I don’t think that was too strong, for there or here.”
100% agree, looking a the numbers and what the US (is/is not) doing it really is a matter of time. tick tick tick…….
February 1st, 2010 at 5:08 pm
“Property listings drop in January for first time in 4 years”
Correct me if I’m wrong but four years ago was 2006 and the market was in fact booming.
So listings doing the same as what they did in 2006 can be construed as a bad thing? Really now?
February 1st, 2010 at 5:21 pm
Chis_J
Trying to justify a ponzi property scheme when this is happening
Is completely crazy. Businesses in NZ have been costed out of existence, unemployment will climb. If the housing market just holds it own, its signaling major imbalances in our economy. Export receipts could collapse and will be in for huge falls in the best case scenario. Banks will need to restore their balance sheets. Don’t underestimate the potential meltdown heading our way.
February 1st, 2010 at 5:24 pm
“Property listings drop in January for first time in 4 years”
Chris, listings up or down can depend on two things in either direction
1: less properties listings due to lack of interest
2: less properties listings available due to much demand
They are seperate issues with different outcomes.
Which one you think is the cause?
February 1st, 2010 at 5:59 pm
@Justice,
You pointed out many facts in your cooments which I couldn’t agree more
ie. unemployment, jobs, etc… that could impact house prices. Some who still hope for house prices to rise might avoid mentioning issues like job losses, unemployment, emigration/exodus, wage levels versus house price relationship, interest rates started to increase at the banks, and the recent tax reform proposal etc… Perhaps, they would continue their belief that net migration is up, or overseas buyers might be buying up with cash, interest rates would continue to stay low, and might also forget about the recent tax reform proposal etc…. Thus, it is quite understandable and it is just right for you to point out those indicators. Your comments are appreciated, cheers.
February 1st, 2010 at 7:51 pm
1: less properties listings due to lack of interest
2: less properties listings available due to much demand
FEWER. Not less. Countable nouns, google it.
February 1st, 2010 at 8:28 pm
Some of you may be interested in reading this!
http://economicedge.blogspot.com/2009/04/global-derivatives-14-quadrillion-up-22.html
February 1st, 2010 at 8:30 pm
Trudy Says:
February 1st, 2010 at 5:59 pm
Thanks Trudy, I appreciate your comments.
February 1st, 2010 at 8:31 pm
Gramma!,
Ever heard of a ‘typo’? Point taken anyway
February 1st, 2010 at 9:14 pm
AndrewJ
Nice to see you are still posting here.
Are you now saying you are worried about deflation? I thought your worry was inflation?
I can see that NZ commodity prices have not gone as i expected. But is that a seasonal thing or a trend?
Presumably Dr B will cut rates if you dont get inflation.
February 1st, 2010 at 9:24 pm
There are fewer new listings in 2010 than there were during the ‘boom’ times – because in 2010 there are already huge inventories in existing listings in much of the country… and many of them are at wildly inflated prices.
February 2nd, 2010 at 6:49 am
@Kate: “lifestyle in the provinces”
Key factor, no well paid jobs in quantity.
February 2nd, 2010 at 7:01 am
“a time for smart people to bail out of property altogether.”
From what I can see
smartnot that greedy ppl have been bailing from all sorts of investments for a while…When ppl point out P/E ratios on shares are astronomical you have to ask where is the return….and why isnt there huge risk or (why isnt it aknowledged)..ditto property….a sound investment to me is something that holds its value with regards to inflation (or increases a little) but gives a good income…for minimal / known / acceptable risk…..here we seem to be playing chicken with cheap borrowed money in a lot of areas….and the like of talking heads on CNN business etc seem to think this is OK / normal…..
Right now I wish I had a time travel machine and I could go back to mid-1929 and watch for 6 months. I wonder how simialr it would feel, very I suspect.
regards
February 2nd, 2010 at 7:14 am
“I don’t think that was too strong, for there or here.”
100% agree, looking a the numbers and what the US (is/is not) doing it really is a matter of time. tick tick tick…….
In which case….those with “large balls” should cashup and sit and wait…
;]
Its interesting how varied ppls predictions are…
There would seem to be reasonable consensus?
1) That declines will start outside the big cities as the “rich” sell their second homes…
2) OCR will stay low.
3) Real mortgage rates could be anywhere…
4) Second dip of the Great recession is within 18months?
5) House prices down 5%+.
6) The Govn will do only minor and in-adequate changes, it hasnt the balls….
@justice: “listings up or down”
Down could also be ppl not prepared to take losses…even if those “losses” are in fact paper gains that never materialised but they think they are entitled to….as long as the OCR / real rates stay lowish I guess most ppl will sit and not bother listing….
regards
February 2nd, 2010 at 8:56 am
This whole crisis has been a game of worldwide musical chairs. The last to stop dancing, unfortunately don’t have cushion to land on. China, Australia & NZ are beginning to relise the party is over, and everyone else has a two year head start in securing a cushion. Unfortunately (as a consequence of naivety) a finger is pointed to those that didn’t reign in earlier, to pick up the costs of the high interest rates that the early adaptors didn’t have to wear. Timing is everything!!!!! We have been here before – groan!! NZ has always, in the end, been a shock absorber for the rest of the world.
February 2nd, 2010 at 9:00 am
It probably has more to do with the fact that a vast number of people re-fixed their mortgages almost 12 months ago at around 5.95% to 5.99% for 3 or 5 years and so they feel safe with such a low rate and locked in for so long.
Would people on such low rates have any need to sell? Probably not and with house prices on the rise low volume of homes hitting the market may be a feature throughout 2010.
February 2nd, 2010 at 9:07 am
Common sense and historical evidence and Newtons law dictates what goes up must come down….even if it is eventually
An excessive boom can come down 2 ways
over night
Or
If tweaks are put in place (bail outs, print money etc) drop, stabilise for a while then drop…which tends to be 18 months to around 2 yrs
Note unemployment tends to take a jump around this time also.
Eventually as the long term ave rises the the market moves down to meet it.
With all tweaks and the boom being a huge approx 30% over long term ave, there is still a long way to go.
Historically it is this yr where unemployment increases, and other markets tend to rectify faster.
I dont see a big doom and gloom depression coming up, but do see business and rental property investments that are not yet based on stable traditional business practises going under.
The rest will be viable but not profitable for a while, and riding it out.
Something that I think clouds the stats
There are 2 housing markets
1/Home buyer market
2/Investor/rental market.
The boom was based on 2/ re boom more 1/
I wounder what the the atats would be like if these stats (length time, ave sales , sale price, advertised price, forced sales etc) where split and then compared
I can believe a professional organisation(s) like Realestale agents havnt broken down these stats…If they really knew their markets, customers they would have and been doing so for a long time now.
February 2nd, 2010 at 9:16 am
The Bank Manager Says:
February 1st, 2010 at 11:39 am
“No way will this government bring in new property taxes and the May budget will no doubt confirm this.”
Well good luck with that banky boy because the tinker is in toil as we speak, it will be a disincentive tax rather than a flat capital gains, crafted to discourage those who flock to the overheated property market… while being careful not to alienate voter blocks.
Those who have over-leveraged will be exposed to tipping point …LAQC’s will become the focal point of the tax overhaul. and there will be attempts to plug trust loopholes.
Simply put (i think) the tax revamp will be about discouraging the property lambs while placating the sheep who are overdue for a trip to the works.
February 2nd, 2010 at 9:28 am
Ironically, it’s the shortage if listing that is holding prices up.
Christov – LAQC’s have nothing to do with it…. /sigh
February 2nd, 2010 at 9:34 am
Andrew
you got me. I need deflation to create opportunity but I see inflation in 4 to 5 years after the debt has been destroyed.
How are things going, must catch up next time you are in NZ. Im off to get my boat serviced so be away all today.
Andrew
February 2nd, 2010 at 9:35 am
Is that the same ‘Justice’ that predicted house prices will fall 50% on Stuff.co.nz???? God help us! Bernard better get a new hard drive on that web server to host all the contradictive drivel this guy posts!
February 2nd, 2010 at 9:36 am
@Steptoe
“There are 2 housing markets”
The portion of the ‘investor’ market that I’d also like to see more plainly is that which may, in past times have been considered to be the ’state housing’ sector.
Lots of people complaining about ‘beneficiaries of the state’ and yet there are strong hints that a number of ‘investors’ are indirect ‘beneficiaries of the state’, who have stepped in at some time to replace a traditional ’state housing’ sector.
I cannot pin down the history on this, and this is only an impression I have.
Please correct me if I am wrong (I won’t be surprised).
Was there a deliberate policy move at any stage?
February 2nd, 2010 at 9:58 am
Regards the tax rort/crackdown – I think one of the rorts which will get targeted is the batch/second home that is advertised as a holiday let for tax purposes and the owner claims all the related deductions.
Once that loophole is closed, that’s not to say everyone will up and sell their family batches – but the government will collect more tax due to these homeowners having fewer deductions.
February 2nd, 2010 at 10:00 am
993 vacant apartments in the Auckland CBD 2/02/10 – I bet most of those have been vacant for 2 months with the owners screeming their whatsies off – Home ownership is going down the gurgler – just waiting for the first ghetto and associated ghetto landlords to appear in the CBD – Paralells to the serf and master era of the 16th – 18th centuries are now appearing all over the globe with bonded generational labour not far off or already with us (mortgages, governments defecits), I wonder if the this has been planned all the way along?
February 2nd, 2010 at 10:29 am
Dave Smyth….FYI….Increased audit activity for private homes held in LAQCs
Tax agents have been notified of Inland Revenue’s intention to begin increased audit activity of private homes held in Loss Attributing Qualifying Companies (LAQCs).
Inland Revenue has advised that the process will kick off this month with letters being sent to all directors of LAQCs that may own residential rental properties, based on the descriptions of their LAQC’s business. It appears the Inland Revenue will target companies based on the descriptions (or possibly a lack of a description) in the “nature of business” box from the tax return.
Inland Revenue has stated that this process is being adopted to ensure that taxpayers are aware of its concerns about private homes held by LAQCs and to give taxpayers the opportunity to correct their affairs, if necessary” before audit activity commences.
The audit activity follows a Revenue Alert, issued by the Commissioner of Inland Revenue in October 2007 concerning the sale of private homes to LAQCs to generate tax deductions.
Of most concern are those arrangements that involve people selling their own or family home to a LAQC, then renting the property back to themselves and claiming tax deductions for the property that would otherwise be considered to be private and domestic expenditure. Arrangements of concern to the Commissioner are those that typically follow these steps:
A person owns their own home;
That person sets up a LAQC and becomes the sole or controlling shareholder;
The person then sells their home to the LAQC or has the LAQC purchase a home for them;
The property is rented from the LAQC at a market rate;
The LAQC claims income tax deductions for normal property costs, including maintenance, depreciation, interest, rates, and insurance. In total these expenses exceed the rental income. The loss is then attributed to the shareholders under the LAQC rules, and they offset this loss against their other income.
The Commissioner’s current view is that this type of use of a LAQC is a tax avoidance arrangement as many of the expenses would not be deductible if the home was personally owned because the Act does not intend that private expenses can be deducted. This is the Commissioner’s view even if a commercial rent is paid.
The Inland Revenue has also signalled that it is aware of examples where taxpayers have named a spouse/partner or friend as a tenant in a LAQC owned property even though they are still living in the property themselves. This additional step may be enough for the Inland Revenue to make an accusation of tax evasion.
Where the Commissioner considers the arrangement to be tax avoidance or tax evasion, those deductions that are considered to be private or domestic expenses will be disallowed. This is likely to mean past returns will be reassessed. Taxpayers are able to dispute these new assessments and the matter may ultimately be decided by the courts.
Taxpayers who are reassessed may also be liable to late payment penalties and use of money interest. In addition, shortfall penalties may also apply, although these may be significantly reduced where a voluntary disclosure is made.
This was dated Oct 2008 but never really pursued with any vigor…. well (i believe ) thats all about to change
Dave I think you may underestimate just how common the practice is …../sigh
February 2nd, 2010 at 10:50 am
“audit activity follows a Revenue Alert, issued by the Commissioner of Inland Revenue in October 2007″….my goodness they have moved with alarming speed to shut down this rort ….unheard of haste for a govt dept….we shall only have to hope they left enough time for the politicians and flunkies to slip away into the night.
February 2nd, 2010 at 11:07 am
The Bank Manager Says:
February 2nd, 2010 at 9:00 am
It probably has more to do with the fact that a vast number of people re-fixed their mortgages almost 12 months ago at around 5.95% to 5.99% for 3 or 5 years and so they feel safe with such a low rate and locked in for so long.
A quick look at the RBNZ suggests only an increase of fixed mortgages of ~$2-3b 12 months ago, in the 4/5 year range. This is a microscopic percentage of total mortgages – approx 1.5% – so I would hardly call this “vast”.
February 2nd, 2010 at 12:03 pm
Wally…….. you can bet your cahoonies the polies will have or have had thier goodies packed by the boltholes before May…. it’s never one size fits all.
Sorry to use such an old rip/paste but I think the idea was to scare em out last time 2008.. they know it aint gonna work again, so I concluded they are coming with a big stick and a hole bung.
February 2nd, 2010 at 12:51 pm
Christov,
Holding your own home in an LAQC is and always has been illegal for the purposes of claiming deductions. So has nothing to do with the LAQC does it?
I could put a police light on my car and speed through intersections in hot pursuit of lunch date but that wouldn’t make it legal either.
Just because some idiot accountants have been giving terrible advice to their clients, it doesn’t mean there’s anything wrong with LAQC’s!
February 2nd, 2010 at 12:56 pm
Furthermore…. you can legally share a house and still claim deductions without an LAQC if you have flatmates. The people who try to claim everything with an LAQC are not only stupid but greedy too!
February 2nd, 2010 at 2:05 pm
Dave Smyth…………………………….The people who try to claim everything with an LAQC are not only stupid but greedy too!
Well Dave it may surprise you to learn there is no shortage of stupid greedy people… you see first comes the greed then comes the stupid . untill consequence is imposed upon them they actually think they are …………..smart. and …”THEY” are commonplace.
February 2nd, 2010 at 2:11 pm
Steptoe,
Economics and physics may share some commonalities but I can assure you that Newton’s law and nominal prices (in the rudimentary context you suggest) are not related.
Deviations from a moving equilibrium (inflation/wage adjusted) may share some Newtonian characteristics but in all reality (like the real world) you’ll probably need to jump to quantum mechanics to explain house prices! Maybe Heisenberg’s uncertainty principle or strange flavored quarks will explain it!!
All the bosons out there (excuse the physics humour) who think that prices will swiftly (or slowly for that matter) on average return to 2001 prices are simply deluding themselves.
Even assuming the Newtonian analogy, that the spring (real house price) isn’t fully contracted, with other forces at work moving the equilibrium position (supply constraints, changing households, changing desirability of physical locations) there can be no expectation that nominal prices will fall simply because they deviated from a previous equilibrium.
February 2nd, 2010 at 2:16 pm
I’ve been involved in property investment for 8+ years and never met anyone that claimed deductions on a property only occupied by them and their family. I’m not saying it doesn’t happen but the LAQC isn’t the reason.
More often I’ve seen people buy, renovate and sell property thinking they can get away with it. There is a commonly held belief (wrongly) that they can sell one property a year without paying tax.
February 2nd, 2010 at 2:17 pm
At what age do children qualify as ‘flatmates’?
How much pocket money will they then need to offset the higher rate tax?
I really need some of this tax action – sounds great to me.
February 2nd, 2010 at 2:53 pm
Dave Smyth……. had quite a few in the portfolio over the last 30 years myself and over the last five I have found no shortage of people “doing it”
Im lost on what this ” reason” you infer is, as I don’t recall saying it was a reason or catalyst to the inevitable “pop”……just that it will be the focus, or if you like (compromise) of the tax forum to enforce the”law” with gusto.
At this fragile stage it (property speculation) won’t take much of a tilt and inertia should do the rest.
However Dave if you would like me to say LAQC isn’t the reason then… OK………but I’m still not sure of what it was not the reason for…..? it’s the crust Dave the crust is setting in.
February 2nd, 2010 at 3:22 pm
Oh sorry there Dave …I see what your on about………. no No mate I came in on a response to The Bank Manager post not to the original thread….ta da!!
February 2nd, 2010 at 4:19 pm
KW John,
Don’t think they’d get away with children either
When I bought my first home and rented out the other 2 bedrooms to flatmates, deductions were a great help in getting started. I think it’s a reasonable thing to claim for. Not really any different to renting a house and perhaps even more inconvenient!
IMHO, the tax “incentive” has been blown out of proportion. I’m not saying that it wasn’t an issue but that it only really came to prominance because of the recent boom. It wasn’t the reason for the boom or even a catalyst but something that caught on in the later stages and did encourage risky investment. I think that the people who invested primarily for tax reasons are realising the folly of their decisions and are now suffering. I predict that any changes to property taxation will create unforseen issues with affordability further down the line and we will be debating them here within 5 years!
February 2nd, 2010 at 5:58 pm
Dave Smyth,
You are right that tax changes will not take affordability issues away. I don’t know if you’ve been following the lengthy arguments some of us have been having on this issue; the single best read I could recommend on these issues is Alan Moran’s “The Tragedy of Planning”. No-one else discusses all the factors and eliminates them like he does.
http://www.ipa.org.au/library/MORANPlanning2006.pdf
Those who insist that factors other than land use rationing, such as taxation treatment of housing, are responsible for housing bubbles, should look at page 54 onwards, (page 61 of the PDF) where Moran gives analysis charts of these factors across a number of countries that have experienced housing bubbles.
February 2nd, 2010 at 6:19 pm
Steven, your point about P/E ratios is good.
Edward Learner: “Your Home has a P/E ratio too”
(I can’t find an internet accessible version of this unfortunately).
Rodney Dickens analyses this very well in the NZ context:
http://www.sra.co.nz/pdf/housinghellupdate.pdf
February 2nd, 2010 at 6:47 pm
I access a database on a daily basis which gives you the ownership and encumberance (mortgaged or not) details for every property in NZ. I would say that between 70-80% of all residential properties are either in the ownership of a trust or a company. In fact, it might even be higher.
Happy to take on the task of validating that guesstimate by random sample if someone just wants to name a street with say 40-50 properties in it.
February 2nd, 2010 at 7:30 pm
@Kate
If I’ve understood you, that is a stunning percentage.
Why would such a large percentage be bothering with either?
I feel very stupid now!
February 2nd, 2010 at 8:43 pm
AndrewJ
I got freaked out by inflationary talk and bank failures and bought a house in Helsinki. We have a small interest only mortgage at 2% true interest tied to one year euribor but dont have much income. We are just hearing now that supposedly there was a surge in prices when we bought at the end of 2009. Obviously ECB wants to create inflation and keep people borrowing. Such low rates could be around for another two years or more. Our oil bill is insane however at 1200NZD per month. So until it gets warmer we are only just surviving via income. Considering large investment in ground source heat pump with 180 metre deep ground loop drilled straight down in the granite – supposedly it will pay for itself in only a few years.
February 2nd, 2010 at 9:30 pm
Andrew Ive become a fan of Greg Pytels,
http://gregpytel.blogspot.com/2010/01/davis-2010-cunning-plan-how-we-will-all.html#comments
He’s a bit scary sometimes but i find him rather refreshing. read his ‘its a pyramid stupid’.
In farming the debt is the big problem, i think housing is worse but its not my specialty. I think somehow, someone ,somewhere, is going to hit the reset button. Who are going to be the winners is vexing me at present. I dont think it will be the holders of large mounts of debt,although i acknowledge that this is the side our Govt is on. I have some friends in the UK in banking, one in venture Finance. They have all sold up, got out and kept ‘cashed up’. The best advice Ive got is; a deflationary spiral and then some kind of currency destruction. Its all a bit scary and Im afraid unavoidable.
I don’t know about all these fancy heat pumps,friends in the UK love them,Ive an Architect mate from Australia and Norway staying I will ask him for you…. Ok, Veritas in Oslo run a biggy. He has seen some others in New York that are very successful. He thinks you need to pool together with several others to justify the cost and shorten the payback time.All that drilling through rock,I can see why it’s so expensive.
talk soon
February 2nd, 2010 at 9:35 pm
KW John, Why would such a large percentage be bothering with either?
The tax advantages + protection of the asset (protection from creditors if a business goes belly up and/or the state in the event the owners become infirm and need state funded care).
February 2nd, 2010 at 9:53 pm
Kate = try these streets – Cheviot Rd, Lowry Bay, Eastbourne and Paratai Drive, Orakei, Auckland
February 2nd, 2010 at 10:02 pm
But seriously Kate your average Kiwi street is nothing like what you have stated above for example a typical Lower Hutt street – Trafalgar Street – 48 homes yet only 4 in a company or trust name and 2 in Housing NZ name or Ponsonby Rd, Karori 57 properties and only 2 in a company or trust name.
Most in a family, single person or couples names.
So Kate your data would appear to be dodgy!
February 2nd, 2010 at 10:05 pm
@Kate
Thanks for helping:
“protection of the asset (protection from creditors if a business goes belly up)”
Get this bit IF you run your own business (not really that many in ‘business’)
“and/or the state in the event the owners become infirm and need state funded care”
Understand this too.
The tax advantages –
beginning to (though I keep blocking my ears a bit because it all sounds more like evasion than minimisation to me) – please correct me.
BUT
The scale you suggest (70-80%) suggests social/cultural acceptance that this is normal.
No bank manager/lawyer/accountant has ever advised me to do this.
February 2nd, 2010 at 10:06 pm
Ian C – re “a quick look at the RBNZ suggests only an increase of fixed mortgages of ~$2-3b 12 months ago, in the 4/5 year range.”
Check Feb/Mar/Apr as well for 2009
February 2nd, 2010 at 10:15 pm
Andrewj
I am resisting total economic collapse. I still think that all you guys need is food inflation. It is not impossible that prices will do well given the huge amount of money thrown at this beast. China for example did come to the party as they said they would. India seems to be doing ok too. Huge markets for NZ i think.
Anyway system reset does not create economic driving forces if they are not present now. People like me spending money to save money are the kinds of factors that create those forces maybe? Yes people move to cash but if cash is to be devalued they will spend and invest it as we did.
Seems to me that part of the move to higher rates in NZ is because of the need to secure longer term funds as inflation comes back into the picture but if inflation is absent rates can be lower for years to come.
As for heat pumps, the Nordics seem to have scaled down ground heat pumps to suit small buildings. And drilling is not so expensive compared to all the rest of it. With around a 5000 euro oil bill compared to 770 electricity bill with pump *if it works for our old radiators* the economics are compelling. For sure if it works it will make our older style less heat efficient house easily sold when the time comes.
February 2nd, 2010 at 10:40 pm
For KW John – this link explains;
http://www.sorted.org.nz/home/sorted-sections/trusts/advantages
TBM – are you counting say, 35 Ponsonby Rd as being in a trust?
February 2nd, 2010 at 11:09 pm
@Kate
thanks again…
Think the tax system may need a bit of work, dreadful way to achieve ‘income splitting’.
Other systems just allow taxation of ‘joint income’ – should you so choose, a way of ‘favouring families’ with one income.
This way reads as something else, though I’m sure it’s use is justified along the same lines.
February 2nd, 2010 at 11:23 pm
@Kate
Knew I’d seen someone touting it in NZ recently.
http://taxpolicy.ird.govt.nz/index.php?view=728
Good (I’ll read it more closely though).
February 3rd, 2010 at 12:06 am
Don’t want to identify individual addresses – not possible to tell if they are related or third person is a trustee.
People putting a family home in a trust when they perhaps own their own business is an astute thing to do. It is a whole lot different to a LAQC used to dodge tax.
Ponsonby Rd is a high value street – less likely to have rented homes.
Whether counted or not the 70% – 80% of homes being in a company or a trust is obviosuly a badly researched guesstimate on you part. C’mon – quote me a few (say 25) average Kiwi type streets at say median price for the city that have 70% company or trust ownership.
February 3rd, 2010 at 12:17 am
Kate – From last Census 12.3 percent of households holding the dwelling in a family trust. Of dwellings held in a family trust, 52.9 percent were held WITHOUT mortgage payments.
So over half of those homes held in a family trust had no mortgage so no tax dodge happening there. Simply done to protect assets while running a business and look after yourself in retirement.
http://www.stats.govt.nz/Census/2006CensusHomePage/QuickStats/quickstats-about-a-subject/housing/dwelling-ownership.aspx
February 3rd, 2010 at 12:52 am
Thanks TBM – Kate scared the daylights out of me there.
Thought I’d stumbled onto some awful cultural secret.
February 3rd, 2010 at 9:50 am
Kate… Thanks for the data… it was a better demo of where I was at with this issue.
February 3rd, 2010 at 10:04 am
TBM – I conceed an overestimate – but note the stats data is 2006 and I believe the trend toward trusts/company ownership will have markedly increased since then.
Also note fro the stats that 30% of all dwellings are not owner-occupied – so likely being run as a let. Add to that perhaps a rise from 12% to 20% of dwellings held in trust and an assumption of perhaps half of all dwellings in these alternate ownership structures is probably not far off the mark.
What I question is the seemingly general acceptance regarding the ‘looking after yourself in retirement’ use of trusts. One doesn’t set up a trust and slowly transfer assets to it to ‘look after yourself’ – one sets up a trust to protect those assets from means testing in the event you want the government to look after you and/or your partner in retirement.
It’s a shelter mechanism, designed to do exactly the opposite of “looking after yourself”.
Just consider the future burden on the younger generation given the percentage of boomers sheltering their assets in this manner.
February 3rd, 2010 at 10:56 am
# The Bank Manager Says:
February 2nd, 2010 at 10:06 pm
Ian C – re “a quick look at the RBNZ suggests only an increase of fixed mortgages of ~$2-3b 12 months ago, in the 4/5 year range.”
Check Feb/Mar/Apr as well for 2009
I had already done so – my estimate was generous, summing the total in April/May (highest) less the total in Feb (lowest). Looking at the rates reported by RBNZ in the same spreadsheet, the horse had bolted by April, so I am pretty confident $2-3b is an over-estimate unless the RBNZ stats are not reflective of reality:
http://www.rbnz.govt.nz/statistics/monfin/rbssr/rbssrpartE/download.html
February 3rd, 2010 at 10:58 am
“Just consider the future burden on the younger generation given the percentage of boomers sheltering their assets in this manner”
I dont under stand that..is there a law or something that says only BBs are allowed to do that?
What /where are the stats that say BBs are the only ones doing so…. If those stats say something like 90:10 ratio I will then conceed the emotive argument/propaganda
Or is it that the younger generations are just too thick to even do so?
Or are the younger generations just driven by pure morality and refuse to take advantage of poorly written or conceived legislation?
I dont think so…Personally i know more younger generations now using trusts than BBs.
February 3rd, 2010 at 11:33 am
Steptoe(steps) Agree with that, although I did not think Kate infered that only BB’s were responsible….. just that in probability we make ideal candidates for the usual supects.
In fact the people I refered to earlier in this thread in “my” contact or dealings with them re LAQC’s have all been in the 30/40 age group and at social blah gatherings they have been the promoters of exploiting the shortfalls in the LAQC /Trust anomaly.
February 4th, 2010 at 9:49 am
Sure, Steps, folks of all ages are (as you say) “taking advantage of poorly written and conceived legislation” – which (as you also suggest) is morally questionable behaviour.
My point about BBs is that their “shelters” start to come into effect en masse in a couple of years and will have fiscal consequences for the next 50 years or so as more and more of them become infirm and seek housing via the state purse whilst the beneficiaries of these trusts shelter the capital their parents/benefactors personally accumulated over the years.
I just think that that accumulated capital needs to be released to pay for the care of this elderly generation in the future – in exactly the same way that I see no reason why a failed business should be able to avoid repayment of their creditors through this similar sort of “shelter” mechanism.