sign up log in
Want to go ad-free? Find out how, here.

Bernard Hickey asks why apparently rational investors borrowed over NZ$2 billion in 31 days to buy assets that make cash losses while very profitable businesses only borrowed NZ$12 million

Bernard Hickey asks why apparently rational investors borrowed over NZ$2 billion in 31 days to buy assets that make cash losses while very profitable businesses only borrowed NZ$12 million

By Bernard Hickey

If New Zealanders had been really honest about finding a flag that reflected our true national character it would have been an open home flag.

We are obsessed with obtaining, protecting and growing our tax free capital gains from land. Our economy is set up to worship at the feet of our bankers and agents to get on the property ladder and claw our way onwards and upwards to owning as many properties as possible.

We feel in our bones that our tax and banking systems are set up to make it easy and relatively risk free to get ahead by leveraging up and then waiting for what it appears to be the inevitable rise in land prices.

It appears nothing can dissolve the magic. Labour has abandoned the idea of a capital gains tax, which means it is unlikely for another generation. The Government won't even discuss the role of its migration policy in pumping up house prices in Auckland. The NIMBYs in the leafy suburbs on Auckland's isthmus will fight tooth and nail to thwart and appeal any attempts to build lots of affordable houses quickly in Auckland.

And now the Auckland magic and joy is spreading into the provinces, regardless of the headwinds for dairy prices from overseas.

This week while the nation was working itself into a frenzy about which fronds and curls spoke the most about us, the real us was being revealed in the statistics emerging from the bowels of our real estate market.

Quotable Value reported that Auckland house values were up 20.4% in the year to August, but it was the surge in values in Hamilton (up 10.3%), Tauranga (up 8.6%) and the Hauraki region (up 16.0%) that caught the attention. There will open home flags aplenty flapping in provinces this spring.

"High prices and lower yields in the Auckland market appear to be encouraging investors to look to regional centres around the country for investment properties," said QV spokeswoman Andrea Rush.

Even the Reserve Bank seems powerless to dampen the speculative lust sweeping north and south from Planet Auckland as its new LVR rules seem only to be encouraging the expansive mood. Its rate cut expected this coming Thursday will also embolden borrowers.

"The new rules set to come in over the next couple of months requiring a 30% deposit for investment property in the Auckland region and a softening of the LVR for the regions may also be a factor incentivising this activity," Rush said of the headlong rush into the regions.

The speculative frenzy was undiminished though in Auckland through a record August and despite all the news of slumping business confidence and falling milk payouts.

"There is continued evidence of high levels of speculation in the Auckland market and we are seeing more examples where the same properties are selling two or three times in a one year period," said QV's Jan O'Donoghue.

The scale of the obsession with borrowing to buy and hold land was also clear for everyone to see in Reserve Bank lending figures released this week.

Mortgage lending grew NZ$1.087 billion in the 31 days of July to NZ$219.813 billion, which was the fastest monthly growth rate since December 2007. Mortgage debt is now growing much faster than incomes, helping to drive New Zealand household debt to disposable income up to a record high 162.2%, which is among the worst in the OECD. Landlords grew their debt by twice as much as owner occupiers and three times as much as first home buyers in July.

Banks are comfortable lending all this money to land owners because there has never been a big bust in house prices in New Zealand's major cities and because globally-set rules about capital allow them to lend much more against land and housing than against businesses.

This was also clear in the Reserve Bank figures showing businesses borrowed just NZ$12 million more in July, while banks lent an extra NZ$538 million in July to farmers as loss-making dairy farmers racked up extra debt against their land..

Just let that sink in. New Zealand's businesses are relatively profitable with pre-tax profits last year of 9.7% of income, yet they and their bankers are choosing not to borrow to invest in growing their businesses and jobs.

Meanwhile rental property investors, who in Auckland are receiving gross yields of less than 3% and net cash yields are far less and often negative, are gearing up massively to grow their assets. That's because of course they're betting on yet more leveraged tax-free capital gains and their banks are happy to help them. It's the same with dairy farmers, who are lucky to get a cash yield from their cows of 5% over the long run, and they're certainly making cash losses now.

Why would anyone borrow (and be lent) so much for such low cash returns? The deductibility of interest for tax purposes and the tax-free nature of capital gains make all the difference. The easy capital rules for mortgage lending by banks is the cherry on top.

The perverse result is that over NZ$1.5 billion was lent to loss-making businesses in July while just NZ$12 million was lent to businesses earning more than double the cost of capital.

It is a national obsession with borrowing to lose cash, but to make it up on the tax-free capital gains. It is a perfectly rational delusion that will no doubt be celebrated today by flying the real national flag high above the boot of a real estate agent's shiny new Audi.

Only a land tax and or a capital gains tax would force New Zealanders to act in truly rational and non-delusional way. Yet both would be seen as heretical and unpatriotic under the one true flag -- the open home flag.

------

A version of this article first appeared in the Herald on Sunday. It is here with permission.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

87 Comments

"Bernard Hickey asks why apparently rational investors borrowed over NZ$2 billion in 31 days to buy assets that make cash losses while very profitable businesses only borrowed NZ$12 million"

I ask myself this question almost every day. Our politicians probably do too, but go all out to avoid a credible answer.

Up
0

incredible, investors borrowed 100% July's mortgage growing.
There were no home buyers borrowed money from bank in July, unbelieveble.

Up
0

Errr... what?

Up
0

The majority of people over the age of 15 live in rental accommodation. This rentier economy is useless to them. They need a new flag.....

Up
0

Comment of the day??? Another reason Interest.co is funnier the "The Onion". And they have no idea why.

Up
0

Luckily property never crashes because if it ever did in NZ there would not be much else to keep the economy going.

Up
0

it will keep going up while interest rates can be dropped, then what will drive the market?

Up
0

Negative interest rates could help...

Up
0

How so?

Negative interest rates would create a situation where the banks would pay you to borrow to buy a property while charging depositors to hold their money

Up
0

Correct! That will encourage people to take out loans and also force stingy savers to spend their money. This will stimulate the economy and we will finally get some much needed inflation.

Up
0

Bank depositors and savers would realise they are being disadvantaged and left behind and will belatedly join the swelling ranks of investment-property buyers

Up
0

Let's just wait to see what the Reinz say about August sales. If anything like B and T it might be stabilizing at best.

Up
0

that negative interests scenario, although highly improbable, would be possible only when deflation makes assets prices lower and people don't borrow because it's better to wait.

House prices going up and negative interests? it wouldn't make any sense.

Negative interests were considered impossible although we have seen them recently only because of the deflationary environment. I thought this was obvious: the only profit lending at negative interests is when expecting asset prices in future will be lower than the borrowed amount.

Up
0

Close but no cigar. Here is a semi-good article at the bbc that will help:
http://www.bbc.com/news/business-32284393

Up
0

There is a capital gains tax Bernard and it applies to every single one of these purchases you speak of. Repeat. There is a capital gains tax and it applies to every one of them.
Anybody who buys on negative tax flow is demonstrating their intention is to buy and then sell for capital profit. We all know that and the IRD knows it too. Existing capital gains tax applies.

Up
0

Then why don't we make that a explicit Bright-line test. If a rental or non-resident property owner has always made a cash loss then this clearly demonstrates the owners have a capital gains business model and therefor they should be taxed accordingly.

Up
0

Yes, Open Home Flag, is an accurate reflection of the NZ Govt values: all our homes are for sale to anybody, anywhere, any status.

Up
0

It seems to me you are only including successful businesses in these calculations. Many, many small businesses fail totally with loss of capital. Where can I find a business to invest in that would give me close to a 10% return? A bank will probably be reluctant to lend me the money to invest in such a business as it is quite a gamble. I know far more people who have lost money with business investments than I do property investments. I have been successful in real estate for 35 straight years now so why change?

Up
0

Simple, how much tax have you paid on your 10% return, or more likely how much has the tax payer funded your property investments?

Up
0

I thought this was a web site that discussed financial things not a soapbox for social justice warriors.

Up
0

When a pack of grasping chancers have their paws in the taxpayer pocket, that's pretty damn financial. Nice try at a deflection, though.

Up
0

The thing we are discussing is the Govn handouts and tax free returns landlords seem to get at the expense of other tax payers while the property bubble puts the entire economy and finacial systems at risk.

That "financial" enough for you?

Up
0

Thankfully, some in society, against all odds, apply themselves to exercise their talent as brain surgeons etc.

Up
0

It doesn't even have to be brain surgery. Germany and Japan apply themselves to their productive capabilities.

Up
0

You don't need to be a brain surgeon to work out that investing in property and doing brain surgery are not mutually exclusive. Also many people use money made in real estate to fund business ventures.

Up
0

My business has been running for 4 1/2 years. Returns are a lot more than 10%. Employs people and helps them feed their families.
Banks do not want a bar of it. I dont own a house and that is why they wont lend me money, even though there is the value of a house in stock in the company. Luckily there are people out there that want to invest in what I am doing. Without third party investment I couldnt support the growth.

The reality is if you arent on the property ladder, everything is harder. The national obsession with property is our biggest limitation to growth.

Up
0

Good for you, sadly most ppl have tulip mania.

Up
0

Excellent comment

The subtext of your comment is, if you don't own property it's impossible to get bank finance to start or expand a business

Makes a bit of a mockery of the government's policy of growing the economy, growth, jobs, GDP etc unless you are on the property ladder, and as time goes on the number of owner-occupiers is shrinking

Up
0

Agreed. The Banks though are private, and as the Government can't direct their behaviour, they would have to legislate - and for them this is biting the hand that feeds them!

Up
0

The flag should read "Open Country" not "Open Home" and it should have a large red and yellow Chinese logo in the top right corner!

Up
0

The flag committee didn't like my similar suggestion.

Up
0

Banks are comfortable lending all this money to land owners because there has never been a big bust in house prices in New Zealand's major cities and because globally-set rules about capital allow them to lend much more against land and housing than against businesses.

Low regulatory capital demands make it a wonderful business - the risk resides with others, but not the profits. The issue is prevalent across all FIRE industries.- damn near free use of other people's money to make wads of it.

Up
0

It is not much .... it is just $250.000 per every citizen in NZ ! including my 2 little daughters (3 and 5)!
I can also exclude myself and my wife...

We we exclude - borrowing from outside Auckland (probably not much to exclude ...), kids, toddlers , older people the picture of borrowing would be INSANE !

As i said before - go to the auctions see ho is buying. I think it is fair to say that the government should care that NZ'ers should have a safe, warm family home rather than live in the rental that is dump, wet and cold. Unfortunately we live in 'landlords' land and everything is done to suit them....

Up
0

If the property bubble bursts I think could be a global event. With such low world interest rates how much of global property values comprises of debt and how much is equity? What would happen if property did drop 20%-30% globally? ( more a major correction than a crash) How much global equity would vanish if we have all so heavily invested in a bubble?

Up
0

The butterfly effect

While there might be a global financial correction, not sure there will be a property crash

The smart-money is on the move

Right now, there is a substantial population dislocation going on with an annual shift of nearly 1 million refugees re-locating to Germany and other parts of Europe. That will put a significant strain on housing, accommodation, welfare, education, and health in those parts. There are already over 4 million people located in refugee camps in Jordan and Lebanon who will respond to the direct shift from Mid-Eastern countries and bypassing Dublin Protocol countries

What will happen in Germany? Will the incumbents simply breath in and tighten their belts? Or will those who are inclined begin to move out to other places

If you were a high-net-worth individual sitting in China looking for a repository for idle funds what would you do? Buy property in investment friendly countries?

In Germany? Probably not
Any increase in building activity will be social housing - house prices will be depressed

In the UK? - possibly. In the US and Canada? - difficult

In Australasia - probably

Watch the NZ migration statistics in the coming months - look for an upsurge from Germany

Up
0

...to get on the property ladder and claw our way onwards and upwards to owning ... - Thanks for the shout out.

This article is very negative though. Yes yield is low in Auckland, but did you ever stop to think that investors are providing a service to people who can't afford a home. Think about that for a moment, we take massive risk on so that we can rent our homes out to the community. A thank you would be more appropriate than the moaning rampant in this article.

Up
0

But that's the point. You're not taking risk within an institutional framework that is heavily weighted towards your investment choice. I could argue that being a P2P lender I cam contributing to the community by helping them consume or reduce debt at lower cost than the banks will offer them. You can also argue that the central banks and retail banks are contributing to the community by reducing mortgage rates. Hell, the govt has even stated as much.

Up
0

What's staggering is that you actually believe this B.S. that is self perpetuated.... the facts are if investors didn't buy these houses they don't get up and run away or disappear into the mist - in fact, the reality is they'd be there to be bought by someone else - perhaps even a first home buyer? You don't take this "massive risk" you talk about for anyone but yourself and by the laws of the land you are entitled to - but don't try to spin a load of cr@p that you are providing a social service - you are simply profiteering from those who cant get on the ladder and the like of you are part of the problem - not the solution. Start building new housing stock for rentals and then you can continue in your deluded world that you are "helping"....

Up
0

If Investors don't buy houses pushing prices up developers wouldn't see as much profit in building more new houses. Therefore less houses would be built and there would be less houses in total.
It is all about supply and demand, houses need to go over a certain price before developers will build, as it is it is almost too expensive to build houses, hence most new builds are larger more premium quality dwellings because those are the only ones with a decent profit margin.

As housing demand goes ever higher ever more previously uneconomical developments ( such as on heavily sloping ground or swampland / reclaimed land ) will occur, increasing the total housing stock.

When Labour removed depreciation on houses they effectively removed the incentive for investors to buy /build new ( and depreciate ).

Up
0

You just made that up. We did not need investors/landlords in the past, we do not need them now, at least not in the numbers that we have them. It used to be almost unheard of for there to be people with portfolios of houses, now it seems it is something to aspire to. I want that to change. It is not an admirable thing to be and needs to be seriously discouraged

Up
0

But landlords are fine people who provide a lot to society. Without doubt we are the better for them.

Up
0

Might have been wrong about who removed depreciation on houses, but fairly sure that I didn't come up with the concept of supply and demand.

If you believe that I did come up with that concept could you please nominate me for the Nobel prize in economics?

Alternatively please indicate which part you believe to be made up.

Up
0

sadr001 I don't think you made anything up. And I don't think you invented the concept of supply and demand.

Another poster was saying that.

Up
0

Sorry, was trying to reply to "don'tgetmegoing".

Up
0

If investing in existing houses were not a "thing" as it is today, supply and demand would still apply, it is just that people who cannot now afford to buy their own home would create the TRUE demand for them and the prices would reflect the TRUE value of them instead of the craziness we have going now.
One day, someday a decent government will have the cajones to put a stop to all of this nonsense. I seek them out for where to place my vote.

Up
0

The 'Nats' removed depreciation on housing.

Up
0

And what would the price of a house in AKL be if we eliminated investment in housing?! Would they still be unaffordable?

I really wonder if you are a lefty just setting up a straw man for the rest of us to knock down.

Up
0

What he is, is someone who is saying it as he sees it, as do plenty of others

Up
0

Work the numbers out

No so many months ago, it was reported here on interest.co.nz that there are 33,000 landlords in the whole of New Zealand (that's nationally)

We also know that nearly 40% of properties in Auckland are rentals

Which means very few own very many

It could also be that many people lie to the IRD

Up
0

Which means a few of the 33,000 or a few newcomers to the landlord club went on an absolute spending spree in July

Up
0

If we removed investment buying I reckon house prices would be about the same but we'd have less houses. Developers need to see a profit margin before they will build. The cost of building a new house in Auckland including council contributions is about $350,000 BEFORE you add the price of the land.
So a developer needs to be able to sell a house for at least Land price + 350,000 + 10% margin + cost of money during development before he will even consider building.

Market prices need to rise enough that developers want to build so that they can build and hold / lower prices to the point where other developers no longer want to build and thus maintain market equilibrium.

Up
0

Really? How much did it cost to build a new house in Auckland in say 1995? I suggest the cost of developing etc today is a direct result of every little man in the supply chain putting his hand out for a slice of the action. Today that slice is a lot bigger than it used to be. It may resemble a similar percentage, but it will still be bigger. Diary farmers see this as well. I noted some years ago that about two weeks before an expected increase in the payout was announced, most farm suply item cost jumped, the biggest being calf feed in the beginning of the season. Greed under the flag of the free market!

Up
0

And right now all trades hourly rates are through the roof, and the likes of Graham Hart and Fletchers ramp up material prices. Its a fluid market at the blunt end too.

Everyone is making more out of this situation forcing prices up. I still firmly believe that demand is the issue, not supply.

Up
0

Thought about it, no thank you is due, having a few renting out to the many is NOT a service it is simply leeching. Without all the investors house prices would reflect better what an owner occupier can pay - the way it should be

Up
0

thank god some people concerned about society buy existing houses to rent them out.
Otherwise those houses would be.. empty?

What a terrible attempt to justify speculation !

Up
0

The truth is that if investors didn't buy up housing, then most houses would be in disrepair. As the older among us retire they can no longer afford to pay land taxes, maintain their homes, etc. So investors/Social Knights like myself buy their homes for a fair price then pour our own money into the property to fix it up. The rental stock is increased and young families can rent in a safe house while they build up a deposit for their own home one day.

Where is the injustice in that? Remember that a home isn't an iPhone or a fast food meal. You need to work hard for it. It takes time to save up. FHB must keep at it. They can own their own home.

Up
0

Hang on let me translate late that into the present day truth. Housing stock is falling into disrepair as it is rented out, the occupants have no attachment or pride of ownership and the landlord is not there to provide the niceties of life or to fix the deck/fence/letterbox/toilet if he can get away with it. The rental charged is so expensive that young owner occupiers cannot save for a deposit for a home of their own, even if their earnings could keep up with the ever increasing prices of houses, caused by greedy investors using them as temporary parks for their money as they make a capital gain (can't be wasting too much of that with new stoves you know)

Up
0

I think he gotyougoing....

he's trolling...

LOL.

Up
0

Gives me the opportunity every time to state what is really going on for the majority of people

Up
0

Agree with your 100%. I wonder what living in the tulip mania felt like, just like this I suspect.

We seem to have lost the plot where,

1) so called financial types (yes those masters of finance who brought us trickle down "theory" and "stop commenting as you have never been there" (Like I cant see what a mess they have made even if I dont know the ins and outs) Now want the interest rates to rise to fight speculation even if it kills real businesses and jobs (despite the fact of course they have made their money being parasites on the above goings on).
and,
2) we have successive Govns who wont life a finger as that is what enough of us voters want (yet look, we voted in a "master of finance").
and,
3) CBs who seem wedlocked to the the same wonkinomics of the masters of finance.

So despite the evidence from 2008 and on, many of us are back on the speculative bandwagon aiming to sell to a greater fool convinced we can make ourselves rich by not actually making a good, while in effect we screw over those that are trying to.

Up
0

The other comments are true, but also consider that in the regions before the property boom, an individual on a benefit could structure their finances to buy a low end property. I actually demonstrated to one of my tenants how he could afford to buy the property if he had the discipline (unfortunately he didn't). Today this would no longer be possible. So providing a public service? Utter rubbish, unless you are paying for new houses to be built. Indeed, I suggest that the opposite is more accurate. Investor actions are actually working against the public interest by making both properties and rents increasingly unaffordable. One out come will be an increasing number of homeless, something I suggest is already evident in Auckland? How is this a positive result?

Up
0

Perhaps it comes down to this - that New Zealanders have never been sure how to make a living in this country. The first thought, naturally enough, was to exploit whatever was available – the kauri, the gum, the gold, etc. From there, the opportunities for colonial agriculture protected the country from difficult economic choices for decades. The problem is that colonial commodity thinking hasn’t disappeared. It seems to have intensified under asinine political furtherance and protection.

We lost the original colonising market, but haven’t changed our thinking. Instead we’ve gone looking for a new colonial power to take the problem of establishing an added value economy off our hands. And now, under the shallowest political leadership this country has ever had, we are wandering into becoming vassals of a wholly incompatible political system, all in order to support entrenched commodity thinking.

The big problem remains in the too-hard basket – how to achieve a first-world standard of living in New Zealand. Rather than attempt to solve this in any credible fashion, we molly-coddle a Neanderthal dairy industry and wish to protect every financial advantage to buying and selling houses. Our children will look around at cities largely inaccessible to them, priced for a very few, just as they look now at the scrubby, degraded land where the kauri forests stood. But, as John Key says, selling houses is fattening the bank accounts of those that have them. It almost looks as if there's a first-world economy involved.

Up
0

Admirable sentiments but there is a big problem to overcome. NZ is at the end of a very long supply chain that adds significant cost to any product we produce. Diary succeeds because of our efficiency which means that the cost at this end is low before transport costs get added to it. (Which unfortunately Kiwis do not see the benefit of) So any diversification in other types of manufacturing, unless we can create some significant point of difference by quality or uniqueness, will face significant hurdles. Data industry will work OK using the internet, but that will not provide employment for many people, or the areas of biggest problem - the low skilled, average to low educated common man. Not an easy answer to be found. Do we rely on the service industries for these groups? If not what options do we have?

Up
0

True, murray86, we have a big problem to overcome. But people are problem solvers. Regarding dairy, the problem is the industry structure, which seems to me to be set up primarily to benefit the banks and Fonterra's executives. There is no question that we need a thriving agricultural and horticultural sector, but the current set-ups preclude added-value development, premium product positioning or other innovation - which are among the factors that have the capability to provide well-rewarded employment to others than minimum-waged Philippino workers.

In terms of leadership, I have never known a government so addicted to finding problems rather than seeking solutions. Whatever the problem, this government will find something that makes solving it too difficult - anything that allows it to say that solving it this way or that is 'too hard'. It's almost counts as National's unifying political policy - find the problem, fix on that, and avoid doing anything about it. When they're absolutely dragged into action over anything, they'll be niggardly and puny in response - excepting when it involves any of their cronies.

The status quo in sector after sector is failing, and clinging to the status quo in so many areas is failing the country. New Zealanders have always, and rightly, prided themselves on being problem solvers. And we have big problems to solve. I say, great. Let's try to meet the challenges.

This is a well-educated country, prizing individual initiative, fortunate beyond the imaginations of people in countless other countries. We're not going to solve our problems by avoiding them and hoping they'll go away. We're certainly not going to solve them by pricing people out of houses so we can rent them to them.

Up
0

So, July's mortgage growing 1.06b was borrowed by investor. 100%, incredible!

Up
0

I remember well these times in Spain between 2000-2007 when "house prices never went down", when the "smartest" investors found the holy grial and discovered that by leveraging themselves thanks to the corrupt system and de-regulated markets they could buy today and sell tomorrow more expensive.

Ah yes :-), I remember people complaining about affordability but what they wanted was not for houses to go down but for banks to lend them money so that they could "invest" in the market. A safe bet, the sooner the better. It didn't matter the total amount, "just tell me how much I have to pay per month and if my salary is bigger you got a deal!".

I remember well established companies like a dentist in my city deciding to "expand" the business and buy locals in areas of the city expecting higher returns than by doing what they were suposed to do. Now this business is no more..

You could go to a bank with a great business idea asking for support and they would show you the door out. But if you went to a bank saying: "I want to borrow to invest in the housing market" they'd put for you the red carpet.

Industry was not profitable, productive economy was not desirable. Why? Houses never go down and we all could invest in a house and let the "market" work for us. But don't let the "overseas investors come and participate, it's our secret. Lower the OCR! lower the required deposit!"

When in 2008 everything went down some cried: "we didn't know this could happen". Many were left with nothing but debts. And unemployment nearly at 30%. After all, where could people work if we didn't have any industry left and most of the resources were directed towards speculation?

Many were smart, of course, and cashed up before the collapse. But the clumsiest and greediest and many without ANY financial knowledge whatsoever and simply with a blind faith in the "houses never go down" dogma lost it all for themselves and ruined everyone's future.

Today prices still are decreasing and in some cities they've gone down 70%.

I didn't have any sympathy for them back then as I don't have any sympathy now for all these investors flourishing in NZ, including "mum and dad" investors.

The sooner the correction happens, the more chances of a future next NZ generations will have and the more chances real businesses will have to remain open for business.

But the real problem is not the parasites. There are always parasites living at other people's work. The problem is when ideas like "housing ladder", "first home investment", "buy before it's too late" impregnate society. The problem is when some sell their productive business to invest in houses, or when parents encourage their kids to buy "and we'll lend you the rest if you don't have enough", when ownership is a synonym of success. When the goal is just to afford a loan, not to afford a house total price.

That's the point of no return and I see that the moment young workmates listen to my arguments not to take on a mortgage to buy a house. "Poor guy, he is a foreigner, he doesn't know how things work in NZ. He doesn't know the most basic of business: if something always goes up, the sooner you buy and the later you sell the better. He doesn't understand the ladder"

NZ's situation is not the same as in Spain, I'm aware of that. Here the oversupply doesn't exist. Nothing, at least, that the market wouldn't be able to absorb. But I see the same mentality, the same faith. And if the mindset is similar, probably the same mistakes will be made.

I hope the new flag is large enough so at least we can all dry our tears.

Up
0

Remember that Spain was building too MANY houses. They didn't understand the fundamentals of supply and demand. Neither do you it would seem.

Up
0

O.W. If you actually did read what he said then you would withdraw that comment.

Up
0

No, that was a classic case of the free market in action.

Up
0

Auckland does not have a supply issue with houses to accommodate its people that is a smoke screen put up by national.
if so you would see slums popping up, homeless in vast numbers, rents skyrocketing, story after story in the MSM.
it has always been demand and the core to that issue is cheap money and favoured tax treatment over other investments.
the more I hear that property does not go down in price the more I see we are heading for a correction, how big will be the question in the past has been minor for two to three quarters then it flattens out.
this time who knows this market is driven by more hype than ever before

Up
0

makes sense to me muntijaqi.

Up
0

Post of the month muntijaqi

Up
0

As others have said an excellent comment, probably the best in the last month.

Up
0

Nice post.

I think our psyche changed due in part to the language wrapped around housing.
It used to be a Home.
Then it became - The biggest financial decision of your life
Now its - Residential Investment

Up
0

And it needs to become again "home"

Up
0

Gods and there I was doing building work for the client thinking I was building a structure, a structural building, a house in fact.

Strange how , for some reason, in the trade, we think that's a business. an investment.

true we could go back to the days when everyone in the tribe started just at first light, and had until nightfall to get the consecration of the first pole, right through to the backbone beam, and then roof and claddings on.
But since it is more common to use professional tradespeople with tools and expertise, and it's no longer bad juju not to have it completely by nightfall (which used to be the only way to keep the workforce focused to finish the job), such specialists need to receive payment for _their_ investment in time and tools.

I truly feel that you, Sluggy, should be free to buy all _your_ own tools and materials, and from the labour of your own hands, and with only those who will volunteer... build _your_ "home".

For the rest of us, its a massive investment of _our_personally_ money. that we earn, slowly, and with much effort.

the pschye change is far more people are born into privilege, and expect things , having never had to earn them.

Up
0

Not sure if you're deliberately trying to confuse the issue or not.

No one is saying that builders shouldn't be fairly compensated for their labour and earn a margin on materials - i.e. a return on labour and their investment in tools.
Although it could be argued that $2,500/sqm for a standard build is starting to take the piss.

You're confused if you think that the work you do for your clients is an 'investment' (unless you have an ownership stake in your work).
You have rendered services to them for which they (presumably, under contract) are obligated to compensate you for. That's quite different.

The issue with house prices clearly is more to do with land speculation.
That has nothing to do with construction professionals being compensated fairly.

Up
0

It is not different

(compensated fairly(fairly? by whose standards, builders are the lowest paid professionals!)
compensated with what ... money. Money going in is an "investment", value returned in kind, in trade, or in cash, is it's yield - owning your own is just deferred investment yield. investment made in the house, that could have been used elsewhere - place to stay/keep stuff that is "prepaid" rent to yourself.

point is your "home" isn't going to pop up in NZ without money put in. invested. large buckets of the stuff. And you expect it to work and for it to be of value to you for a purpose - that makes it valuable to others with similar needs. That is the very _definition_ of investment.

Up
0

Great post muntijaqi.

What makes it worse is that all of those poor landlords (who are only speculating, sorry "investing", out of the goodness of their hearts) will be howling for OBR if things turn to custard.

Up
0

well if the savers are so keen to guarantee the investors (Via OBR) instead of investing themselves, there is no need to make a fuss about it...

Up
0

There isn't, except OBR is not explicitly stated in banks' deposit terms of engagement as far as I can tell.

Up
0

the beauty of a forecast....

3. Current returns from dairy are well in excess of bank deposits. Cash returns on good commercial farms with moderate debt are forecast at 7 – 9% per annum.

http://www.interest.co.nz/rural-news/51177/bayleys-targets-minimum-nz25…

for Peter Punter, a term deposit is not a "risk free" basis separate in nature, rather the TD is measured against alternatives and joined them as also a leveraged equity bet.

Up
0

Good comment muntijaqi,
Property debt inflated values are deep rooted - over a couple of decades of bank funded real estate and media marketing manipulation.
Typically the herd of naive and greedy sheep flock in to get a slice of the action, but well be left holding the can - a bit like pass the parcel but one adds a sheet of paper.
The correction will be very painful as values return to the fundamentals of what a real local economy wages can actually afford.
Keys Government have failed to Govern affordable social housing (not referring to the free loaders but working middle class - the working poor) and let the dedicated wealthy and cunning capitalists run rampant and benefit hugely.

Up
0

Well said, Muntijaqi. New Zealand's home-building situation isn't the same as Spain's, but the banks are just as fixated on property lending. Retail banks are fundamentally not business-minded. They have to see something physical before they understand it.

In such an environment, where property lending is easy, where building businesses is professionally demanding, and the government too lazy to look past tomorrow, there are plenty of people willing to take the same plodding view, instead of doing anything genuinely value-creating for others or the nation.

They and the banks are well-fitted to each other. But the problem is, as in Spain, they and the banks regularly put the economy at risk for everyone else. Curiously too, certainly on this site, they tend also to have the least professionalism or courtesy in responding to others.

Up
0

Gosh Bernard, what do you reckon. Do you have one of the most boring jobs going? You write the same articles - with a slightly different slant - over and over and over again.

Up
0

As opposed to your job:- sitting there waiting for the capital gains to accumulate, while repeatedly saying "All's good in your landlord land"

Up
0

No no Guido... providing a valuable, necessary and quality service to tenants is what keeps us landlords busy. Many thousands of people appreciate their landlord's efforts. It's much more time consuming than writing "all's good in landlord land."

PS All is good in landlord land though.

Up
0