Martin Hawes on how to make money from money rather than property

Martin Hawes on how to make money from money rather than property

By Jenée Tibshraeny

There are growing cohorts of New Zealanders either locked out of the housing market, or choosing to steer clear of property in fear of the Auckland housing bubble bursting.

The home ownership rate has fallen to 63% from 73% over the last 25 years.

ASB’s most recent quarterly Investor Confidence Report (unsurprisingly) shows property owners largely see their homes or rental properties as their most profitable investments.

Yet only 6% of those surveyed believe shares deliver the greatest returns, while 11% say these come from managed investments and 13% from term deposits.

With interest rates historically low, people aren’t getting much for putting their money in the bank, yet they’re nervous about investing elsewhere.

So we talked to Authorised Financial Adviser, Martin Hawes, about what those in ‘Generation Rent’ should be doing with their money.

To begin with he says: “You can have a good life without owning your own home… If we look around the world, there are lots of people in lots of countries who don’t demand home ownership.”

Being a renter with a homeowner’s mentality  

Yet he says the real trick is for renters to save any cash they may otherwise have put towards home ownership.

Renting requires less cash. While you can’t make a capital gain, you don’t have to fork out for a mortgage or rates and your insurance costs are lower.  

“The trouble is that young people get a message that says, ‘This is the cost of my home - I’m renting - and I can spend everything else’. Well they can’t. If they want to keep in the same financial position as a homeowner, they have to make sure they save that difference between ownership and renting,” Hawes says.

“When you do long-term numbers between home ownership and renting, there’s not too much difference between them. We’re having a boom, so that will skew the figures between the two, but from a strict financial point of view, home ownership is probably not that much better than renting and saving the difference.

“The really good thing about home ownership though, is the discipline that is imposed on you by the bank for the mortgage. Because banks get really grumpy if you don’t meet your mortgage repayment schedule, whereas nobody gets grumpy if you don’t save that difference between renting and home ownership costs.”

Hawes bearish on the sharemarket

Hawes is bearish on the sharemarket, noting the headwinds coming from instability in the South China Sea, the Brexit, the Auckland housing market and New Zealand’s reliance on dairy as our main export.

He has cut back the portion of his personal portfolio made up of shares and property funds, from 50% to 40%, and has advised his clients to follow suit.

“I see a lot of risks out there, the least of which is Donald Trump,” he says.

“It’s a bit of a sell down. It’s not a wholesale exit.

“Back in 2008, before the GFC, I got really concerned and we sold everything. We sold every share and every property trust that we had. I’m not doing that at the moment.

“You can actually make a very good case for shares at the moment… Whatever you position you take, you should be able to make the case of the other side. So I’ve got a little bit bearish, but I can make the bulls’ case.

“And the bulls’ case for shares, is that the equity risk premium [the difference between what you’d get for a close to risk-free investment like a government bond and shares] is about right. Because interest rates are so low, they’re likely to stay lower for longer than anybody ever thought. And therefore shares, with their superior and greater dividends, deserve perhaps to be up there, and that might be sustainable in the long-term.

“Now I’m worried about a lot of other events that might befall us and therefore I’ve lowered risk.

“By some historic valuation method - particularly the price-to-earnings ratio - shares look very expensive, but not when you look at the equity risk premium.

“My advice to that young person who’s saying, ‘I’m not going to buy a house. They’re too expensive, it’s all ridiculous, but I’ve got $75,000 saved’; my advice to that person would be to make sure they save enough, because the savings rate almost always beats the investment rate. The amount that you can put aside is almost always more important than the rate of return that you will get on it.”

Hawes adds: “You can’t beat some diversification… because we never know what economic or political event might happen and the different asset classes - shares, property, bonds and cash - perform differently depending on what happens.”

‘Time to keep yourself firmly grounded’

Asked whether the New Zealand stock exchange in particular is overvalued, with returns of 23% over the past year, Hawes says:

“Again that equity risk premium appears to be about right. On a price-to-earnings ratio basis, it does look very expensive… They [NZX shares] are sustainable at that level.

“My problem is that New Zealand’s got some vulnerabilities at the moment. We’re based on construction, we’re based on immigration, and we’re based on tourism. Those three things are the big players in our economy at the moment and each of them is quite brittle. Each of them could slow down or stop at some point.

“Construction’s the least likely, but if immigration slowed, then construction would slow. Tourism is always quite a fickle industry.”

Hawes recognises Economic Development Minister Steven Joyce made a good argument around the strength of New Zealand’s economy on TVNZ’s Q + A programme over the weekend.

Yet he remains cautious: “I think it’s just a time to keep yourself firmly grounded I guess.”

P2P to reveal the value banks add as the middlemen between savers and borrowers

Hawes doesn’t have a firm stance on the sustainability of peer-to-peer lenders.

The likes of Harmoney and Squirrel Money have provided investors with decent returns since entering the New Zealand market, yet cracks are beginning to show in Harmoney’s business model.

It is expected to plead guilty to charges laid by the Commerce Commission, alleging it misled consumers. The six-figure fine expected to be imposed on the P2P lender will hit hard, given it suffered a $14m loss in the year to March.

Hawes says he has a small investment with Harmoney, which seems to have “worked pretty well”.

Yet he has his hesitations: “I’m always a bit concerned when I run my eye down the list of people wanting to borrow money, because it says what they want to borrow it for, and it’s house repairs and it’s holidays and it’s stuff I wouldn’t be borrowing to buy.

“What is happening with P2P is that you are taking the bank out of the middle... It takes money from depositors and it lends money out to borrowers. In sitting in the middle, it [the bank] makes a very good assessment of the borrower’s capacity to repay.

“With P2P you’re sort of making that assessment yourself, or Harmoney’s doing some of it, but you’re looking at it and you’re thinking, ‘I don’t even know this person. I don’t know the person’s age, I don’t know much about the person’s financial capacity, or their income…’

“Whereas certainly for bigger amounts of money, the bank will actually sit down with somebody and make the assessment on the basis of the person’s character, the person’s collateral or security and the person’s cash flow.”

Hawes concludes: “It will be very interesting to look back in 20 odd years to see if the banks are really adding value by sitting in the middle between people who want to deposit money and people who want to borrow money.”

KiwiSaver shouldn’t be used for general savings

Despite KiwiSaver funds performing well, Hawes says it generally isn’t a good idea to invest any extra cash in KiwiSaver, as it isn’t liquid.

The money is basically locked up until you’re 65, unless you’d like to buy your first home or suffer serious illness or financial hardship.

Hawes admits that making additional KiwiSaver contributions may work for those lacking in discipline, who might be tempted to blow money they put in a bank account or some other type of investment.

“But I think those people are few and far between.

“I think people shouldn’t use KiwiSaver for general savings.”

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

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191 Comments

Are they saving ? Really ?

My daughter has just spent a huge sum on an overseas trip for a month with her partner , she is not saving anything , and I find it quite annoying , because we , as her parents , are just the opposite .

Frankly , I am sick to death of hearing how hard done by this Gen X is ........... and its nonsense .

They don't know a good thing when they see it

They have two cars ( I had a bicycle and there was a waiting list for a car ) , expensive phones ,( we had a waiting list for a wire phone ) and laptops ( we had mechanical typewriters and some had IBM golfball typewriters ), clothing accounts ( we did not qualify) , Laitte's to go ( we boiled the kettle ) low taxes ( we were fighting a costly war against Communism), credit cards ( we had a paper savings book with hand-written entries and a stamp). Shops closed on Saturday at lunchtime , so there was no 7 day shopping in fancy malls

We also struggled to buy our first home , it was no different , and we needed a deposit , and Mom and Dad had to pledge their savings in the Building Society ( basically they stood G'tee)

And then when the Asian banking crisis came along , our mortgage was over 20%.

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it was no different?
Yes it was.
Tell me again how much was the inflation rate per year when you got indebted?
Tell me again how many times your household income was the total price of your house?
and how much student loan did you have?
and how much employment was there if you wanted?

Don't say it was the same. It wasn't.

But yes, still no excuse not to save money..
Although with these monetary policies discouraging savings and the lack of guarantee to keep savings' value I cannot blame those who decide to enjoy life.

Nailed it. Boomers are the lucky generation.

No generation before or after them has had it so easy.

Do you mean Gen Y's in your opening reference?

btw Gen X's are hard done by Boatman, we are known as the "sandwich" generation afterall.

and Boatman ... your pension scheme needs this debt.

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Typical boomer to their kids.

What did your parents say to you?
- We didn't have electricity
- We didn't have tv
- we didn't have fridges
- we didn't have inside plumbing
- we fought two world wars, and went through the greatest depression in recent human history.
- We suffered the biggest epidemic in human history.
- Credit cards - we had cash, and even then it was mostly coins.

My point is, civilization has moved on. If you want your kids to live the way you did, then why bother. We might as well all live like the missing link, no advancement for anyone.

Well you see.
Perhaps the boomer parents of this world are a bit sick of spoiled brats.
Easy credit is not civilization. it is a temporary anesthetic..

Children are a product of the parents.

and society

but mostly the parents

if children are a product of the parents -why is it that the Gen y don't save (like their nprents did) but would rather borrow to go on a holiday to Europe.
Our most expensive holiday with 2 mortgages 2 children and one broken down car was to Leigh to spend time on the beach. Until we paid back 50% of our mortgage we did not have lavish holidays or the latest TV.That required planning and self discipline something that I do not see much of these days.
Perhaps I'm getting too old but our parents taught us when you earn a dollar save 50 cents and then you can spend the other 50 cents.

The difference now is that the time required to pay back 50% of your mortgage is much longer than it used to be. There needs to be some balance, living within your means is important but there is a big difference between cutting back to the bare minimum for 5 years and 25 years. Life is about living and it can be shorter than one would hope. I'm not saying people should borrow and spend up large but building your whole life around paying a mortgage doesn't make much sense either

My dad was a boomer. He used to say back in the days of the 20% interest rates him and mum HP'ed everything, because even at 20% interest it was less than inflation. Want a couch, tick it up now, because it would have doubled in price by the time you had saved for it.

Looking at today's kids, they have the mentality. Only thing is my dad taught me about when/when not to do this. All the other people my age just seemed to get the "buy now at all costs" message.

This is actually why deflation is bad. People delay purchasing because it will be cheaper tomorrow. This is also how a lot of 'hard working' people 'struggled' to pay off their mortgage. Wages went up drastically, prices went up drastically, debts stayed the same. Yes interest rates were high but the principal got inflated away.

The doubling for prices while you are saving is basically what has been forced on first home buyers in the name of financial security and in reality they now have bigger mortgages on probably a lesser house.

"Perhaps I'm getting too old but our parents taught us when you earn a dollar save 50 cents and then you can spend the other 50 cents."

Thats the point - your parents taught you that, did you teach your kids? (Not personal just the generic "you " being used)

Went to school barefoot and walked 5 miles too did ya Boatman? . Times have changed. Your first mistake is judging an entire generation on the basis of your daughters choices. Couple of things, job security and income to house price ratios are what now?

No I had school shoes ( got them for Christmas ) , and did not walk 5 miles to school, the school was two blocks away ( and there was a school bus for 5 cents for kids further away )

And whatsmore , our first home took one entire wage ( that's 100% of my wife's wages ) , we lived off my wages .

So don't give me this crap about how hard it is now , its always been a hard slog to own a home , pay for it insure it, maintain it , and pay rates and Taxes .

Its never been like going to the WAREHOUSE and buying it with a plastic card , which is what these youngsters expect

Yeah,well funnily enough Boatman i was brought up in a single income home with 5 siblings and we never struggled. And my old man drove buses for living! And no benefits like WFF either, so I reckon something HAS changed cause I don't see many families able to do that for about the last 2 decades. Maybe you think the rest of us on here have lived in some kind of economic vacuum? We haven't, many of us have some history to draw on also.

X2. Boatman, I'm a gen-Xer. Grew up in a '70's and 80's single income home ($300/wk wages) with my two siblings and a stay at home mum. Two cars, country lifestyle, lots of fun. Compare to my life as a 40 something parent: two professionally qualified middle management incomes, my partner and I own a do-up in a low decile working class area of Auckland, have holidays at home, don't watch tv, commute 2 hours a day between us sharing one beat up 14 year old car, have no landline (2x 5 year old mobile phones). Both my partner and I paid for our own tertiary education. You old smug latte sipping buggers are full of bs.

In Auckland now it would take far more than my partners full time wage to pay the mortgage (at the currently low interest rates) on the house we purchased 6 years ago. You then take out another $2000 a month for day care for the 2 kids. We are lucky that my income is relatively high. A couple with average paying jobs and kids would really struggle to buy now. If at least one of you has a high paying job then it is still possible but far from easy. My parents did it on one average income. That income wouldn't even pay the mortgage today. Mum even bought a house before she met dad (school teacher pay $50k in todays pay). How is a single person on $50k supposed to save $150k and then pay a mortgage of $600k which would be $3k a month? The other issue now is that the mortgage is much larger and the interest portion is much lower so the ability to get a head by paying a bit extra is reduced.

And how deep was the snow boatman?

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Reminds me of the Monty Python skit - Four Yorkshiremen

https://www.youtube.com/watch?v=Xe1a1wHxTyo

Did not have snow where we lived

I can assure you, we are saving. Maybe not all of us but some SOME of us are. I buy the essentials, I work 2/3 jobs wherever possible and chuck the rest of my money into savings. In the vain hope that one day we'll have enough for a deposit on a house.
Some of us AREN'T buying lattes, trips overseas, sky tv, dinners out, alcohol, clothes, cars, phones, laptops or even own credit cards.
Still, it's going to be a long slog to at the very least $100K deposit for a house or indeed even an apartment near where I work. Where I have to work.
I'm sure I'm not the only one.

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@ Boatman...seriously?

C'mon you must be tongue in cheek or trolling..... cause I remember those times too and whilst I'll agree some things were more out of reach then (maybe overseas trips is one..) the rest of it is bunkum. Absolute curmudgeonly nonsense...

Tell ya what you did get - homes relative to incomes (and probaably ONE income), no crime (pretty much), FREE university, FREE healthcare, no 2 hour commutes to work....all the BIG ticket items were FAR FAR cheaper relative to income. FACT - It was far different.

Did you borrow 9 x your income for an average house?? Yeah, right....b@llocks

And as for the comments about laptops and mobile phones....hilarious. Try existing in a modern connected world without them....or do you expect the young to write a nice letter and post it down at the shops?

My kids have it FAR harder than we ever did mate...

You miss the point completely , we did not pay 5 or 6 or even 9X our annual wage for a house BUT interest rates were almost always between 12 and 22% per annum , not 4% fixed like they are now .

Its all relative

So initial weekly payments were similar. How long did it take to pay off your house though? To me that seems to be an important difference. Raising a deposit seems to be very difficult these days as well (seven or eight years is typical for a couple in Auckland according to the FHB house affordability reports published on this site).

No, Boatman, it is not. The ONLY equation that matters is how many years income a house costs. Interest rates are irrelevant, because, guess what? Yup, they can change, 20% interest rates are but a distant memory and did not last all that long, what we have now is artificially very, very low and if they increase, a lot of people owning overpriced houses now paying minuscule interest, will be screwed.

You know why interest rates were high right? Inflation, which wittles down a mortage inrelation to income without you paying a cent in principle.

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@ Boatman - I respectfully disagree...completely.

I would far prefer to buy a home at 3-4 x household income at higher interest rates than 9 x household income at what are essentially emergency interest rates with ALOT of upside risk.

A couple of interest points shift upwards on an $800k mortgage is a huge difference to monthly repayments.

We're asking the young to commit to enormous REAL debt (for a necessity of life - not a luxury car) in what is basically an economic experiment environment of ZIRP and QE.

And lets not forget in those times of 18-20% mortgage rates you reminisce about there was commensurate wage inflation so your debt was being inflated away. I remember - I was there too (selective memory?)

The facts are in the last 4 years Auckland house prices have risen 85% yet there has been negligible wage growth and in fact our immigration policy is driving wages down in many professions.

The coffee and cellphone argument really does my head in though - it shows a complete detachment from the reality many are now facing.

In Auckland AV house prices are increasing at $2k per week! - PER WEEK - that's nearly $300 per day!!!

But somehow buying a few $3 latte's is all the difference - get a grip.

The train has left the station for these people and they cannot catch up, and they know it.... so what the heck - live for now.

Frankly I don't blame them.

The Boomer generation that b!tch about someone spending money on coffee and laptops "cause this is the problem" are an insult to all our collective intelligence's....you got it all for Free, want your pensions paid out by those who are now working but treat the very same people you have shut out with contempt.

It's sickening...and I'm 50 - not some angry Gen Y'er buying coffee playing on his laptop,

Yes the non-essentials are easier to access but they've been screwed over on the basic things that really matter - a roof over their head, a sense of belonging/ownership in the community, the ability to start a family before they are 40...

I just shake my head at the attitude of collective greed and screw you I'm seeing in NZ.

We have collectively abandoned the next generation we'll all need to pay for us in retirement!

Short sighted much?

Uh rant over......time for a designer coffee...

POST OF THE WEEK !!!

and comment of the week "I just shake my head at the attitude of collective greed and screw you I'm seeing in NZ."

85% in 4 years and somehow it was not easier for them .... get a grip Boatman

I would have to give up 228,571 of my flat whites ($3.50 each) to buy my house now with cash. At my current rate of consumption that would take 313 years to save. 6 years ago it would have been 118,333. Coffee is clearly the issue here. I'm just lucky the price of my flat whites has not increased the same as house prices. If it had a flat white would be about $10. I guess I am just lucky I bought a house before I started drinking 'fancy' coffee.

@mvgsmf I think I love you. ;)

I actually agree with @ MVGSMF things have gotten way out of control.

Would you rather owe $150k at 12% and pay it over 10 years at $2150 a month or owe $450k @4% and pay it off over 30 years at $2150 a month? If you paid $3337 a month you would be debt free in 5 years on the 12% scenario or you could pay $3328 and be debt free on the $450k scenario. To be debt free in 5 years on the $450k you would have to pay $8287 a month. Even if there was no interest at all it would still cost $7500 a month to pay off in 5 years. This is what people miss. They say they saved hard to pay off the mortgage as quickly as possible but the amount they had to save to make a significant impact was much less. The stories of people saving and paying off their mortgage in a few years just can't happen now by cutting out coffee, paid tv, takeaways, electronic goods vehicle ownership etc. The only way to pay that size of mortgage off that quickly is if you invest the equity in your house and get a return much higher than the interest rate you are paying. For most that meant property investment but it could be something else.

4% for 30 years would be great but for such a long mortgage there's a risk of being affected by the uptick in interest rates that will eventually happen. My choice would be a cheaper house at a higher interest rate.

My exact point. Low rates enable people to borrow more because the servicing costs are less. We had it harder because we paid 20% doesn't cut it for me.

You are speaking my language. I remember mortgages at 23% and inflation at 21-22% at the same time. A high interest rate coupled with insane inflation is the best time to buy an asset. Mortgage principals at the time rapidly diminished in value. People didn't have a hard time when they made huge capital gains for doing nothing.

The key difference now is that the light at the end of the tunnel is so much further away. Back then it may have been tough for a year or so but now it is tough and will be tough for many years. people could plan their lives by delaying having children etc until their mortgage was under control. Unless you plan on having kids in your 40's it isn't going to work. My parents were mortgage free when they had me. Inflation gave them a house. Mum stayed at home and Dad retired when I was 12. They were and are very careful with their money but the blueprint to their success is not viable today. Saving their way to wealth via term deposits is not going to result in the same level of success. The "live within your means" is still valid advise. I would earn 3x what Dad did in todays terms and would struggle to buy the same house we lived in growing up and it certainly wouldn't be debt free after 1 yr like he was.

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I don't recall seeing that many boomers saving. The Government had a generous pension for anyone who lived to the age of 60. Of course that meant few saved and a few were in debt assuming they could borrow. I saw a lot spending on Golden Kiwi tickets, drinking DB and smoking a ridiculous number of cigarettes.

Bonus Bonds were introduced to try to get people to save. It's difficult to criticise those who are mostly unable to save due to low income, or are discouraged from saving, when the boomers as a generation were no better in their behaviour but had more disposable income.

Too right. My boomer parents are retired, know nothing about saving and they don't appear to give a rats arse. Fat chance I'll be able to survive with that attitude in 23 years when in 65.

And how exactly are you discouraged from saving?
What's stopping you?
Boomers built the majority of infrastructure you enjoy now.
Roads, Power Stations, etc

Boomers built the infrastructure by borrowing from future generations.
It's called debt. Debt which meant that university fees had to be introduced, and in general most social welfare provisions had to be gutted to pay for it all.
.
You think boomers actually paid for all this?
.
What's even worse, apart from the initial investment, the greedy 80s and 90s saw flogging off of SOEs, which means that they got asset stripped, and no money spent on maintenance. This is a big reason for the huge rates increases Auckland households are now seeing: those who made their money squirreled it away to offshore accounts, and regular joe now has to foot the bill.

You didn't even pay for your own pensions. Your pensions are being paid for by the current tax take. That's right: Gen X, Y and Millennials are paying tax on their earnings to pay you your super.
.
Boomers didn't save. if they had, they'd manage to pay for their own pensions, instead of relying on the next generations (which they've heavily indebted) to pay for it now.
In simple terms: you made the next generation pay for your lifestyle twice. Firstly by heaping debt on them, secondly by living off their taxes.
.
Generations later than the boomers have a right to be angry.

What moa man is saying is that think big was the best idea (to almost bankrupt NZ).

There's a boomer obsession about talking down to younger generations when they are no shining example of good life or financial decisions. Let's not forget about boomer whining over smart phones when most were wasting there money on smoking 2 packs a day.

I actually thought most of that infrastructure was built by the generation before the Boomers; the Greatest Generation that had seen the deprivations of war and believed in self sacrifice for the sake of country & community. The boomers largely inherited that and said 'thanks, we won't save anything for our kids'

it's about 50/50. A lot was started in the interbellum, but not finished due to monetary constraints.
Investment was taken up again after the war, with spending continuing until about 1980.
So it was the boomers' parents which started it, sent their boomer babies to free uni, and made sure they had jobs aplenty when they finished school (or uni for the select few).

http://www.teara.govt.nz/en/investment/page-4

Actually the pre-Boomers generation did pay for much of the infrastructure. This was not only roads and power stations but community assets such as scout halls, built with working bees. However, that generation retired at 60, and left enormous debt. As I tell X-generation we didn't inherit New Zealand as you know it - we inherited Greece with absurd levels of debt, rampant inflation and ridiculous Government structures. Tying selling the SoE's into the debate is ridiculous, they never paid a dividend and limited economic growth - six weeks to get a phone on. Talking of not having student loans is also misleading - the marginal tax rate was 65% - so it was effectively the same.

The key point misunderstood in this debate is that housing crisis is a Auckland-specific short-term bubble. In the Hutt Valley where we started you can still buy a house at $250,000. And people are going to get burnt in the Auckland housing ponzi-scheme.

And if they enjoyed a beer and a ciggie. So what?
What business is it to you?
Stop complaining.

That's exactly what a boomer would say and they would be a hypocrite.

So you are saying inflation paid your mortgage off? Might have been tough for a short period but incomes also increased drastically which made it much easier for many people. To say that things are not more difficult now is nonsense. To buy my house at todays value in cash, I would have save 100% of my income after tax for 12 years. When I bought the house 6 years ago, that would have been 5.5 years. Dad bought his house for $12k in the mid 70's and paid it off in 1 year with a bank loan (not a mortgage) as he had some pounds from the UK. He earned about $4k a year in a not particularly well paying job. It is much tougher now than it was then.

Haha nice troll.

Well they're your kids, so, perhaps a failure of parenting, hmm?

Some save some don't. I've saved quite a lot in the 5 years or so I've been in my current job. But that's involved scarifies. I don't eat out or buy lattes. I have an old car which I maintain myself where possible. I don't buy iphones and ipads. When I buy clothes I shop online to save. I avoid social situations that require money, which has put a the brakes on my social life. I'm very frugal with the power bill too. The biggest cost saver is flatting with strangers which I absolutely loath. Not having pets because we're renting. I have traveled a bit to meet my now wife but always did it on the cheap. I do know people who waste all their money on consumer crap but it's all about opportunities.

Now you can pretend you licked the road and lived in a corridor but the fact is house price to income ratio is much higher and job security is much lower. All the consumer stuff is pretty cheap these days, yes even phones, but the essentials to a good life are much harder to come by.

Yes I remember mortgage interest rates of 23% yes 23% in NZ in the 1980s
So although they may have student loans to repay the mortgage borrowings are nothing like 23% !
During that time many got on a plane moving to Australia
Iron Ore price just went up. Imagine when Australia gets its breath again how many of NZs new migrants will be on the plane to Aus? I certainly cannot aafford to live in Gods Own & I see here the pressure many are under. Pity Mr Key evaded delivering the message of what his plans were about migrants. Hes played you all for fools

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So.. from a financial point of view it does not make any sense right now to buy a house instead renting unless we want a bank "pushing us" to "save" to pay the mortgage.

A service that the bank offers for free!

I am a happy renter who won't buy any property in New Zealand until prices are 3 times my annual household income (if ever), and I am fine with that.

We save $500 every week (some weeks even more). And that's $26,000 per year for which we get around 3,40% interest in savings/term deposit accounts (more than some rental yields in Auckland).
We go on holidays overseas every year and we live by the beach paying $400 rent for a furnished 2-bedroom unit without the worries about maintenance, furniture or anything. If we get tired, we change. If our situation changes, we change in less than 2 months. Nothing fancy, but we go dine out one or twice a week, and we treat ourselves sometimes.

By having this freedom we have changed city and jobs several times in 5 years and I can happily say that I now earn more than double than 3 years ago. I'm not sure I would be able to find good opportunities if I was attached to a property or mortgage.

Anybody obsessed with the idea of becoming home owner at the current prices by taking on an overpriced mortgage is clearly moved by irrational thoughts and dogma. I cannot believe the "happiness" of becoming a home owner compensates the lack of freedom of becoming a slave to the bank and to the current job / salary.

Luckily this is a matter of choice. So good luck to all.

Thats right. Its just a matter of choice. I know a property investor who owns 5 properties in Auckland. He is forty five now and he has not gone on a holiday for 15 years (even out of Auckland). He says he can use that five grand towards improving the value of his properties to get a better rent or some equity. For him holidays, and dining outs are just money wasters and those not essential stuff in his life. Its amazing how different people think (you and him). That's what make this world interesting and beautiful.

Doesnt get it does he. The only thing worth something now is resources - ie water, energy & land. Saved money is worthless when it all collapses - and he talks in circles enough to suspect that something isn't quite right. eg dont buy shares yet they are returning (stupid) returns compared to earnings courtesy of money printing. The market has no value finding ability left, its all manipulated to hold a ponzi together. Because underneath everything, available energy per capita worldwide is falling ... and this means deflation has to stop our financial system at some stage soon despite all possible manipulation. It easy to see huge parts of the world where this resource reality has already kicked in ...

Ham n eggs,

What a lot of drivel. It's absolutely clear that you know thesquareroot of nothing about the Stockmarket. I have been investing in equities for over 40 years and have lived through many bear markets. The earnings of NZ companies have nothing to do with printing and if I could be bothered,I could go through some figures to demonstrate this.
All you do is rant,with nota shred of evidence to support them.

I think when the fed raised rates .25% at the very end of last year and the resulting worst start to the year for the DOW suggests that there may be a problem.

Im unsure why you're talking about a wee subset called NZ companies, but if u think money printing doesn't flow onto NZ then clearly youre not the sharpest tool in the shed

Buy Land ? where exactly ? Aucklands land prices have climbed faster than housing at least when I was last living there and I doubt thats changed. So whenever the GFC2 happens expect Land to drop in value also albeit unlike bank accounts & cash youll still have it Unless a new Land tax comes in or confiscation.
Nobody knows what the future finacial system will be but this one is on its last legs. Creating money from nothing and charging for it has proven to be the worlds largest running Ponzi scheme.
Im sure the learned among you will disagree too bad its my opinion

Sound advice if you believe in business as usual. But no recognition of the fact that we are in a descending interest rate environment with no relief on the horizon. No questions about why this is so, and what might be a smarter investment strategy because of those underlying causes.

Seems the answer to too many claims on the future income streams available, evidenced by the diminishing returns, is just to make those claims in a different way. Sort of like saying the answer to one parasite, is to put another parasite on the first one to feed on it.

Yes - the only counter to diminishing returns is economies to scale ... (technology gains are insignificant in the scheme of things) ...This applies to all industries, including debt .... and we are hitting limits with economies to scale. Because once you end up at the point where you progress to having one big SUPER market as the super efficient shop in town, you actually dont have any viable customers for it. So debt growth hits the wall.

Only the opposite advice to what is needed, most people will be negatively impacted by that advice. That's assuming they can save at all.

nah, soon we'll all get the helicopter money to rescue the capitalism and savings won't mean anything :)

NZ needs a hero to champion this cause.

People are wrong when they say that it is cheaper to rent than to own property with a mortgage currently.
In Christchurch it is cheaper to buy and own than rent but we won't tell our tenants that!
Reasonable home in Christchurch if you know what you are doing are around 400k and mortgage rates from 3.99 per cent fixed.
So roughly 16k per year interest only or 306 per week plus rates and insurance of another $50 so all up 356 per week.
Rent for this 3 bedroom would be around 450 per week so that extra $100 per week could come off the loan.
These figures are based on no deposit being put in as property purchase could be leveraged off parents property.
No brainer really!!!!!
Capital gains in CHCH assured as well as growth is happening.
Forget living in Auckland.

Unless of course theres a crash and job losses as a result of a recession... You are then left with negative equity and income troubles...

The formula for calculation rates in urban Chch is $309.28+$0.00459741*property value. So a $400k property pays rates of $2148. Insurance would be at least $640. Then add maintenance at a conservative 1%/year ($4000). This gives $438/week. So about the same.

Also note that Chch rents are falling (probably due the calculation above).

That's assuming GV was 400k, ballpark rates insurance about $50 per week.
Maintenance 4K depends on state of the house and whether you can do things yourself.
Rents have dropped a wee bit but we are having no difficulty finding tenants.
Bear in mind that interest rates have dropped by at least 20 per cent over the last year or so, so all good.
Still very achievable to have home ownership for first home buyers and Banks want to lend.

If you don't own your own home when you retire you will need some SERIOUS cash to have any sort of tolerable existance. I agree with THE MAN 2. There are a lot of people living in Auckland who can't afford to. Relocate when you are young enough to build a career and set up a life.

If you own your own home at retirement, the only way you will have serious cash is if you sell it.

I said if you DONT own your own home you will need serious cash. To pay the rent.

That's a rubbish argument. The assumption is Freehold.

What if you own no home and own a business that pays you a dividend every year ? I know that's not the answer Sheeple are looking for, but home ownership is not the answer to the worlds woes... surprisingly.

Just chatting to a boomer friend at work - She's has a pretty average salary but she’s got 3 million dollars of equity in a couple of houses and 2 incomes. All she wants to borrow is 1 million dollars and the bank is humming and harring about it. In that context what chance do any young people have competing against boomers and Chinese.

I think this article is a little bit patronising and insulting to the intelligence of the disenfranchised renting youth. If the Chinese and boomers aren’t interested in p2p, managed funds, shares, bank deposits, etc then why the heck should genX be happy to invest in that. I think everyone understands that leveraged investments to buy income earning, and inflation adjusted hard-assets has been the way to ensure future prosperity. The content of this article makes me almost as annoyed as hearing some smug boomer postulating that GenX are the authors of their own misfortune for drinking too much coffee.

"I think everyone understands that leveraged investments to buy income earning, and inflation adjusted hard-assets has been the way to ensure future prosperity."

Underneath this "get rich by financialisation" rule, the real delivery of future prosperity has been leveraging of energy. The energy surplus in the economy has delivered the wealth, and the lack of it will deliver the bust.

What are you saying? That resource constraints will eventually force interest rates up and destroy asset values. But the current credit based system couldn't cope with a wholesale reduction in asset values because the assets are the collateral on which derivatives & pension funds etc is based. I think banks and governments would preferably hyper-inflate the currency before they let asset values fall. Therefore hard-assets win - so long as you purchased them when they were cheap.

Yes - resource constraints will destroy the value of money. Money is just a token of (future) energy or claim on future energy, so if the system cant keep being manipulated to delivering future energy, the value of money/hard assets/pension funds etc disappears. And we are actually already past this point, energy being delivered into the system (essentially barrels of Oil) are now paid for by thin air debt at no interest ... No Oil company in the world can deliver $40 Oil indefinitely and high priced Oil leads to higher priced everything which would require more debt...Peak debt, peak Oil, peak population, peak pollution, peak consumption ... take your pick. There is no nice downslope to this.
The central banks would love to put interest rates up, but the system would break.

i should add debt growth brings consumption forward, so it is key to keeping the extraction of energy going. But we are clearly reaching a limit of how far into the future we can "consume" from.

You mean the generation that had their debts inflated away and then borrowed against the value of their homes so they could buy more homes to rent out to people so they could rinse and repeat? I bet she didn't save the 3 million. Things are just different now. What used to be expensive is now relatively cheap (electronics, pizza hut pizzas etc) and what used to be cheap is now expensive (houses). It is very hard to compare generations fairly.

The problem with saving is that the returns are so poor at the bank, that with it just sitting in a bank, you are probably losing money and opportunity costs with that saving. Putting it into kiwisaver which may get a better return, means you are locking that money away until retirement (could be 70 for many), which isn't good for many. When you see all these people making a lot from property, greed makes you to want to invest in property, which in turn means you are competing with everyone else to buy a small pool of houses. The baby boomer generation who previously invested in finance companies, appear to have moved a lot of their money into property. But these things go in cycles, and at some stage houses will be relatively cheap again, especially when the baby boomers come to cashing up. The thing is with a downturn and property, people will rarely sell for less than they paid. Unlike with shares, where people will often take what they can get when they exit in a downturn. Perhaps if they made interest rates at the bank better for savers (apparently the government wants people to save?) then that may help? Perhaps the only hope for young people to get a house, is to inherit, as long as we haven't brought in inheritance tax by then.

"At some stage houses will become cheap again".

Yes - when the debt growth stops, the Oil then dries up, the supply chains seize and the food disappears from the supermarket. At this point house prices in central Auckland will start to look a tad overvalued.

The equity market that is shares is pure gambling, nothing else!
Once you own share you have got no control whatsoever as to what your shares are going to do.
We saw it with the investment companies before the share market crash of 1987 that is judgecorp, equiticorp, Ariadne etc.
Auckland housing market is pretty much the same due to the pathetic rental returns up there and we know why the values have continued to grow. Not logic but Eveyone that buys in Auckland should know the risks by now.
Wouldn't buy a property that was negatively geared at anytime as why would I want to be supporting renters lifestyle rather than my own family????Chch returns are over 6 per cent currently

I'm going to go out on a limb here and say that you aren't the best investor..
Regardless, don't liken the share-market to pure gambling. It may be like that for you, but not the majority of investors.

Go see a financial adviser. They might be able to clarify a few things for you.
It would be the best thing you could do.

Nyman, it is gambling.
You have got no control whatsoever on what the company directors do.
World events can plunge the market into disarray very easily, we have seen that before.
Shares can be wiped off the board and I have had several of them over the years, and therefore wouldn't touch shares again with a bar of soap!

You sound like the sort of person who would not be suited to investing in the stock market. Some people can cope with the ups and the downs. A lot of people damaged their investments by selling at the low point after 1987 and missed out on the recovery.

Some shares can get wiped out and that's why you need a diversified portfolio and ETFs based on an index provide better returns and risk mitigation.

It's not gambling, you are just risk adverse. That's not an issue if you are a older but those that are younger and can ride out the good times and the bad benefit more from being in the stock market.

I would suggest the gambling and stocks quoted show lack of knowledge on how shares work. whilst I agree on bad management or directors will lose you money many companies are opposite to that and if you jump on the coat tails of the good ones you can make a lot of money.if you are not happy with direction you can get out quick smart and retain capital and move on.
as for world events that shows real lack of knowledge as the GFC created the best buying time in our past history and there were many many good stable companies with good management that were at 1/2 price and was a period that made many big investors more wealthy than ever.
as warren buffet says
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

Shares are too risky because they can be 'wiped off the board' but you think people should buy houses in Christchurch of all places? No risk of a property being wiped out there, for sure. You don't have control of a companies performance in the same way you have no control over the rental market, or where property prices go, or whether your tenant trashes the place or leaves without paying etc. Shares are risky but compensate by being extremely low maintenance and on average high reward.

Yup THE MAN, Warren Buffett is a massive gambler who's been lucky for 60 years through a multitude of bull and bear markets - yup, real lucky bas**#@d

Nymad, why would I need to see a financial,advisor?
If they were any good then they wouldn't need to be working would they?
My investing has enabled me to not need to be working!
I have seen many people take advice from financial advisors and have lost money.

What?
If they were any good, wouldn't there be more demand for them?

Well, kudos to you for your prudent investing. You are one of the few who with a perceivably fundamental misunderstanding of financial concepts have succeeded.

I lose money on my investments too. Luckily I have the wisdom to differentiate short/medium/long term.
Long term, I would be very surprised if financial advisers lead a significant amount of people to a net negative wealth position.

It's not all gambling but focusing on return is really important. I can think of one high profile property investor who ended up with a negative net worth of around $12m (maybe more). His strategy was buy, get a valuation then borrow more. There was no focus on making a profit on each building, like you would if you were running your investments like a business.

Most want a get rich quick scheme than sticking to percentage gains. It's not exciting to receive 6%+ returns.

Property investment in Auckland having pathetic returns? really? I would have made money if I had have left the house I bought empty for 6 years. When the capital gains dry up, then people will focus on yield. If you are negatively geared and not getting capital gains then you aren't all that clever.

Dave. You are talking about speculating due to the prices of Auckland homes escalating and we know who the buyers are.
If those buyers pulled out and needed to sell then the Auckland property prices will collapse like a house of cards.
True investors look for yield and property with a twist rather than getting on the gravey train just like the sharemarket did prior to the collapse in 1987.
Yes property is the best medium for financial freedom and passive income.
I do feel sorry for first home buyer kiwis looking to buy in Auckland as they are literally pushing xxxxx uphill trying to compete with other buyers in auction rooms up there.
The mortgages that they get would be lucky to be repaid in their lifetime.
All,I am saying is that there are far better opportunities for property than Auckland at the moment, and as you know there are many trying to restrict the prices increasing and once this happens, having negatively geared property will not be much fun!

The collapse in Auckland house prices will not be as significant as you say provided the desire to live in Auckland exists. If rents don't decrease and interest rates don't increase much then the downturn will be not that big. If rental demand dries up and interest rates increase then it could be more significant.

How will you get yield when the capital gains dry up though? I'm not sure how much more most renters could pay to be honest. Maybe I'm projecting my own situation onto others here a bit, but (say) a 20% rent hike from our landlord to move from a 2.5% yield to a 3% yield would seriously ruin our finances. We simply could not pay and would have to move elsewhere.

He is how I'm planning to do it. Make the investment cash neutral. The new minimum deposit rules will do that anyway. I'll lock in low interest rates and increase the rent modestly ( eg $5 a week) at least annually over. time. Say the house is worth $800k. That means I have $320k of my own cash tied up. If I put that in the bank or paid off my own mortgage I would get effectively 4.2% net on it. If house prices go up 3% I will make $24k in the first year which is 7.5% this is tax free (as I'm not stupid enough to sell within 2 years). In the following years I will be cash flow positive (provided the rents hold up). Say I put the rent up $5 a week after 6 months, that means I will get an extra $130 this year + another $260 next year. If I was to increase another $5 after another 6 months I will be getting a total of $520 extra next year than this year. It doesn't sound a lot but over time it adds up. If the rent was $520 a week this is a 1.92% increase. If I did this for several years, the property would be earning a reasonable income as well as the capital gains. Do you think a tenant will go through the hassle of finding somewhere else over $5 a week? They will probably have to pay $500 in agent fees etc.

It's not gambling. Things are not like they were in '87. It also depends on your approach to investing.

Look at some broad-market ETFs, do some research on portfolio asset allocation (growth vs. defensive), make sure you understand asset class correlations and what this means, don't get too greedy on the dividend yield percentages, and diversify sufficiently. Finally, be prepared to accept some volatility, and don't just invest in NZ-based assets.

Having said that, as a more conservative investor, I have never invested directly in shares. Sure, you're paying a fee to an ETF fund manager for the privilege (management expense ratios ranging from 0.07% for some overseas ETFs to ~0.50%-0.60% or so), but a basket of shares is inherently less volatile than a single shareholding.

So property doesn't have to be the only game in town, but do consider that asset classes like REITs and financials do have direct exposure to property, so will be affected when property runs into any trouble.

There: fixed it for you!

You can go to Superlife or Smartshares right now and invest in a total world ETF starting from as little as $500. This buys you shares of the biggest 7495 listed companies in the entire world. The companies are spread across all countries, currencies and sectors. For every underperforming area, there are several over performing ones. If a company's value falls enough, it drops of the list and gets replaced by the next rising company.

The 1987 crash was global. Why is it only New Zealanders who don't seem able to get over it and are still afraid of the sharemarket in particular and diversification in general?

Kiwis seem to have learned the wrong lesson from 1987. Should have learned not to be stupid, greedy and reckless when buying into bubbles. But didn't, and instead came away with an irrational fear of shares, and an equally irrational blind faith in real estate.

Well Real Estate can't vanish in the blink of a brokers eye.
Unlike Shares.

Assets funded on Debt don't either, the debt just gets passed on to a new sucker/s (buyer); and sometimes those "suckers" consist of entire generations!

I was referring to freehold property.
Now freehold is the anathema of finance companies, banks and assorted blood suckers.
Heaven forbid, they might have to get a real job!

If that was the case there would be no mortgagee sales, Hong Kong and Japan wouldn't have had massive collapses in property value. Also you seem to have forgotten the Christchurch earthquake that made a lot of property disappear, along with insurance companies.

I think it's a combination of rose tinted glasses and the kiwi obsession with get rich quick schemes. People want to make a one way bet so it's either good or bad. Diversification is a concept that barely exists for most in NZ.

The rose tinted glasses perception is that people forget all the people that lost their houses in 1987. People borrowed to invest and couldn't make their mortgage payments. How many are in the same overextended position? I suspect more than what is good for financial stability. Even after the subprime crash I know people in NZ that were burnt with all of their investments in property, they lost a lot. Watching people go from 3 houses to one is something else.

The NZ resistance to diversification is truly baffling. I like my investments to have a broader foundation than the economic buoyancy of a couple of towns in one tiny low-wage country.

The Man 2,

Someone else who has no idea how the Stockmarket works. The finance companies were not quoted and cannot be compared to quoted companies. We'll run companies do things that add value to the economy,employ people directly and indirectly and reward their shareholders with growing dividends. Of course there are risks but life is full of risk and risk can be mitigated in several ways.
I keep being surprised by how few Kiwis have any understanding as to how the Stockmarket works.

interesting comments from all // ... I found this Financial adviser a bit too pessimistic to my liking , let alone to the young generation ... never trust a hesitant F adviser ... talk about confidence or NOT..
From own personal experience , saving is the right way, No one in Auckland should dream about buying a house on a single income ( unless it is a 6 figure one) ... young people might soon need 3 incomes to get a house in Auckland ... but young guys have a distinct advantage and asset that they commonly overlook and waste ... its called TIME, an expensive commodity that boomer don't have anymore ....

what the adviser was explaining about saving the difference between rent and buy is correct and the key word is discipline ... in any financial decision.

want to buy a house?, sure , get ready work your butt out to save very hard and even accept some help to put a deposit together .. then get ready to even work harder for the following 25 years to service the mortgage ,,, Oh remember to also save while you are at it for maintenance and repairs ... umm , been there done that !

Kiwi saver is a good investment ... there is no other investment that pays you over > 50% pa on your contribution while you're working -- especially if you are young and have 30-40 years to save.

Share market has good returns long term, again time is your friend, but you need to invest in SOLID businesses making money and there are a lot of them in NZ .. ( infrastructure, utilities, and some financials ) these are being snatched by o/seas hedge funds currently.

Kiwisaver makes sense to get the employer/govt contribution etc but no sense to put in additional funds as they are not matched by your employer. You are better off with a more flexible arrangement for any surplus funds.

Sure, you wont get the extras if you are self employed, but mine is returning an average of 13% pa in an active Growth account for the last 7 years ... however i am not far away from its conclusion... but I have chosen to add a big cash to it two years ago as it was the best place to park my cash - great returns so far and very good and prudent fund managers.

You could also get a similar non kiwisaver scheme by the same fund managers probably. There are plenty of non kiwisaver funds.

Kiwisaver is only good if you assume business as usual can keep trucking into an energy insolvent future. Otherwise it will be as good as those Chasecorp shares in the bottom drawer from 1987.

There are many reasons why property markets could crash however energy insolvency is not one.
The stone age didn't end because we ran out of stones and the world is on the cusp of an energy revolution.
This from Tony Seba Professor of disruptive technology at Stanford University.
https://www.youtube.com/watch?v=Kxryv2XrnqM

No. Its laughable that people believe this. Why? Because does he mention trucks? Trucks are essential for supply chains ... and for an electric truck you would need a battery the entire size of its load ... let alone charging times... or for that matter the need for Oil for engine oil, roads, plastics, chassis, tyres, infrastructure... Solar is not a concentrated or portable source of power ... also Solar panels are made by burning coal...
And the real kicker, is that the economy is struggling even with Oil, and they are proposing replacing it with a less efficient energy source? Tell him hes dreaming.

Did you watch the presentation?

To be honest no - i had a quick look to see what he was covering, hoping it wasnt a solar powered electric future. Its about energy surplus in the economy, not just some alternative mode of getting people around... Solar is a diffuse , non concentrated source of energy, playing 5 divisions down from fossil fuels - the economy just cant function at this level.

May I suggest that you watch it. I know that it is an hour but it may change your thinking some what.
From an investment perspective there will be some outstanding opportunities in the renewable energy, electric & self driving vehicle spheres. The difficulty as always is identifying the long term winners.

Ok - so i went through. As suspected, no mention of TRUCKS. How is this brave new future going to deliver freight? Do you realise that despite billions of $$ of subsidies renewables accounted for a whopping 2.8% of energy use in 2015 ... up from 0.8% a decade ago? And this doesnt even take into account the sunk cost in (fossil fuels) in manufacturing/installing these wind farms/solar panels. If it were slightly viable, it would be happening. Companies like Tesla are only alive on subsidy to make rich punters feel good.
This may change your thinking
http://kunstler.com/podcast/kunstlercast-278-alice-friedemann-trucks-sto...

I was in Germany again a few weeks ago. Traveling to Sonthofen from Munich pretty much every crappy barn roof was laden with solar panels. The electric train, which I think had a max output of 7,500 kW (correction eek that's a lot of power), would have only required 30,000 panels to run at full steam. Post fossil transport can be done, Its not all that bleak is it! We just need to get the infrastructure in place while resources are cheap.

Expensive energy is bad for an economy. Solar and wind energy are intermittent therefore dramatically increase costs as you need another source of power when they are not producing…

http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_wor...
https://www.cleanenergywire.org/news/loops-and-cracks-excess-german-powe...
http://www.wsj.com/articles/germanys-expensive-gamble-on-renewable-energ...

Getting people who have the potential to save and invest would be a good thing. Kiwisaver is at least a bare minimum, and it's gets people investing young.

Getting people who are actually investing to understand modern portfolio theory, or to invest in a diversified fund would be better.

Unfortunately, like most populations, financial literacy is low and there's not much in the way of financial discipline either.

At the end of the day everyone has their own opinions on investing.
If you are happy with the sharemarket then that is all good and investors should be prepared to lose money at some stage if there is another event like in 87.

If you are renting when you hit the retirement income cliff you will really need something like 2 million in some form of assets. Do you have that.

It's not hard - $1000/month invested at a real rate of return of 7% (the average long-term sharemarket total return after inflation) gives $2.6m after 40 years.

Kakapo you hit the nail on the head....

Imagine if nz ever had a 87 scale property crash .... that would then mean both shares and real estate were off limits for the average kiwi... what would they then invest in ?

Higher prices go and the longer it carries on the more chance of a crash....

Joe. Not all property in New Zealand is in Auckland.
Everyone knows that technically it is overvalued but people are still buying it and so that is what the current value is up there.
At some stage it will,come a gutser and people will get burnt, but don't tar property in NZ with the same brush.

Auckland property is not over valued, and is still cheap by world standards.

Not overvalued for foreigners just overvalued for kiwis ....

Bugger off.

July 2016:

London average (mean) house price ~1.1M NZD
Auckland average (mean) house price ~1.0M NZD

Auckland is now on par with London. Which is the world standard for over priced housing.

No matter which way you cut it Auckland is a ridiculous bubble.

Doesn't that just say that London is 10% higher priced than Auckland?

xelnaga is actually proving the point that NZ's major city is on par, house price wise, with England's major city....

A reason Auckland house's keep selling is because people realise Auckland is one of the best places to live, so want to settle here.

I still have yet to be convinced Auckland houses are overpriced.

I'm refuting the often spouted rubbish that they are "cheap by world standards".

buying a house for one million within 45min drive to central auckland is good value by world standards.

"Overpriced" is relative/subjective. It depends on what doctrine of stupidity and time frame you adhere to.
Talk to an economist and they are overpriced relative to incomes and wealth.
Talk to a non-home owning median income household and they are unaffordable.
Talk to a property owner and they are fairly priced or even under valued.
Talk to a bank and housing is affordable under the condition that loan terms are extended and interest rates remain low.

The real question is whether current house prices are sustainable in the long term. The answer to that is no.
If you believe otherwise, maybe you should look into astrology and Ponzi investing as hobbies.

I believe people do believe in astrology and people have been convinced their 'investment' was valid when in fact is was a Ponzi scheme, but not my thing.

Stating Auckland current house prices is not sustainable is not willing to look at the facts. The facts say it is sustainable. If it wasn't sustainable, then you would see a correction.

If you have people buying Auckland property with cash or with a joint income of $200,000.00 plus, then you will continue to see prices increase.

"Stating Auckland current house prices is not sustainable is not willing to look at the facts. The facts say it is sustainable. If it wasn't sustainable, then you would see a correction."

This feels like circular logic. Prices must be sustainable because they haven't crashed? You can't justify high prices by pointing to high prices. No idea if they'll be correcting soon, but I wouldn't (and won't) be buying there right now.

It's not about the price, it's about the demand.

If people are willing to pay at current prices, then who am I to say it is or isn't sustainable.

I just won't be surprised if the prices keep going up, and no one has convinced me that we are going to get a correction any time soon.

What facts?
No historical or contemporary facts show that this is sustainable in the long term.
The prices are a at short to medium term elevated levels. I would be hesitant to suggest bubble, but they are definitely not sustainable long term.
You say you don't believe in astrology and Ponzi schemes, but you sound like a prime candidate.

GDP per capita growth essentially flat, low productivity (decreasing in population), high unskilled migration.
These are not factors that suggest Auckland house prices are sustainable in the long term. If they are, we are going to be a very poor nation.

The facts are houses are selling at a price higher than what they were sold for previously, and there is still demand for houses.

Based on current house price increases in the last few years, I wouldn't be surprised if they continue to climb in the next few years. Although, I also wouldn't be surprised if they begin to taper off.

Is it sustainable? Well, it could be, based on new buyers coming in with cash and purchasers incomes a lot higher than the average.

New unskilled immigrants to Auckland with no cash are not buying the houses, but they're adding to the demand for tenancy's - that's another story.

Astrology and Ponzi schemes might be a humorous way to explain it all away, but why assume buyers are candidates for either?

Maybe the buyers know something we don't.

Yes, houses are selling at higher prices more recently. That is the basis for the unsustainability.

"Is it sustainable? Well, it could be, based on new buyers coming in with cash and purchasers incomes a lot higher than the average."
Well, anything is possible with infinite demand. That is illogical, however.
As for the new buyers with high incomes? We haven't seen that thus far. In fact there is more of an argument for quite the opposite.

"New unskilled immigrants to Auckland with no cash are not buying the houses, but they're adding to the demand for tenancy's - that's another story."
Demand for tenancy is demand for houses. It is not another story. These two factors are not exogenous.

Logic can't always be applied when it comes to housing when the reason for purchase is emotional.

To state the continued demand from buyers and continued house price increase is illogical is not a suitable way to explain it away.

We are seeing new buyers with high joint incomes - that is one group who are buying at the moment.

Another group are people from overseas who think buying in NZ is a good bet. This group seem to be awash with cash - we have yet to see this group wane their appetite for NZ property.

Another group that may have been knocked out of the Auckland market are 'property investors'.

It may be more pleasant in some ways than London (obvious seriously lacking in culture/arts/food by comparison), but there are a lot of high paying jobs in and around London to support high prices. Are wages in Auckland comparable too? London rents are also extremely high so there is some kind of yield on the property there, and perhaps more sign of a genuine supply shortage.

Young couples with no debt, no children, and joint income of around $200k or more are still able to afford housing in Auckland.

Also, people who have cash to spend, or settling from another country are also buying housing in Auckland.

Today's weather in Auckland might make one wonder why people choose to live here, and not somewhere warmer like the sunshine coast, but the facts are, please are still willing to buy property in Auckland at current prices.

And if prices doubled, then similar young couples on joint incomes of around $400k could still afford it. Are the hypothetical couple you're talking about representative of the general population? Are there enough of them to sustain high prices in the long term?

Obviously hobo has never encountered the theories of Gaussian and Poisson distributions

:-)

Maybe I have, and am applying it in a different way....

i.e., it wasn't that long ago that very few owned land, and most were tenants.

Based on history, where on the home ownership distribution graph in respect to time are we at the moment?

I don't understand how you are applying it in a different way.. Do explain, though...

"it wasn't that long ago that very few owned land, and most were tenants."
Ahh, that is fundamentally untrue in the New Zealand context.

"Based on history, where on the home ownership distribution graph in respect to time are we at the moment"
Why do you need to say this if you propose that "it wasn't that long ago that very few owned land, and most were tenants".

I'm not limiting my view to an NZ context.

What people living in NZ don't seem to appreciate is NZ is one of the best places in the World to live and arguably the best place to purchase residential property as an 'investment'.

On that basis, we are likely to see a decrease in percentage of home ownership.

I don't believe we have ever seen serfdom here. Are you confusing NZ with Russia maybe ?

Generation rent consider it serfdom.

Globalization is a complete crock of s**t, mainly because countries have allowed the houses their people need to live in, into that market. It might even be a little bit acceptable if houses were carved out and kept separate from the scourge.

Magic beans?

One of the factors making me very very nervous is the banks' treatment of residential real estate as low risk, to the point where business lending is often conditional on property as security. Let people borrow up large on something because it's considered low risk, and it becomes high risk.

Hallelujah, until recently the bank was charging me 15.2% interest on my business OD. Now it is at 9%. Fortunately I have very giving offshore suppliers who charge me 5%.
Until we broke 2mill in sales no bank would even talk to us.
I have no house to borrow against, everything I have is in the business, no debt, profitable, but Im not a house so I get Rogered.

When all other asset classes fail people resort to the oldest profession. So instead of the kiwi retirement rentals the retirees will drive around pimping their "employees" out.

At least with the sharemarket you can only lose everything. With housing you can lose more than everything (negative equity)

The MAN 2 - correct. I guess outside auckland they don't have as many foreign student and temp visa worker buyers. Wellington is a great example. Average Wages higher than Auckland yet houses half the price.

What areas do you like at the moment ?

Joe. Very biased towards Christchurch.
Yes we have had quakes but people are doing very well since them.
Property affordable still with the low interest rates which I believe are here for good. No reason to doubt that.
Rental returns are well above interest rates and can achieve anything from 6 to 15 per cent if you are experienced and do it for a living.
Christchurch is going to bloom in future and A lot of Auckland buyers are heading this way.

Woah.
You talk about stock markets as gambling and then advocate the notion of becoming a property tycoon in Christchurch?
You justify it with the line ".. low interest rates which I believe are here for good"
Well, that's a gamble that flies in the face of logic.

"Christchurch is going to bloom in future and A lot of Auckland buyers are heading this way."
I think your understanding of economics is faltering, along with your financial prowess..

Christchurch Property - I think I'd rather invest my money in a three legged rocking horse competing for the Auckland Cup.

Low interest rates are here for a long time. maybe not quite for good but they will be. Any major increase will be coupled with inflation which will offset the impact somewhat.

Unless the insanity that is housing is looked upon as a high risk investment and interest is charged accordingly by the beloved banks.

Christchurch will come off the boil in fact I think there are already some signs.
There are a few businesses that have gone to the wall.
Banks are monitoring forward works closely.
People are also very slow/late in paying.
Labour only contractor rates are far too low....this is not only in Chch. After overheads and other costs these people are on well below average wage.

Everything in Chch is basically geared for the rebuild and Christchurch actually needs non-rebuild growth or it will go into a downturn.

You are totally incorrect.
Prices continue to rise. Forget the stats so many as is property included.

The rest of NZ only looks cheap compared to Auckland. Still overpriced on multiple of income

Cheers. Yes in 10 years you won't recognise the place.

All very interesting ideas.We bought a Queenstown rental investment 3 yrs ago- ironic because we sold Fonterra shares to purchase An off farm investment - turned out to be excellent investment in 3 ways,great rental return,great capital gain if sold now,also we now have more equity in our overall position with the bank-allows us to borrow more to keep our dairy farm afloat,hopefully the dairy industry is about to rebound-for all of NZ sake.

I have not commented for quite a few years and oh how things have changed, the stress of a divorce and pressures of a struggling business will make you see that having huge dept is definitely not the most important thing in life... A nice relationship and enough money to live now and make choice to stay out of dept is by far better than getting a huge monkey on your back. I no long own property but have a nice yacht which I use a lot . Most boat owners have houses and never use there boats... I rent save money and enjoy life . Stress levels good and am much healthier .

Excellent article. Food for thought. Quite right, saving money and not blowing it is a top priority. Getting rid of any debt is also a great thing. And only buy what you really need. Get into that habit and you should be ok.

So the writer of the article suggests nz has some risk and seems to think a gfc2 wont happen anytime soon. I am personally more bearish than that. Far too many black swan events all over the world. Any one of them could mean the end.

It will end up in two possible scenarios: hyper-deflation or hyper-inflation. Which is more likely? Hmmm tough call to make. Probably hyper-inflation. Whatever the case, 2008 event hasnt been fixed and the problem is now impossible to resolve without financial fallout. The world has slowly but surely drifted toward deflation despite 57 trillion extra debt worldwide since 2008. Super funds and bond markets and many many banks are literally insolvent. Demand and exports is falling off a cliff in the slow slide. A reset is likely and this WILL reprice worldwide risk. What does that mean? A credit crisis and a rise in interest rates to reflect the true underlying risk. If you have a 500k mortgage you better be worried. If you have a pension fund you better be worried. If you have no debt and you have a solid job and if you have diversified your wealth outside nz and outside Australia you will probably make a killing once the currency devalues. Watch out for china. Watch out for europe. Watch out for japan. Watch out for south america. Watch out for us stocks. Watch out for nz stocks. And watch out for nz and Australia property bubbles popping. And in the long run, watch out for rising govt taxation. So where do you put your money? Well think of what people will need in a recession. A dividend paying utility may be profitable. Some currency speculation. Some precious metal speculation. And everything out of nz. Dont keep a dime in this country. And if you are employed, invest in income protection insurance. You just might need it

Just remember for a hyper inflation scenario to occur the policy targets agreement with the rbnz has to be abandoned.

If CPI inflation takes off the RBNZ is legally obligated to whack it on the head with monetary policy. Woe unto the property owners should that occur.

Easy, they just redefine it. It seems simpler to talk about 2 different classes of inflation: Consumption Inflation & Asset Inflation. In a world of Global capital and QE we are already seeing the early stages of Asset HyperInflation. RBNZ definition means this is not their problem. JK calls it a win. Consumption inflation is limited to what wages can support. Beyond a certain point people just buy / eat / have less.

I think globally asset hyperinflation is going to get much worse before the whole thing falls over... People all over the world with real wealth see New Zealand as the last life raft of sanity in a world gone mad (see comments by US Supreme Court Judge) protected from refugees and terrorists by the mighty pacific. They then see that for a small amount of money (to them) they can buy residency and land in a 2 for 1 package. Bargain.

Re Asset hyperinflation i agree, there is nowhere else? Fiat, shares or bonds?, so into hard assets and resources all the squillions must go, but it wont make NZ a nicer place..

Woo Woo ... slow down mate, the world is not that bleak .. and don't believe everything you read .. you have obviously forgot that Income insurance is the biggest day-time-robbery and won't pay you a cent if all these events took place - world currencies are all interlinked - long gone the era of solid US$ or UK pound .... they will be the first to tank in the events you are imagining .... people have been warning about WWIII since the 1960s as a lot of chicken littles were running around calling for dooms day ...nothing happened yet and it won't happen !! - neither will the sky collapse on our heads ....

Do not be surprised if rules about dept etc change in the coming years and the virtual dept numbers be manipulated or tampered with to suit, otherwise it should take about 100 years to cover the US $20 odd trillion gov dept alone ...

I suggest kindly that you stop the paranoia of worrying too much and just LIVE .... and
I wouldn't put a cent of my money outside NZ

On a brighter side, all reports coming from the four corners of the world are suggesting / predicting that the world's economy is picking up ( albeit slowly) and heading to a better year in 2017 .. dept or no dept !!

Agree - there are black swans everywhere. But as far as making a killing after collapse Im not so sure that will be possible. Because a massive debt writeoff /reset wont save our energy, resource and overshoot problems. The underlying problem is we have capacity everywhere and no demand growth - the weak demand is courtesy of energy cost and debt problems - as energy gets ever more elusive and expensive to extract, underlying costs for all products increase, leaving less and less room for debt growth, and debt growth is the only thing that gets energy out of the ground.

"Weak demand is courtesy of energy cost and debt problems"

I'm not sure I agree. I think the weak demand is courtesy of the retiring baby boomer generation (cf. Harry Dent) and excessive levels of private debt (cf. Steve Keen & his Minsky models). It's now all been seriously compounded because the next generation have been financially eviscerated by low wages and high asset prices. Energy has never been cheaper but like everything else the price is manipulated. The USA seems to be playing games with the Saudis and Iran to keep production high in the face of weak demand. I dont know why that would be, perhaps they're trying to bankrupt whoever holds the futures derivatives - who knows. But I think you're right. Oil must go up at some point.

Ha ha, once both Vancouver's and Sydney's housing markets start to cool due to their new tax regulations on Foreign Buyers. Auckland will be stood there completely starkers as the second most expensive city in the world next to Hong Kong.

The rest of the world will wonder; Just how has this tiny Auckland CBD managed to fund such ridiculously expensive property given that they have so little business infrastructure and low wages??

http://www.independent.co.uk/news/world/americas/vancouver-foreign-buyer...

Hong Kong at least is trying to control their property market, and it seems to be working:

Hong Kong Home Prices Have Much Further to Fall Before Controls Are Eased
http://www.interest.co.nz/user/reset/31865/1470801761/16s7AIS4BJ60XhLs4b...

The HK market is such that, the politicians are now caving into the demands of non-homeowners rather than the other way round like in NZ.

really , the world is not only Sydney, London, and Auckland .... do you have any idea what it costs to buy in Dubai? the second Hong Kong and KL ... any idea of the price of new cities in China ? they are massive !
I would suggest if buyers were kicked off from Vancouver and Sydney, then they will buy fiercely in Auckland !! then Hamilton and Tauranga .... never underestimate the purchasing power of wealthy people dawning on us from the East.

@ Eco Bird; Yes I am aware and that's what we're bracing our selves for. I suggest you read this recent article from HouGarden as to why Chinese people like to buy New Zealand and Oakland.

http://www.hougarden.com/news-14388-1.html
Don't forget to hit Google Translate (Chrome browser is more effective).

I particularly like the Chinese proverb mentioned in their article: I'm alive, so I buy a house. I buy a house, so I'm alive.

I think a lot of Kiwis would like to be able to afford a home too!

thanks for sharing this link .. A very telling report

my favourite was this paragraph which says it all:

"Right now the real estate market in New Zealand is like during the "Reformed" the Chinese century pregnant with great rich opportunity. As a nation of immigrants New Zealand, with its beautiful natural environment , a good business climate and a sound cultural atmosphere to attract the world group after group of migrants with the growth in the number of migrants housing will become the largest just need especially in the largest city Auckland , value-added potential of real estate can be described as unlimited "

and "With the proposed Unitary Plan, a new round of making the rich movement may have turned . As the world's most hard-working one of the most intelligent people, the Chinese will naturally not miss this opportunity to get rich"

I am not sure how much "bracing"would be enough though ... needs a very bold government to put down their feet on the brakes ....

Yes agreed it's quite scary, I worry that our Government doesn't care enough about it's own people. Which is why I'm thinking of moving on to safer pastures.

I was very impressed at how quickly Vancouver spun in to action once they fully twigged how rapidly their city was been sold off to outside Investors.

Hats off to Vancouver for bringing in 15% stamp duty to help pay for infrastructure and reduce sales to foreigners

http://www.bnn.ca/a-chance-to-compete-how-vancouver-s-new-property-tax-w...

NZ Government & Media - time to wake up. Media you owe a duty to NZ citizens and not just to your sponsors.

Talk of unlimited riches plus flattery. Bubble-talk.

Government are bought and paid for and a completely useless waste of space, and won't follow the lead of Canada and Australia, so we'll get the last stampeding mindless herd of desperate late-arriving bubble participants, and the worst of the crash.

New Zealand is so boned.

Repeated numerous times today from their app on Radio Live, ads directing house sellers to that blasted Hougarden site. NOW try and tell me that foreigners are not an issue with our houses.

So I have been roundly attacked by all and sundry, but most of you have missed the point completely .

I would also like to buy some houses in Auckland at 3 X or 4X my annual salary , but I know its never going to happen , those days are GONE forever .

You need to understand there is an inverse relationship between interest rates and the cost of an asset.

Quite simply if interest rates go down the market will recognise that it can push prices up, and everyone can pay the same amount in instalments for the now "expensive" asset

For example :-

If I can afford $600 per week for a mortgage I can pay $779.000 for a house at 4% Fixed

If interest rates were 12% per annum ( as they were not long ago) , I could only afford to pay $250,000 for the same weekly payment .

Our problem has nothing to do with anyone being born between 1945 and 1965 ........ its the unintended consequence of the QE and money printing of the GFC .

And us older buggers did not cause the GFC, it was you young guns with fancy SPV's and financial engineering that I never understood that got us into this mess

Boatman, unfortunately you did miss the boat on this one and honestly it's nothing personal, but you were/are trying to rewrite history.

Comments like "And us older buggers did not cause the GFC"? Well it most certainly wasn't Gen X and Y working at top level of all these global RB's who really tipped the failure scales about 2001 by lowering OCR's globally far to low for far too long, X & Y werent constructing ninja loans, setting up massive global banking derivative scams, voting for corrupt governments who allowed essential banking regulation and oversight to be eroded etc, THEN decided to bailout massively corrupt and failed institutions so they could get away scott free at the global taxpayers expense!

No, many Gen X & Y & Z have now been made the victims of this disgusting behaviour for years to come.

Actually Boatman, I think you may be too bog down in detail and no one wants to attack you. We're just trying to get you to see the bigger picture of what's really going on out there. It's not surprising that our younger generation is giving up on owning their own home. It's a global problem. Your generation and to a certain extent my generation (Gen X), didn't have a 'Global Investor' market to contend with.

It has skewed the balance. I suggest you read the article link that I gave to Eco Bird, there's a section in there that relates to Kiwi parents and state that Overseas Investor parents have the advantage.

http://www.hougarden.com/news-14388-1.html

funny how boomers say to kids: "you have to save etc etc" when everything they do is borrow and borrow...

Yes, apparently its perfectly fine for one generation to now be forced to save $140,000 for a Auckland house/shed deposit....meanwhile....the BB's at most had to save $13,000 right up until about the mid-late 90's!

I am a professional property investor in chch
Figures out today say that it costs more per metre to build in Chch than Auckland.
Based on these figures surely it is telling you that Auckland with their more than double median price compared to Chch is grossly overpriced.
Average income in AucklAnd no more than Chch either!
You need to stop dreaming if you reckon Auckland will continue rising as it is a grossly overrated city for lifestyle!

The difference between now and the 1930s is that in the 1930s nothing was done to stacve off deflation. In today's world they have already massively printed money but the deflationary undercurrent is still there. Actions of central banks indicate they will print to infinity. All money is now basically electronic so, it will simply translate to numbers on a screen. Japan is 20yrs ahead of the rest of the world in this regard. I am watching japan closely

party like its 1999...