More overseas owners are quitting their NZ properties than are buying them

Property

More overseas people are cashing up and selling their New Zealand properties than are buying them

27th Jul 19, 9:00am by Greg Ninness

More overseas people are selling their New Zealand properties than are buying them, according to the latest figures from Statistics NZ.

They show that in the June quarter of this year, 327 New Zealand homes were sold by overseas owners, while just 183 were purchased by overseas buyers.

That is a sharp turnaround from the situation in the second quarter of last year, when 1116 homes were purchased by overseas buyers and 492 were sold by overseas owners.

The reversal of the figures means there is now a net loss of overseas owners in New Zealand's housing stock, with more selling up than are buying.

The trend began in the first quarter of this year when 204 homes were purchased by overseas buyers and 327 were sold by overseas owners.

Prior to that overseas buyers outnumbered overseas sellers by a substantial margin.

The trigger for the change appears to have been the introduction of the Overseas Investment Amendment Act 2018 in October last year, which restricted the purchase of residential property in this country by overseas persons or entities such as companies or trusts when they have even partial overseas ownership or control.

The trend for overseas sellers to outnumber overseas buyers is a nationwide one, even in the Waitemata Ward of Auckland City, which includes the CBD and the leafy inner city fringe suburbs that surround it such as Freemans Bay, Parnell, Grafton, Grey Lynn, Ponsonby, Herne Bay and Westmere, where there has traditionally been the highest concentration of overseas buyers.

But in the first half of this year there was a net loss of overseas owners in the Waitemata Ward, with 113 properties purchased by overseas buyers and 150 sold by overseas owners in the first quarter, and 114 purchased by overseas buyers and 171 sold by overseas owners in the second quarter, giving a net loss of properties with overseas owners in both quarters.

Unfortunately the information on overseas ownership compiled by Statistics NZ is incomplete, because it does not include the ownership status of corporate entities such as companies when they buy or sell property.

Corporate entities are covered by the provisions of the Overseas Investment Amendment Act and according to Statistics NZ, they purchased 11% of the homes sold throughout the country in the second quarter of this year and 20% of the homes in Auckland's Waitemata ward.

But Statistics NZ does not have any figures on how many of those corporate entities may have been owned or controlled by overseas parties, so the true level of activity by overseas buyers and sellers in the New Zealand market remains a mystery.

Correction: An earlier version of this article stated that 20% of home sales in the second quarter of this year were to corporate entities. That figure should have been 11%. Corporate entities accounted for 20% of purchases in Auckland's Waitemata ward. Additionally, trusts are not counted as corporate entities. Whether trusts are counted as NZ or overseas buyers/sellers is determined by the domicile of their trustees.

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102 Comments

by Toppertee | 27th Jul 19, 9:16am 1564175791

So we are now producing locally raised debt to allow us to provide cash to be withdrawn from the economy. Will this have any future impact on the currency?

by Gummy Bear Hero | 27th Jul 19, 9:18am 1564175887

I think that overseas investors are wise to cash up whilst the property market is on a high .... the Reverse Bank will do what they can to prop things up with OCR cuts ..

. . but a top is in .

by house hunter | 27th Jul 19, 10:01am 1564178464

Nice one Greg. And there's plenty more interesting analysis that can be done with these numbers. For example, estimate the total number of properties overseas buyers bought during the recent boom years e.g. from 2010-18. Now figure out how long it'll take for those properties to be returned to the pool of NZ buyers. That should give us an idea of how long this thing will take to play out.

Also, with a careful analysis of the numbers it might be possible to get a decent estimate of what % of corporate entities are/were overseas owned.

by Roger Witherspoon | 27th Jul 19, 11:53am 1564185209

There are bigger issues here that our pathetic media pretend don't exist:

One of the reasons why usually apolitical Hongkongers came out in their millions in the recent demonstrations was that business people fear the implications of the extradition law proposed by the administration and now shelved.

There is a long history of business people in China using corrupt officials and police to kidnap and hold hostage partners in contract disputes. Until now Hong Kong, with its British-style rule of law, has been a haven from which it was possible to do business in China without too much fear of being kidnapped, though it does happen.

Allowing officials from the mainland, where there is no rule of law and all judicial outcomes are decided by the Communist Party, to extradite people from Hong Kong is a real threat to the territory’s future as an entrepot. And that threat applies just as much to foreign business people based in Hong Kong as it does locals.
https://www.asiatimes.com/2019/07/article/crossing-the-point-of-no-retu…

One question we ignore is how do we encourage immigration from like minded cultures and discourage immigration and investment from cultures that seek to enslave us withs gangs, drugs and debt? Is this what has happened in Tonga?

by Glitzy | 27th Jul 19, 9:44am 1564177461

At the moment it's a steady trickle but not a huge flow.

The issue the top end in Auckland has is that if mainland Chinese folks get nervous and start to try to liquidate their property holdings there simply aren't enough local buyers in this price bracket.

Moreover the bigger apartment blocks being constructed in the CBD are reliant on expectation of Chinese buyers in volume as local folks won't pay a million or six for a central Auckland apartment. We need to remember that several of the blocks are being constructed by Chinese firms with finance from Chinese banks ~ it is clear that they need Chinese buyers for these schemes to work.

This has to be making these developers pretty nervous.

The next four to five months are going to be very interesting. If Spring does see this trend of net selling by foreigners and it does increase it will have a major effect on the outlook for the construction sector.

by brisket | 27th Jul 19, 11:26am 1564183601

With the price and volume falls being reported at the top end, I think we're already seeing it. The crucial point being... "there simply aren't enough local buyers in this price bracket". For local buyers (those who didn't get to cash in on the previous RE bonanza at least), $1m is out of reach... but we still have a huge stock of Auckland properties valued at around that. Who will buy them?
Because there are a lot of locals who *can* borrow around the $700-800k mark, and there is still genuine demand for housing, we'll see places selling for that much... but increasingly they'll be properties whose current RV is *much* higher.
I predict particular price falls in the DGZ. Shitboxes there went for a real premium to Chinese buyers, who value the DGZ thing much higher than local buyers. I worked with a lot of Chinese in 2016/17... they are much more willing to pay a $400k premium for education snob factor than locals are.

by Fritz | 27th Jul 19, 1:00pm 1564189233

Excellent comment.

by Fritz | 27th Jul 19, 1:02pm 1564189351

It also feels to.me, living in the eastern suburbs, that the 'Grammar Factor' isn't quite what it was. Apparently Selwyn is much better these days.

by Ex Expat | 27th Jul 19, 6:56pm 1564210580

We have a child at Selwyn. Not sure it is much better than Grammar but we’re very happy.

by Noncents | 27th Jul 19, 7:27pm 1564212471

"The issue the top end in Auckland has is that if mainland Chinese folks get nervous and start to try to liquidate their property holdings there simply aren't enough local buyers in this price bracket."

In my view that is a good thing. Bargains aplenty for the locals.

by Foreign buyer | 27th Jul 19, 9:47am 1564177640

How was this ever allowed to happen in New Zealand? Foreign money with dubious origins being allowed to buy property for the sole purpose of making more money at the expense of resident New Zealanders. I feel so sorry for renters, especially maori and pacific islanders who are over represented in this sector. It is like another kind of oppression. These people have now been kept down in society and will be renters forever. Renting from people who do not even live in NZ and who do not care about the conditions these renters are living in. Pure greed incarnate and who was it who allowed this Social elitism? Rise Sir ........

by sammnz | 27th Jul 19, 9:57am 1564178278

Get your eyes checked, the foreign buyer policy and the stigma that came before that has aided in downward pressure on the housing market

Nobody cares about renters. don’t play the race card either, there is plenty of both European and Polynesian renters in the same position.

You can’t create social policies to change the market, unless you want to go and life in a gloriavale-esque commune.

Even China has trouble controlling its citizens which is why they had to smuggle money out to protect it from their sly government.

by Foreign buyer | 27th Jul 19, 10:08am 1564178900

Playing the race card or just stating an uncomfortable fact that seems to get too easily ignored by the NZ elites and yourself for some reason? Why is that please?

http://archive.stats.govt.nz/Census/2013-census/profile-and-summary-rep…

by Uninterested | 27th Jul 19, 7:31pm 1564212718

Plenty of white people here in Invercargill who can only afford to rent.

by mikekirk29 | 28th Jul 19, 8:33am 1564259592

Er it is not a “race” card. It is a distaste for Chinese authoritarian dictatorship and State corporate ownership

by brisket | 27th Jul 19, 10:58am 1564181886

Renters don't count for much in NZ politics, it's true. We went through a phase there under Key/NZ Herald propaganda which really was a tyranny of landlords. Has eased off a little, thankfully.
All that debt that has been created--funnelled into Ponsonby Audis--now held by Chinese banks--will start to migrate to local banks, if locals buy these places. and they will, because the demand is still there. but the question is, at what price? Auckland property still makes no sense as an investment without capital gains, so they still have to come down a long way to meet the market now that the shine is off. Sensible foreign buyers will be keen to offload in most cases.

by estateagent | 27th Jul 19, 11:12am 1564182725

John Key is the man who allowed it to happen and he got a knighthood for it!

by Uninterested | 27th Jul 19, 7:33pm 1564212827

And an alleged payoff.

by SmoKey | 28th Jul 19, 12:30pm 1564273800

His protege SB is spouting similar BusinessSpeak.
'Our bottomline is You'. Does is mean 'You are at the bottom of Our List' ?
Or "You contribute to Our Profits' ? (Admission by National).

by Dgm | 28th Jul 19, 1:49pm 1564278576

'You' refers to the top 40%.. the rest are worthless and non existent to them

by TerryP | 27th Jul 19, 11:19am 1564183179

It was allowed to happen because National and its baby boomer base was making millions from inflated property prices and not asking questions about where the money was coming from. They tried to palm it off as a supply shortage. I feel sorry for the renters, too, who have to live off wages not cap gain free windfalls. But those renters need to vote!

by CJ099 | 27th Jul 19, 7:25pm 1564212330

A 9 year false economy which only really benefited Mr Key and Estate Agents. For all the rest it's been a delusional roller coaster, which we're all hoping won't crash but rather coast as the market bottoms out more affordable wage earner levels.

by PocketAces | 27th Jul 19, 8:41pm 1564216887

And got called xenophobes for speaking out against it all

by richard1965 | 27th Jul 19, 11:24am 1564183465

How was this ever allowed to happen in New Zealand?

Check with National Leaders whom we voted.

by Dgm | 27th Jul 19, 2:46pm 1564195573

They are having way too much fun in Christchurch to answer any questions

by Yvil | 27th Jul 19, 2:39pm 1564195195

Foreign Buyer, I agree with your post:

"Foreign money with dubious origins being allowed to buy property for the sole purpose of making more money at the expense of resident New Zealanders (should not have happened)"

But you must have loved it as a Foreign buyer.

by sammnz | 27th Jul 19, 9:53am 1564177983

More gains in a parapalegic weightlifting competition than in Auckland

Time to do some cardio

by Retired-Poppy | 27th Jul 19, 11:10am 1564182631

Given the lofty valuations, foreigners have justification to feel nervous, cash in profits and invest in markets where there is value. There are real possibilities this could turn into a torrent.

by Fritz | 27th Jul 19, 1:05pm 1564189554

They would be well advised to get out now. The clever ones would have got out 1-2 years ago.

by Independent_Observer | 29th Jul 19, 4:24pm 1564374251

Like when John Key scaled down by selling out to a Chinese investor - after spending time in government telling us Foreign Buyers make no difference in the market and even if they did that have some of the worlds most expensive houses was a good problem to have? When this no longer sells politically, and he can sniff the change in market sentiment - he sells out? Talk about taking NZ'er for a ride...but we're smart us Kiwis aye..

by CN | 27th Jul 19, 4:09pm 1564200569

It is not the absence of overseas buyers, its the presence of a large number of overseas sellers, that is likely to have a larger price impact on prices of high end properties. Overseas owners, who need to or want to sell, have to sell to a eligible buyer (NZ citizen, NZ resident, Australian, Singaporean). The most likely buyer will be a NZ resident. Not sure how many NZ residents that can afford to buy a high priced property, priced at say higher than $1.2mn. There are some houses with large land sections being marketed at developers, however developer financing may be becoming more difficult to come buy. If there are no interested buyers at their desired price, a willing vendor who is unable to wait, may have to lower the price that they accept.

by PocketAces | 28th Jul 19, 9:35am 1564263344

Many will still be taking a pretty poultice out of the country as well, though, depending on when they purchased

by Toppertee | 28th Jul 19, 9:15am 1564262121

Losses made on speculative purchases in NZ won’t look any better if the NZ dollar were to come under pressure because of rate cuts.

by BeSensible | 27th Jul 19, 12:15pm 1564186507

my words of wisdom

"only duds will look at increasing or hold large portfolios"..

accept it or ...

by Yvil | 27th Jul 19, 2:45pm 1564195515

I've been a dud for 25 years then.

by Yvil | 27th Jul 19, 2:45pm 1564195559

Actually, right now I'm a dud who is posting from my villa in Bali

by Dgm | 27th Jul 19, 2:49pm 1564195761

Self recognition is an amazing quality ..

You must have such a boring life to post on your holiday

by Yvil | 28th Jul 19, 7:06pm 1564297597

yeah… nah

by Yvil | 27th Jul 19, 6:35pm 1564209320

DGM, I just finished washing & bathing the elephants at Masons Elephant sanctuary (feeding them too). They have a 1 month old cub which is very friendly and we could even pat it. Gave them a donation for rescuing the elephants from Sumatra and to help with the very expensive upkeep. My family did not ride them as we don't believe in that.

As per your previous comment of me having "such a boring life", what did you do today that is so much more exciting or rewarding?

by Retired-Poppy | 27th Jul 19, 6:55pm 1564210501

Yvil, commentator Dgm does raise a valid point. Perhaps you've confined yourself to a Hotel room and you're currently reading some tourism brochures?

by Averageman | 27th Jul 19, 12:46pm 1564188398

No more capital gain so time to bail before it becomes a torrent. Grabs popcorn...

by waymad | 27th Jul 19, 2:23pm 1564194186

So let me get this straight:

20% of sales went to companies or trusts
But SNZ has Clue Zero about the practical ownership or control of either.
So the proposition that '20% of sales went to Who Knows Who' may well be valid.
Therefore we are speculating on a part-year figure, with an error band of 20% for companies/trusts, plus whatever natural error needs to be assigned to all the others.

Are we just Making Sh*t Up?

by THE MAN 2 | 27th Jul 19, 3:21pm 1564197693

Capital gains on property are readily available around NZ at any time, providing you buy right!
At any time there are many people who need to sell and that is when the ones who don’t own should be looking to buy.
I appreciate it that it is not easy to save for a deposit for a first home if your income is not high enough to be able to save money.
Wishing or hoping that prices crash is not going to do it all!
There are several ways of getting into the housing market but you need to take action.
We started with very little, and worked our way up by doing various things to do with property to now be in a position where we have choice what we do and when!
It is still possible to be able to do this, but then you have to want to, and many of the younger ones want it all laid on for them!!!

by Yvil | 27th Jul 19, 3:38pm 1564198716

Well said TM2, I bought my first property with no money of my own, 80% from the bank and 20% from the vendor as a second mortgage in exchange for paying full asking price. Instead of worrying where the market was going, I focused on improving the property and increasing its value this way

by richard1965 | 27th Jul 19, 4:53pm 1564203236

Agree.

by RickStrauss | 28th Jul 19, 2:37pm 1564281449

You make it sound like you're buying for capital gains.

That being the intent, I hope you don't evade the applicable tax when you sell for a profit.

by CJ099 | 27th Jul 19, 5:21pm 1564204867

Yep it's pin the tail on the false economy donkey. Sad answer is, no one seems to knows how much of NZ is really owned by overseas investors. Well, at least until our government is willing to release the 2018 census data, which is long over due.

by Uninterested | 27th Jul 19, 7:43pm 1564213417

Backfilled and massaged census data no doubt with a racially/ sexually skewed bias knowing this govt.

by Uninterested | 27th Jul 19, 5:23pm 1564205022

The number of foreign sellers would have absolutely nothing to do with the more stringent foreign buyer rules. They would sell if they thought that capital gains have maxed out. Or they had other options which were better. Good riddance.

by CN | 27th Jul 19, 5:31pm 1564205494

Olly Newland recalls a story of a South Korean that needed to sell their property in 1998/1999 during the Asian Financial Crisis. They had financial stress back in South Korea and needed the funds there.

There are stories of credit drying up in China, which may cause financial stress on some overseas based owners of property in NZ.

by Fritz | 27th Jul 19, 5:47pm 1564206464

Yes. And as I have said before there is other precedence for that sort of thing. For example, the Japanese exiting the Gold Coast in the early 90s.
It will have an impact here, but how big that impact remains to be seen.
It’s all so predictable.

by Glitzy | 27th Jul 19, 5:56pm 1564206978

China is the only county in the history of humanity where anyone with any money ~ legitimate or otherwise ~ has purchased residential property anywhere and everywhere in the world to hide it from their own government.

Sure other countries have had the issue but its been limited to the wealthy who were trying to hide cash, usually from their home countries IRD.

So you are absolutely correct ~ a liquidity crisis back home and our house prices are crushed. We aren't unique. Chinese buyers have hoovered up property everywhere from Singapore to Bangkok, London to Manchester, Vancouver to Sydney.

If you want an idea of the effect in 2009 Chinese selling hit the HK market which at the time was the main centre they had bought. Prices dropped 50%. They rebounded within a year but that was because China wasn't the cause of the GFC.

If its China that has the crisis its going to be felt in every property market around the world and Auckland will be hit by a tsunami of selling.

The only saving grace in this scenario is that repackaged Chinese mortgage assets haven't been sold abroad.

by Uninterested | 27th Jul 19, 7:48pm 1564213691

I hope that you are right that they haven't been tucked in with other Chinese investments that Western finance companies seem to want in on.

by jingle_mail | 27th Jul 19, 9:12pm 1564218720

I was living in a wealthy neighbourhood in Ho Chi Minh in 2015 and when I was out for a walk came across a real estate shop dedicated to purchasing property in New Zealand. The wife had to translate it for me.

by swapacrate | 29th Jul 19, 10:57pm 1564397845

I cant believe that, that's nuts. Imagine how many of these in china for little old NZ property, maybe the owner of the business was John Key. Joke for the non funny types.

by richard1965 | 27th Jul 19, 9:43pm 1564220597

Chinesse, if caught with unaccounted money in China are finished so the best option for them is to transfer the money overseas through unoffical channels and in the process even if they loose 20% or 30% or even 50%, it does not matter as million in China has zero value (besides the danger of keeping and getting caught) so million in NZ even after loosing 50% is greater than a million in China.

Once the money transferred best place to park is in property.

by Toppertee | 28th Jul 19, 9:17am 1564262273

And another Chinese bank has this week sought assistance because of liquidity issues.

by mikekirk29 | 28th Jul 19, 9:32am 1564263174

I repeat my question to the Polyannas: did prices in NZ double 1984-94. I doubt it

by Rolo | 28th Jul 19, 10:04am 1564265054

Has anyone noticed that the article is misleading? Overseas buyers do not equate to "Chinese Buyers". A large proportion of "Overseas Buyers" are in fact Brits and Australians. Assuming that these 3 groups are equally spread, "Chinese Buyers" make up 33% of the total. Does anyone here has issues with Brits and Australians buying NZ properties? Or is it just the "Chinese" that are being targeted?

by Basel Brush III | 28th Jul 19, 10:25am 1564266311

To add my view, there have been and continue to be TOO MANY immigrants of whatever source.
Too much demand for resources always puts a strain on all of us. There may be some race differences because on language alone as Brits and Oz more easily fit in to our lifestyle and mores.

by Glitzy | 28th Jul 19, 10:51am 1564267871

Rolo,

Presumably the article focuses on Chinese because these folks were obviously the main overseas buyers from 2012 to 2018.

I don't think the article was trying to hurt those Chinese feelings we hear so much about.

Btw, any thoughts on the concentration camps in Xinjiang ?

by Carlos67 | 30th Jul 19, 10:30am 1564439400

[ unnecessary extreme comparison. Ed ]

by Fritz | 28th Jul 19, 11:44am 1564271083

Wrong. Aussies don't count as foreign buyers according to legislation, and neither do Singaporeans.

by Dgm | 28th Jul 19, 3:17pm 1564283858

How can this be a warning when The National government claimed there was NO foreign buyer impact..
https://www.oneroof.co.nz/news/36509

by Fritz | 28th Jul 19, 3:30pm 1564284632

Ha ha.
THX, I don't usually waste my time with OneRoof garbage but that was quite good, apart fron the inane comment from Tony Alexander (which was quite amusing)

by PocketAces | 28th Jul 19, 5:37pm 1564292257

Next thing to follow the money leaving the country will be some of the people we have imported. Maybe not so much the Chinese, I imagine many of them will not be too fussed at returning to an evermore totalitarian society, but others, yes.

by Retired-Poppy | 28th Jul 19, 5:54pm 1564293256

... yes, I think it's likely too. As the work dries up, an exodus will ensue. It happened to Ireland Post 2008. Watch what happens to rents once Landlords start competing for tenants. These are certainly very Interesting times in which to be living.

by Fritz | 28th Jul 19, 6:02pm 1564293766

I don't know if that will occur so much. We'd probably need to see a BIG hit to retail and hospitality for that to start happening.

by brisket | 28th Jul 19, 9:36pm 1564306619

I think it's possible. Migrants will tell their friends back home that Auckland isn't the honeypot it used to be, where anyone who could scrape together a deposit made a quick $300k and there were jobs for anyone who could lift a trowel. I think migrants will also be hit particularly hard if the market takes the kind of downturn some of us expect - they've arrived later to the market. I have no hard evidence for this, but I know anecdotally (as in, I've met and chatted to) of a lot of Indian migrants who have 'invested' in property in South Auckland at the peak who are living on low wages. Sometimes renting themselves, in a crowded flat, and owning a rental property that gives them negative returns. They're not likely to repatriate themselves, they're going to be trapped in negative equity for a long time. Unlike all the DGZ/city specuvestors, they can't afford the loss, and they can't just cut and run either.

by PocketAces | 28th Jul 19, 9:52pm 1564307521

Sounds like a perfect storm for a strong lift in the crime rate.

by Fritz | 28th Jul 19, 6:00pm 1564293642

Yvil and The Man, and other investors:

Now, it's Sunday, so let's be civilised. I want to put something to you.

It's this . There's no doubt, generally speaking, property has been an excellent investment over the past 20-30 years. It sounds like you have done well out of it. You have probably applied some skill, as well as had some luck with timing.

But now, it's 2019. Do you really think, moving forward for someone looking at investment property to buy in 2019 ,that it's a great investment? Because generally speaking, I just don't see how it is.

Yields are generally poor, and the rapid capital gains of the past seem very unlikely.

What are your views? What do you think is a bottom line for a good investment property BOUGHT IN 2019 (eg. gross yield of at least 6%, capital gains of at least 50% over 10 years).

by Glitzy | 28th Jul 19, 8:53pm 1564304029

Fritz, here's the thing. You are asking the question to a bunch of goons who think they are investors simply because they got lucky in a rising market.

They don't understand concentration risk, they don't understand liquidity premium, they don't understand risk or credit premium. They don't understand what Rf means, they don't understand that the government yield curve and moves on the swaps market drive mortgage rates.

They don't understand banks capital ratios, they don't understand HEM limits or the ways banks manage their loan and mortgage books.

They don't understand portfolio theory, exogenous shocks or stock betas and alphas.

They don't understand jack shit.

So if you ask them a question for two hours and forty five minutes what you get is a vacuum. A void where an answer should be. The look of bewilderment akin to a child of three wondering how he can get to the cookie jar on the dining table.

So good luck with that bro.

by Independent_Observer | 29th Jul 19, 4:06pm 1564373178

Glitzy - taking away all of the complex analysis - and looking big picture. Falling interest rates since the early 1980's has to be one of (if not) the biggest contributors to the continuous rise in house prices we've seen. 'Investors' here saying that they've never lost money in the market have only ever been investing under a trend of falling interest rates. I want to see what happens over the next 10-30 years as interest rates regulate (history tells us that they do if we look over a long enough term) and see if they are so good then. I put money on the fact that they won't be - houses appear to funcion like bonds - interest rate drops, value of home rises, inerest rate rise, value of home falls (the debt can't be serviced).

I think some people have had a dream run and think they're naturally talented at investing in housing - but they've misidentified causation - believe it was their action in buying/selling/modifying in the market that made the profit - when in reality looking at what has happened from a higher level it was just part of a much larger cycle outside their control/input to causation.

by Glitzy | 29th Jul 19, 6:13pm 1564380800

IO, thanks for the thoughts. re pricing yes, property definitely prices like a perpetual bond so absolutely reduction in rates causes price rises (* all other things being equal).

I think though the other major factor is the injection of exogenous liquidity. What I mean by that is when you see large flows of money into a market that will pump prices way over real values ~ and that's what has happened in spades in the Auckland residential market.

There is an interesting post by JW (RIP) who explains this phenomenon another way ~ the role of the margin buyer.

So I agree with you that if and when rates normalise a lot of amateur investors will have some major headaches servicing loans. But I think in the near term its the absence of liquidity that is going to push prices back towards fair value which if you calc in wage inflation and rate cuts is prob about 20% higher than 2012 or about 40% below current levels.

by Independent_Observer | 29th Jul 19, 7:05pm 1564383932

Thanks Glitzy - just taking a look at the latest JW now. Completely agree.

by Yvil | 29th Jul 19, 4:09pm 1564373360

Hi Glitzy, shame you're reverting to name calling again…

You're absolutely right, we don't understand many of the things you mention, which is great! Not being sarcastic, investing is about taking the plunge and doing something, not reading endless economic indicators. When you read too much, you will always find a reason not to invest. Probably, subconsciously, without realising it, that's what you're looking for, an excuse not to commit. Ultimately investing is less about numbers and more about the courage to do , there will never be a time when it's "perfect" to invest

by Independent_Observer | 29th Jul 19, 4:14pm 1564373649

You're clearly the Warren Buffet of property investing huh...

by Independent_Observer | 29th Jul 19, 4:18pm 1564373906

And it' these type of attitudes that worry me more - a lot of people who don't know what they're doing, all collectively doing the same thing because there has been a positive feedback loop associated to 'guessing' and risk taking in the housing market. It's classic human herding - chance are if we herd on the way up the bubble (it this is a bubble...), then there's a pretty solid chance we'll herd on the way down. I.e. over confident on the way up (buying), all pessimistic on the way down (selling).

by Yvil | 29th Jul 19, 4:28pm 1564374481

Fair point IO, let me clarify: I agree that buying a property and hoping that the market goes up is dangerous and it's speculation, not investment.

I would rephrase my earlier comment the following way: rather than reading endless economic research and trying to predict where future values are heading, I prefer to spend my time looking for property where I can improve their value. Actually I would never buy a property if I cannot improve its value by at least 20% in 3 months and since I generally put 20% of my own money in, I double my money.

Does that make more sense?

by Independent_Observer | 29th Jul 19, 5:09pm 1564376984

Yvil - have you ever read the book Thinking Fast and Slow by Kahneman? He found that fund managers are highly overrated. That a lay person picking stocks from a hat was just as successful over a given time period as a highly educated (and paid) stock broker...who would have thought? So I guess this fits with you're model where its best to just take a gamble and not bother educating yourself - must be the same in the housing market as well.

https://acquirersmultiple.com/2018/04/daniel-kahneman-the-illusion-of-s…

The only problem with the housing market is that if the whole market starts dropping and you don't have a portolio (say with bonds that in theory will increase in value following the drop interest rates, after the recession that occurred with the stock market fall, and gold as investors move to 'safe' positions) then that element of luck can't be hedged - and with houses you don't just have all of your own money invested - you also have a lot of other peoples money invested. To me, its become a bit of a gambling position, with the banks playing the casino. You have to hope that the smart people at the banks have got their numbers right, but history tells us that everthing is 'fine and dandy' with the banks until its not and the golden hand shakes come out.

by Yvil | 30th Jul 19, 10:20am 1564438828

IO, correct although you left out the part (I think is most important) about creating value. I am perfectly happy to invest in RE if values never go up or down. Example, in commercial property the value is derived from it's income, the lease, if you spend 100k to improve a property and as a result you can increase the rent by $10k pa then, if we assume a typical yield of 6% you've increased the value of the property by $167k ($10k/6%) and made $67k. Thats' how I make money in RE, NOT by hoping and guessing if the market goes up or down.

by Independent_Observer | 29th Jul 19, 5:10pm 1564377026

Yvil - have you ever read the book Thinking Fast and Slow by Kahneman? He found that fund managers are highly overrated. That a lay person picking stocks from a hat was just as successful over a given time period as a highly educated (and paid) stock broker...who would have thought? So I guess this fits with your model where its best to just take a gamble and not bother educating yourself - must be the same in the housing market as well.

https://acquirersmultiple.com/2018/04/daniel-kahneman-the-illusion-of-s…

by Yvil | 29th Jul 19, 8:19pm 1564388382

That's right IO but the important point is to create value through RE, not hoping and guesstimating where the market is going.
Example, commercial property values are determined by their income (lease) if I spend $100k to improve a property and I get $10k pa more rent, assuming an average yield of 6% I've made a profit of $66k ($10k / 6% = $166k - 100k spent).
I'm perfectly happy to invest in RE if values never go up or down

by Glitzy | 29th Jul 19, 6:19pm 1564381166

Yvil, I rejoice in your self declaration of ignorance. May it be your epitaph.

"Once I was blind and it remained that way."

by Yvil | 29th Jul 19, 8:21pm 1564388513

I thought we were having a civil, mature discussion

by brisket | 28th Jul 19, 9:47pm 1564307246

It's tough, isn't it? Because the optimists can argue from a few decades of lived experience that local property is a great investment.
Whereas those of us who are doubtful are looking at less tangible things like historical averages and international comparisons, which all make our housing look like an absurd bubble.
But none of us can know, because we're not observing a natural system, we're observing a very politically mediated one. What the optimists have in their favour is that NZ gov'ts and banks will do *a lot* to avoid a housing crash. Any intervention up to and including infant sacrifice will be considered if the banks deem it necessary. We might be travelling by horse and cart and eating bugs, Venezuela-style, and we'll be told we have a great economy -- as long as CPI hasn't moved and house prices haven't fallen...

by Chairman Moa | 29th Jul 19, 11:04am 1564355090

"gross yield of at least 6%, capital gains of at least 50% over 10 years'...
The usual answer for that is that if you buy in CHCH at below market value and have it positively geared, you will achieve that easily... Not from me though, I am a bit skeptic about CHCH.

by Yvil | 29th Jul 19, 4:31pm 1564374691

Fritz, thanks a lot for having a civilised conversation.

I make a big difference between buying a house for oneself to live in and buying a house for investment.

In my view it's not a good time to buy a house as an investment because, as you say, yields are poor, it's hard to tell where values are going and the government has brought in tougher legislation for landlords. I would not advise to and I have not bought any house for investment for several years.

Buying a house to live in is, in my view again, very different. The yield does not matter and it also matters little if your home is worth 5 or 10% more or less in 1 or 2 years as you buy it with a long term view. Waiting for the values "to bottom out" is IMO a dangerous game which could result in missing out altogether and still be renting in 10 years time. What does matter, is that in 20 years, you will have a mortgage free house worth about double what it is now. The alternative is that you will still be renting

by PKchew | 28th Jul 19, 11:13pm 1564312382

Bought 9 rental properties 2004-5. Sold 6 after 13 years, now have three properties unburdened by loans plus a mortgage free house. Provides a rental income plus my wife and I have superannuation. Worked for me? My son has bought two properties (3 rentals) in Nelson over the last year, and his partner has two rental properties. They are all cash flow positive. If they can do it what is stopping others doing it. Its a long term strategy which gives you income when you are too old or dont want to work for someone else anymore. Whats your problem???

by Independent_Observer | 29th Jul 19, 3:57pm 1564372676

What happens if everyone does it - and when does it stop looking like a ponzi scheme?

by Tui12 | 29th Jul 19, 1:27am 1564320424

Yvil curious to know how you “own a villa” in Bali unless it’s leasehold or you are Indonesian?

by RickStrauss | 29th Jul 19, 10:22am 1564352537

Could be married to an Indonesian.

by Chairman Moa | 29th Jul 19, 10:33am 1564353203

Pretty easy I say. Same reason as I am a owner of a massive 24 br house in Monaco!

by Yvil | 29th Jul 19, 4:32pm 1564374770

CM, we're having a decent conversation, could you please not drag it into the gutter. Thanks

by swapacrate | 29th Jul 19, 11:09pm 1564398582

I quite like your jokes CM, it breaks up the geeky'ness. Dont mind the geeky'ness as well, but its nice to have balance, and nice to see people with humour.

by Yvil | 29th Jul 19, 4:19pm 1564373974

Good point Tui, it's a 30 year leasehold.
www.kembalivillas.com

by Glitzy | 29th Jul 19, 7:46pm 1564386361

So you've "invested" in a depreciating asset.

Priceless.

by Yvil | 29th Jul 19, 8:30pm 1564389007

Why all the hate Glitzy? What have I done to you?
Yes it's a depreciating asset, on the other hand I get high cashflow as the villa gets rented out, about 15-20% net profit pa and I spend about 3-4 weeks here every year. I love it, it makes me very, very happy.

by CN | 29th Jul 19, 6:23pm 1564381428

Here are 16 apartments built to meet the shortage of housing in Auckland that are still available. Even though there is a shortage of housing in Auckland, these 16 apartments are in a very desirable neighbourhood, and remain unsold. Food for thought - how can there be unsold apartments when there is a underlying housing shortage in Auckland?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

by Independent_Observer | 29th Jul 19, 3:57pm 1564372624

I could be mistaken, because property prices always double in NZ every 10 years, but one can't help but get the feeling that this is the end of market pump, but it instead, the start of market dump. You have to feel sorry for the FHB who have been pressured into buying into the likes of the Auckland market the last 5 years or so.....any normalisation of interest rates, recession/loss of employment, divorce and they're screwed. But as long as the Chinese investor has made some $$$ from then - well thats a good problem to have right? (John Key...Bill English...Stephen Joyce?)

Was there some hidden ethical/moral compass behind the plan to sell the country out to foreigners for short term financial/political gain that I missed - while screwing future generations?

by Carlos67 | 30th Jul 19, 9:09am 1564434542

Feel sorry for the FHB if and when the market actually crashes, its yet to happen. I purchased a house in 2005 just before the GFC and 15 years later never regretted it for a second, the value of it still doubled. The reality is you need to get on with your life because when you hit 50 you realise how short it is. If your really enjoying life, you get to the point where you simply don't care about what your house is worth as long as the build quality is decent.

by Yvil | 30th Jul 19, 10:22am 1564438956

Well said Carlos