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House prices continue to rise faster than rents making residential property investment less attractive

House prices continue to rise faster than rents making residential property investment less attractive

Residential property investors could be facing some tough decisions as rental yields continue to decline, interest rates are still expected to go higher, and tax changes tilt the playing field more in favour of first home buyers.

According to interest.co.nz's Rental Yield Indicator, the rental income earning potential of residential investment properties continues to be squeezed as capital values rise faster than rents in most areas, reducing the income return to investors.

This, combined with expected increases in mortgage interest rates (temporarily put on hold while the economic impact of the latest COVID lockdown is assessed) and the pending removal of mortgage interest as a tax deductible expense, could start to take some of the shine off residential property as an investment option.

Interest.co.nz's Rental Yield Indicator tracks the indicative gross rental yields on three bedroom houses in 56 locations around the country where there is a high level of rental activity.

Over the six months to the end of June this year, indicative rental yields decreased in 35 locations, increased in nine and were unchanged in 10, compared to the six months ended March this year, (the yield figures could not be updated for two districts - Timaru and Invercargill, due to technical difficulties).

That suggests that overall, the income earning potential of residential investment properties relative to their capital value is continuing to decline.

That trend is also showing up in the number of locations monitored where the gross indicative yield is 5% or more, which has declined from 23 in the six months to December last year, to 14 in the six months to March this year, to just nine in the six months to June this year.

However in spite of the growing number of challenges that residential property investors are likely to face over the next couple of years, there is still no sign of a mass exodus of them from the market as was predicted by some commentators when the Government announced its planned changes to the tax treatment of residential investment property back in March.

That's most likely because many investors, and probably a large majority of them, would have owned their properties for a significant length of time and during that period would have seen both the capital value of their properties and the rental income stream they generate increase significantly, while their mortgage payments would have declined substantially due to falling interest rates.

Investors in that fortunate position would have absolutely no compelling reason to sell.

Those who could start to be squeezed are more likely to be those investors who have purchased relatively recently and/or are carrying high levels of debt.

A combination of low yields, rising interest rates and a lack of interest deductibility could start to squeeze their cash flows at some stage, potentially forcing some of them out of the market.

You can see the Indicative Rental Yields for all 56 locations tracked by interest.co.nz here.

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134 Comments

Does anyone invest for yield anymore? Capital gains is the game = hold, profit greatly & buy more through accumulated equity. Let's not forget the incentive to hold longer as a result of the brightline test...

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I agree with the sentiment (that is how people think) but at some point when the underlying value of rental property (net rental income) are insufficient to compensate for risk then the whole capital gains argument starts to stutter and fall over too. Like the dotcom bubble or Tesla shares etc. Fundamentals matter.

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What risk?
Seriously. Most investors don't see any risk at all.

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How many years have we talked about prices crashing? 20 years?

Look at the graph on house prices. It never materially drops, at worst it flatlines, then increases, then flatlines, then increases.

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It's the new paradigm!

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"It's the new paradigm!" [Brock Landers]

With all due respect, Brock, it's hardly new.

Am wondering where you've been the last few decades.........

TTP

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I thought somebody as astute as you would know about the phases of a bubble.

Mostly in Europe. Why?

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I was in the UK as the Celtic Tiger has just been tamed, it was brutal on some of the folk I worked with in Ireland. This bubble is now been removed from market control and sits with the RBs. The government now needs to understand that to control property prices they need to really pull all the levers they can see cause at this time they really can't make it any worse and with this much leverage in asset prices the RB knows even a small change in interest rates will equate to significant effect.

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Yep. so introduce rent controls :-). No interest rate change needed.

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You need to look behind the graph to know what really happens. One of the reasons it flat lines instead of falls is that people will feed equity back into a property rather than sell and take the loss, and many can't afford to sell so are forced to subsidize any negative paper equity. This of course gives a false reading to the stats.

You get the same effect from people who are quick to promote their gains, but never their losses.

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When did we last have a global pandemic. A house price crash is just 20%. Already the Reserve Bank is talking about prices now dropping, despite saying only a few months that prices would flatline

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What yield? most companies are in as much debt as their employees.

Cashflow and debt are the name of the game, not actual real profit.

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Bang on.

I don't even care about the brightline test right now as the gains are so rapid I am happy to pay taxes.

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At least that is a useful way of taking any of the capital gains back, the brightline test, the capital gains tax that isn't...

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It's a speculators market for sure. NZ isn't a place to buy property to live in. As for Social Housing Builds, they're pretty much a form of government speculation.

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Capital gains become the main reason for property investment & investors have strong believe that property price will multiply by each year and our govt is supporting it 'sustained moderation'.
CGT will never be implemented even after the govt have full majority total hippocratic act, even after knowing we have most unaffordable housing market among the 36 Organisation for Economic Co-operation and Development (OECD) nations.

Even the most weird act is when PM not convinced by 'ghost home' concerns despite data showing 40,000 vacant in Auckland. Amazed to see when someone acceptability is having credibility over data but yes it suits there narrative to not act.
The whole point is govt don't want to act and investor keep poring in no matter rental margin squeezed.

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One of the ghost homes was mine. My family was overseas during the last census, so our main dwelling was empty that night. We were there for at least 350 other nights that year tho. And don't forget all the baches that weren't occupied, and homes being built and renovated. I'm sure there's a very small number of homes out there that are genuine ghost homes, but I wouldn't rely on census numbers as accurate data for this

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Yes, it's a poor use of Statistics to use the Gross number of vacant houses on the one night of census and then use that as evidence to say that all those houses are being used as 'Ghost Houses' to store wealth, and by default take houses from the market that people would have occuppied.

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Except by law we are all meant to complete census forms for the listed residence. That you failed to do yours even while it was online remotely is a sad indictment on how the responsibility for being part of this society is viewed. I could do the forms remotely from Australia in the time bracket of more than 2 weeks. Did the country you were in have no internet for weeks at a time or was it just down to laziness? Even worse is that stats NZ fails to capture those without homes so the data is exceptionally flawed by not capturing those without normal housing.

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You have completely misread what I said. Read it again.

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The easiest way to increase yields is to value your property less. R=I/V.

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Conversely the easiest way to justify charging more- rental, electricity prices, water etc, is to up the valuation.

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Keeping two sets of calculations will solve the problem. One to justify price rises and another to feel good about yield. One calculates yield on market value of the property while the other determines yield on what you paid for the property or even on the outstanding mortgage. It's all a mind game at the end of the day.

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Yes, that is the converse, but not as easy as just accepting that your property is not as valuable. You just have to think about it, redo the maths in a couple of minutes, and 'voila' your yield has increased.

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Yield is a hang-over, neo-liberal economics concept. An argument whose purpose is solely to justify rentier capitalism;

https://en.wikipedia.org/wiki/Rentier_capitalism

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So you are happier with the capital gain then?

And your link does not mention the word 'Yield' once.

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Kate doesn't live in the real world. She doesn't believe in making profits, or earning an income.

Don't even mention profits, she may flip!

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Nope, I'm all for making profit! It's the concept of yield that has to go with rental market regulation. I've found the majority of landlords/investors are making unbelievably high profits; e.g.,

204 George Street, Stokes Valley
Asking rent: $630 per week
Purchase price: $94,000 - yes, $94,000 in 2002
https://www.realestate.co.nz/4055823/residential/rental/204-george-stre…

What a whale of a profit that landlord is making!!!!!!!! Good on them I say, because....

When I apply my rent maxima formula: (RV/1000) - x% with 'x' set at zero for the Hutt Valley presently - this landlord can profitably afford to reduce the rent to $395 per week in order to meet the weekly rent maxima proposed.

It is this arcane yield concept that keeps us from introducing rent controls. And those controls need to bring the cost of renting, particularly at this lower end of the market, DOWN.

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Total return on investment (TROI) is different from yield, which is a subset of TROI.

In a stable functional market, yield and capital growth are an inverse of each other, if one is higher the other is normally lower. Our system is dysfunctional so you are getting very high capital growth and also a sufficient return on yield.

If supply had been able to meet demand then your example of the house purchased in 2002 would have only increased at the nominal rate of inflation and the yield would have been based on this lower price, and while this yield as a % would be higher than what it is today based on today's value it would be at about the $395 you worked out.

The solution is to allow supply to equal demand, anything else, while maybe needed as a triage solution, and not a long term solution. Whatever triage solution is needed should not inadvertently reinforce and encourage the continuation of the present dysfunctional system.

It is clear present Govt. policy encourages unaffordable housing, just as it does the building of poor quality unhealthy housing. Rent controls seem to have a positive short-term effect, but a long-term negative effect.

But I do like the logic of your formula.

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Thanks, Dale! Yep, we're going to need to triage a lot of things in future!!!!!

The future is nothing like the past - many of the economic models of the past have failed. It's just going to take some time for governments the world over to abandon them.

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What on earth has a 2002 price of $94k have anything remotely to do with now?

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Profit. Very healthy profit!

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Kate, just to clarify, what is RV? Rateable value? Where does 1000 come from and what is 'x'?

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Who cares about yield when I can buy off the plans and sell it straight away for 100k more in a matter of weeks?

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It works very well until it doesn't.

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Not for a wee while yet Brock don't you worry.

Every day you are not in the market is another $1000+ not gained.

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A fine example of the delusion phase of the bubble.

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Yep. Would love nothing more than to see the day these people go suddenly quiet!

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Mr Greg Ninness, does anyone buy for rental income.

Be real !

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Exactly, a property I tried to buy less than 2 years ago now has an estimated value that has increased $700,000 !!!! Who cares about the rental return you could have left it empty with the gains since then.

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Just wait for a vacant house tax to come in.

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That is why I will be voting for winston peters

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As many have said here, yield simply does not matter for many property 'investors'.
This country needs a property crash to show that capital gains are not a one way bet - that would then have an influence in changing future behaviour. Until we do, there is some logic to the belief that it's a one way bet....because it generally has been in NZ.

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Interest rates have pretty much gone one way too. But there isn’t much further down than zero, so at some stage the party has to end.

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I used to have a much bigger mortgage than I do now. I thought it would be a good idea to rationalise things a bit before I retired and started to reduce risk. Maybe finally get a decent real yield on property rather than be negatively geared. This was a big mistake. I would have been much richer, well somewhat richer, if I hadn't done that.

Not only that but the bank then decided I wasn't a preferred customer anymore even though things now looked healthy and I had really over protected myself so that I was extremely unlikely to ever be a problem. My personal banker dumped me and they made me line up in a queue with the hoi polloi at a branch bank to beg for another mortgage. It was dismal. They offered me little, even suggested I sell more property. And what? Put the money in the bank at less than 1%?? Totally destroyed my confidence in the bank and learned a valuable life lesson, perhaps a little late.

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Who cares about being richer and richer, its a pointless pursuit. Your value as a person has nothing to do with the size of your bank balance Zachary

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Interest rate untouched - understand could and maybe Delta Virus but why NO announcement on LVR and DTI, specially now when know that ponzi is running and unable to raise OCR, is it more needed to act now.

Is Delta Virus blessing in disguise for Mr Orr's agenda / interest.

Real shame but true.

Mr Orr using a disaster to further his biased agenda / interest.

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Jacinda & Grant gave Adrian the licence for ZIRP and QE when they added full employment to RBNZ's mandate, not learning
from the disaster that has been for the US in terms of wealth inequality. Now Adrian is using Delta as an excuse for continuing ZIRP
with not a murmur from Jacinda or Grant, so the asset bubble continues to inflate, further exacerbating inequality. The worst part
is that this can only end in either an inflationary or deflationary depression.

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There will be zero OCR increases this year I feel, or at most +25 points.

Delta will likely have made Mr Orr and co gun-shy.

Let the ponzi going - loving it.

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Agree with all but your last point.

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House mouse: sorry sir went over the line there. Too crass of me.

Let me rephrase, let's make sure we have a stable housing market because it not only hurts businesses but individuals if prices crash.

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Yield may be poor but what is the alternative? Any yield while your investment keeps up with inflation is a good thing.
With interest rates so low people would be damn fools to divest from property. Need to keep property for as long as possible into retirement as you wont be able to live off interest income and the value of your money will surely decline.

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Investment funds? Kiwisaver returns the last couple of years have been very good. Long run yields can't compete with houses ATM, but the gains actually mean some value is created

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Yet another indication that the NZ residential property Ponzi has no relationship whatsoever with economic fundamentals. If we applied concepts such as the discounted cash flow, or if we simply compared with similar markets overseas, current NZ residential property values and indicators make no economic sense whatsoever, but they all unequivocally scream "bubble".

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It really does feel like a bubble. But bubbles are only bubbles if they pop (crash), so the true telling as to whether this is a bubble will be whether it crashes.
If it doesn't, not a bubble.

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There is no bubble and the fact that plenty of people are paying current prices shows you this is very much a safe bet.

Those referring this to a bubble are most likely not in the game and are just hoping it is.

In 5 years median house prices will be 1.5m in Auckland, if not sooner.

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Based on your low IQ reckons?

Because that's not what anybody credible is even remotely projecting.

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No one has given any accurate advice since COVID.

Your guess is as good as mine. No need to get personal. Although I don't really care what you think anyway. Lol

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Of course you don't.

Hopefully you read up on bubble psychology sometime and learn to look in the mirror and recognise the signs.

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All signs point to gains at the moment.

As I've said, prices to rise over summer and stabilise from autumn 2022.

I'm in it for the short term to be honest.

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And all the signs pointed to falls last year (but…)

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A phenomenon of all bubbles is that you can't know it's a bubble until it bursts.
I would be a bit more modest if I was you.

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‘There is no bubble and the fact that plenty of people are paying current prices shows you this is very much a safe bet’

Sorry just choked on my coffee!

Perhaps more irrational exuberance than ‘safe bet’. Lots of people in the same mindset as you thinking prices only go up so can’t lose. History shows that the music does stop sometimes and often when people are in the same mindset you appear to be.

Irrational exuberance by Shiller or Animal Spirits are good books on the topic if you are into reading.

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Is unsustainable a bubble? The RB governor had come out to say that current prices are not sustainable and FOMO is the only thing driving prices now.

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Whether a bubble bursts, deflates a little or stays the same will depend on whether people are forced to sell. There are such great reasons to own property

** high inflation: awesome inflation hedges plus watch the real value of your debt decrease.
** low inflation: low interest rates, values normally climb.

So naturally people don’t want to sell, keeping prices high. Unless we see a real black swan I can’t see any significant price drops.

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High inflation means high interest rates. If it happens the property market will crash big time.

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If that happens ( unlikely as the rbnz does not want to induce a crash ) then the crash will cause low inflation, which will cause low interest rates which will restore house prices.

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Pretty sure the Fed were dropping rates in the US post GFC but it did nothing to save their housing bubble. House prices kept going down with interest rates. If the fear of future falls becomes common thought among the people, then people want to sell not buy. It’s irrational market psychology (humans bring humans), not robots reacting to interest rate settings.

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??? just wait it out, don’t panic. Have a quick look at the graph below. Us median house prices.

https://fred.stlouisfed.org/series/MSPUS

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Yet real house prices declined substantially in the high inflation period of the 1970's. Whilst land might be inflation proof, like gold or commodities, there are other things which drive their value up or down that might easily outweigh their inflation protection component.

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So imagine 20% interest rates like the 70’s. The average Auckland house will cost over 200k a year just in interest. Think there will be much demand?

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With the 10-20%pa wage inflation that came with it.. $200k in interest, bugger all in principle on a $600k household income isn't so bad.

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Investors can and always have been able to spell "yield", specuvestors cannot, and for them it was always about untaxed capital gains.

Rate increases are a coming, flipping within 10yrs is taxed, new tenancy rules, no income offset available, DTI in the toolbox. At what point will the specuvestors realise there is no upsideleft and a significant risk of downside.

Popcorn.

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Well there's still a way to go before it slows down (but not a crash). This lockdown will create more FOMO and really ignite summer sales like never before.

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I doubt it. plenty of houses being built, no immigration, interest rates have gone up and will probably continue, prices are already well out of reach of the average person, how can it continue?

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It can continue shown by how many people are buying at current prices.

Materials and labour costs are going through the roof.

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A lot of those people are probably under the same assumption you are. A few years of little gain, higher interest rates, rent not covering outgoings, let’s see what happens.

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No new taxes will deter investors from buying. I am more than happy to pay heaps of taxes on my capital gains because it simply means I am making even more!

I have never made so much money in my life without lifting a finger in the last 12 months - ok, I do need to sign a few pieces of paper and then wait for my bank balance to balloon.

Folks, this is not to boast but to say, this is a once in a life time opportunity to make QUICK gains.

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Was

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I bought my second property just 4 weeks ago - up 100K. People screaming wanting to buy.

And guess what? Not a timber yet on site, unbuilt.

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Flyer - are you buying an already completed house or off the plan? If it isn’t completed, the developer may push up the price you need to pay, or withdraw from the sale, or even go bankrupt. Read the fine print - you are unlikely to have any real recourse. As you have noted in earlier posts, the cost of materials and labour is soaring, and developers aren’t going to just sit there and take losses. It’s a case of buyer beware in the case of off the plan developments.

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Flyer - just read your post again and clearly you have brought off the plan. This may not go well for you.

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Fixed price team. I have done it once and this is round two.

Builders that I buy from in this area have materials stocked up. No clause in the contract for price adjustments. Easy.

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Let’s wait and see…..

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What’s the address of your off-the-plan purchase? We’d all love to follow your amazing investment journey. Don’t suddenly go all shy on us now.

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Hint - Auckland :)

I prefer not to share the location as competition for lots are already very crowded.

Being flyer 2.0 a more timid version I do know what I am doing and have realised my profits.

Reporting on the ground though, 10% deposit, the rest when the house is built. I know this seems crazily good but trust me, it is the reality of the area. I know most new builds require you to purchase the land first at best, but not here. A well managed subdivision. All builders are checked and approved by the subdivision owner aka big company with lots of money to develop land!

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To boast or not to boast, hmmm "to speak too proudly or happily about what you have done or what you own" The only one on this site that not only boasts, but also gloats, " dwelling on one's own success or another's misfortune with smugness or malignant pleasure" not sure whether you gloat or boast, or both.

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'Gloat' is definitely the most appropriate of the two. Ad nauseam to be honest.

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Say what you want but I didn't get given a cent by anyone other than good decision making and getting some decent education.

You choose what you want to do. I choose to invest in property. So what if I make money. Tall poppies. Nom nom nom...

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As an apparently educated person I find it odd that you can't look beyond your own personal profit to see how bad this situation is for most people. Besides, I didn't even tell you to stop investing in property, I simply pointed out that you gloat about it on a daily basis. Perhaps some self-restraint?

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OK I will restrain myself.

Fair call, been a little crass. I just wanted to let people know what's actually happening on the ground.

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Flyer version 2.0 is born.

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I like it, long may it continue.

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Thank you Njay.

But I'll still report what I see on the ground.

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Sound's good, no problem's with that.

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Clearly all those capital gains are funding some pretty mind altering drugs!

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It certainly made me realise the power of investing in property.

Thanks to Labour's incompetence I've paid off my mortgage before 40. Although it hasn't all be roses. I did live in a leaky home which cost me plenty. Glad I got rid of that, which made me go with new for my current home and for investment properties.

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You can make a lot of money selling meth too. Why be jealous of others’ success? Just because others lack the initiative to enter the meth industry doesn’t mean we should be all Tall Poppy about it. Right?

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I've got a neighbour who gloats about how much money he makes on houses in the area. I find it really distasteful and kind of... lower class. I just think why... is his self esteem that low he needs to tell everyone? Or maybe he's got one of those social emotional disorders where he can't read social cues or whatever. His wife is really "normal" and like the opposite. I mean who cares how much someone else makes?

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Thanks Jacinda, Robertston, and Orr!!

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Additional taxes typically raise, not lower, the price of goods and services in a tight market. Had the government made a serious attempt at increasing the number of houses being developed prices would likely have moderated as a result of tax changes. Instead they likely exacerbated the affordability situation.

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To buy a property just for yield is the equivalent of buying a stock solely for dividends- which is misguided.

Buy based on total returns.

Be quick.

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The RBNZ projected house prices falling for years.

What "total returns" does that produce Einstein?

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Brock,

You've been steadfastly negative about RBNZ for a long time.

What prompts your sudden change in attitude?

TTP

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It may come as a surprise to you but the world is more nuanced than just black and white.

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Unfortunately Brock, the same RBNZ baseline forecast scenarios see further rises initially, where the median priced New Zealand home will exceed one million dollars by the September quarter 2022, a rise of some $ 150000.

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That's not what they predict at all.

Why do twelve month moving averages confuse so many people.

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August MPS states as its baseline scenario "Annual average house price growth is assumed to decrease over the projection period, from 26.4% in 2021 to 7.9% in 2022. House prices are assumed to decline modestly from late 2022 until the end of the forecast horizon. " That is not the moving average., but for defined 12 month periods. The forecast fastest annualized rate of growth ( moving average) will peak at just below 30 percent . Graph 2.8 August MPS

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landlords win again: fully entitled to covid RSP "Income that is received passively – such as interest and dividends, and all forms of residential and commercial rent – is excluded from the measurement of revenue."

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Who cares about yields when I can make '000s of dollars in capital gains (tax free). Yields is just really to help with the day to day expenses.

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Please don't come crying for a bailout when the gains flip to losses.

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Small business owners use their home to borrow for their business. If there is a crash we are screwed as a country.

Hence there will be a bailout by the govt if it were to ever crash. Safe as houses!

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That’s a very fair point, most people that start a business borrow against their house to do this. If they can’t then a lot fewer businesses will be started.
It’s strange how the economy in nz is so completely anchored to housing.

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Noone will be crying for a bailout, because the government will certainly use the tax payers money to provide bailout options. They won't let the economy fall as it would take 10x the effort to get us out of the issue.

Damned if you do, damned if you don't. Lesser of two evils. Here we go!

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Don't forget folks, new CVs coming out in Oct for Auckland. Couldn't come at a worse time to be honest enabling people to borrow even more without DTIs.

That's just going to add fuel to the fire.

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If we hold immigration down (I know a lot are coming in via MIQ but not compared to the 1000/wk net increase of recent years) and keep a focus on building the tide will turn all things being equal.

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More chances for NZ'ers to buy more houses to rent to those who want to emigrate over to NZ for a 'better' life?

Sounds good to me!

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People making insane money out of property.

A Filipino immigrant came were with nothing now he makes millions every year

https://www.oneroof.co.nz/news/40016

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People making insane money out of property.

A Filipino immigrant came were with nothing now he makes millions every year

https://www.oneroof.co.nz/news/40016

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One Roof - The NZ Herald - has a huge amount to answer for in pumping up this housing frenzy, by pumping up those 'animal spirits'.
A disgrace, to be frank.

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As do these estimate sites. They basically show homeowners how much their house has made them each month.

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He deserves success, he works so hard. What's bad about that? Or maybe I misunderstood your post.

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Er the Filipino nurses in this country work hard with no hope of owning a home (with many not even being able to rent a home for their family). Property investors are not working hard. Likewise real estate agents have no hard work (and on many days have no work except sitting around playing on their mobiles while waiting). The property market has broken the value of hard work, (or any wealth being hard earned) when the value goes up faster than any wage for hard work in NZ.

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Correct, Filipino and all nurses work hard. No one said because one group works hard that another doesn't.

If you personally knew any successful real estate agents you would know they work 7 days a week, they're always "on", the hard work is prospecting, beating out other agents then working hard to get a top price. Negotiation like that is not something everyone can do. This is why they earn hundreds of thousands in commissions. Most real estate agents earn about 47k on average a year. A lot of work for very little return for most, all at their own cost.

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Yield keeps you solvent. Capital gains make you rich.

Real investors, in any asset class, know that both are important.

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Great point Essen!!!!!

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Rent is already and will go up further.

Another reason as now many potential FHB specially in Auckland have given up on buying a house ever and forced to pay high rent.

This government along with Orr has totally screwed up the situation. More they try / pretend to help deeper the cut as both have no intent and are fooling - stand exposed but thick skin $#@% ......

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People are fed up. Things need to change.

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I agree it’s actually a ridiculous situation.

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Yeah, a few days ago on this site I asked for thumbs up from anyone who had just given up and it got to about 10 - a fairly chunky minority of posters here.
There is fuel for change. If any politicians are reading this then please take note - there is appetite for radical change.

Speaking for myself, I'd like to see an end to state support (deliberate or not) of speculation. Stop government and the central bank stealing from savers and future tax payers to drive down interest rates in the misguided belief that it will stimulate the economy. I think that alone would make all these sticking plasters (LVRs, DTIs etc) unnecessary.

We are listening...

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The only party that proposed anything meaningful last time was Top, and the tax base change. Less income tax paid for by a universal land tax. Media gave it zero debate. Who owns our media again...?

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I'm continuing to build my non property related business at a faster rate than the property market. As soon as I can take ownership offshore, I will (and we are getting close), because 'NZ property and immigration'. It makes it very difficult to employ and keep good staff, and it creates too high a risk of failure in the economy. Im not saying this to skite, Im just demonstrating the perverse incentives you create when you fail to keep an economy balanced and diversified. How much more productive capital flight will nz experience before it comes to its senses?

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Most rental property investors will not sell while OCR rates remain at record lows. History shows that capital gains will continue while interest rates remain relatively low compared to historical averages.

You can expect some offloading of lower quartile rental properties as landlords weigh up the extra risks associated with changes to tenant rights, extra costs as interest deductibility rules are phased in, the need to renew short-term fixed mortgages & uncertainty around further intervention by government to penalise rental property investors.

Unfortunately some renters will be displaced as FHB buy up lower quartile properties. The decrease in supply of lower quartile properties for renters will also result in increased rents making renting less affordable for this group of renters. This is likely to require a greater need for emergency accommodation costing more than $1,000 per week & this is increasing as supply runs out.

Unfortunately there is too much focus on meeting the needs of FHB & this article fails to address the bigger problem that is emerging of a rental crisis that is pushing more people into emergency accommodation & housing waiting lists. Clearly this is a costly solution & is only resulting in more misery for the poorest people in our society.

The solution of course is to encourage investment in rental properties so that there is a plentiful supply of rental properties.

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Yields keep rising on the properties investors own. What you mean is it will be harder for new investors to enter the market.

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