LVRs hit house sales more than RBNZ expected

Property

Reserve Bank says the 11% fall in house sales volumes from October to March was ahead of its expectations for the first 12 months of LVRs

14th May 14, 11:11am by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

The Reserve Bank says that the sharp drop in house sales volumes experienced since the introduction of limits on low deposit lending has so far exceeded its expectations.

In its latest Financial Stability Report (FSR) today the RBNZ said that house sales dropped 11% between October 2013 and March 2014, with the drop in sales volumes evenly spread across regions.

"This impact is greater than the initial expectation of a 3-8% drop (over the year to October 2014)," the RBNZ said.

"By comparison, Reserve Bank modelling estimates suggest that, in a counterfactual scenario where the LVR restrictions were not imposed, house sales would likely have increased further in the months since October."

Latest figures for April released by the Real Estate Institute just this week - and presumably not able to be included in the FSR - showed a massive 20.2% year-on-year drop in sales during the month. However, the key unanswered question with those figures is the extent to which having Easter so close to Anzac Day - which itself was next to a weekend - encouraged people to take time away, therefore completely skewing normal house sales patterns.

The REINZ noted that in April the number of sales below $400,000 fell by 31.6% compared with April a year ago. This followed a fall in sales below $400,000 of 21.9% between March 2013 and March 2014.

The RBNZ said today that the drop in house sales does appear "to have been more pronounced in certain segments of the housing market".

"Across different price brackets, the reduction in house sales has been concentrated in lower value house sales. House sales dropped 23 percent between September 2013 and March 2014 in the under-$400,000 value bracket, compared to an 11% drop in aggregate."

The RBNZ said looking at buyer categories, the share of first home buyers has declined slightly since the introduction of LVRs.

"According to data produced by CoreLogic, the first home buyer share of home sales declined to 17% in February, from an average of around 20% over the past two years."

The RBNZ reiterated its view that house price inflation "appears to have moderated" since the implementation of LVR restrictions.

"Measuring this has been complicated by the decline in lower value sales, which has created a significant upward bias in simple measures of house price inflation, such as median house prices.

"The QV quarterly house price index comprehensively adjusts for the composition of house sales, and shows annual growth slowed by 1 percentage point to 9% in the final quarter of 2013.

"Growth in the more timely REINZ stratified price index also slowed in the final quarter of 2013. Despite some adjustments for the composition of sales, this measure appears to have been subject to a degree of upward bias," the RBNZ said.

"Annual growth in this index has generally slowed further more recently, notwithstanding a rebound in the most recent March data. The Reserve Bank estimates that, in the absence of LVR restrictions, annual house price inflation could have been around 2.5 percentage points higher in the year to March 2014 (figure A3)."

The central bank said there were also signs that housing credit growth was beginning to moderate in line with reduced property market activity and prices.

"This slowing is most clearly evident in data from the early stages in the mortgage origination process. Annual growth in seasonally adjusted mortgage approvals and major banks’ new mortgage commitments dropped 22 and 17 percentage points respectively between September 2013 and March 2014.

"With a typical lag of up to three months between initial mortgage approval and final drawdown, and around one month for commitments, these data point to the likelihood of moderation in final housing credit growth in coming months.

"Housing credit growth was losing momentum at the end of the March quarter, with an annualised decline of 1 percent between December 2013 and March 2014."

The RBNZ said there had been few signs to date of homelending "migrating beyond the regulatory perimeter of LVR restrictions".

"Specifically, there is little evidence of either avoidance activity by the registered banks or a shift to non-bank financial intermediaries and other sources of finance. The Reserve Bank will continue to monitor closely for any signs of regulatory leakage from the speed limit. "

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86 Comments

by Boatman | 14th May 14, 12:04pm 1400025899

I can recall banging on endlessly on this forum about uninteded consequences of intereferance in the free market mechanism when these idotic LTVR rules were introduced

Did those rocket sceintists at Treasury not realise that every action has a reaction, and that the reaction my be disproportionate to the original action ?

by steven | 14th May 14, 12:59pm 1400029143

It isnt a free market and there is no evidence to show that a real free market would work...

So bang all you want.

by economist | 14th May 14, 1:35pm 1400031352

What did they not realise Boatman?

The LVR restrictions are doing exactly what they were intended to do, even more successfully than they thought. Initially it would make it harder for the first home buyer, but over time it will also make first homes cheaper than they would have otherwise been, both in terms of purchase price and secondly, in terms of the interest cost they will have to pay over the life of the mortgage (as they will not need to load up on so much debt).

Now.... if only the RBNZ can keep the restrictions on long enough....

by rjf | 14th May 14, 7:27pm 1400052437

It's not a free market. I'm sure we have had this argument before.

The government, through planning constraints, controls supply.

LVR is a smart way to reduce risk for the banks and for potential (wreckless..) first time buyers. I'm a potential first time buyer and I'd have them put it up to 30% deposit, coupled with constraints on foreign ownership. The market is running at 7-10 times average income in Auckland - we need a crash.

by steven | 14th May 14, 7:38pm 1400053090

I will take issue here,

Well it maybe contrains supply, by this I mean in Chch we can clearly see that with rents rising as well as house values this is probably a lack of housing.

For say auckland the rents are flat this makes me wonder if if have a significant and genuine shortage of homes or a shortage of specualtive properties that the fools think they can sell to another bigger fool.

gtg, oh well

by steven | 14th May 14, 8:24pm 1400055851

An LVR of 80% is pretty reasonable, I cant see that going any lower makes any sense at all, in a normal environment.

We dont need a crash because a crash will be a Depression like event. Even if you have a100% safe job you will not be un-effected by such a huge event.

What we do need to do is stop the silly rises, looks like an LVR of 80% has done that and maybe (probably) caused a sag in the market, hopefully not too big a one....

regards

by economist | 14th May 14, 12:25pm 1400027144

Lets hope the LVR limits become permanent. I bet if vendors wanted to sell they could. They would just have to then meet the market.

by steven | 14th May 14, 1:05pm 1400029530

Agree....

Steve Keen was spot on IMHO.

regards

by economist | 14th May 14, 1:27pm 1400030875

Yep, big tick to the RBNZ. They have prevented a run-away credit bubble. It will take time for vendors price expectations to adjust and then slowly filter through to other homes at the more expensive end. Probably take at least a year.

by rastus1 | 14th May 14, 3:29pm 1400038189

Dead right. The market requires new entrants to keep the prices up - flow on effect and all that. Consequently a lag between the lower price propertys adjusting in relation to higher end is expected. Given time the upper end will be caught too. Very effective work by the RB

by hane | 14th May 14, 12:51pm 1400028664

The recent tone of hysteria in the media tells you the LVRs are hitting the rentier class where it hurts.

by BigDaddy | 14th May 14, 1:34pm 1400031252

The rentier class is laughing all the way to the bank thank you very much, as they cash up with rising rents and capital gains.

It's the poor sods who don't have enough deposit who are really hurting, and who will likely never own ther own home let alone the letter box. .

by gordon | 14th May 14, 2:06pm 1400033176

BigDaddy this is a much kinder softer comment than the last one you made about the great unwashed. Did you have a good nights sleep last night. This simply does not sound like you. Talking about people who are really hurting is wonderful. Have you thought about becoming a social worker as your empathy for the unfortunate is so refreshing.

by steven | 14th May 14, 3:41pm 1400038866

yeah right...rents are pretty flat except in Chch...now withteh FHB kneww capped you gains looking to be waining...

Never mind maybe you need to invest in making a real good and not gambling.

Oily's predictions going awol, eh what.....

regards

by rjf | 14th May 14, 7:35pm 1400052917

BigDaddy is angry because he's scared. His portfolio is under threat. Rents are stagnant. Property supply issues are a myth. Lower end properties typical of rentals aren't selling.

The more angry he gets, the more convinced I am that holding off (with my growing deposit thankyou) for a depressed property market was the right thing to do.

Long live the LVR!

by kiwimm | 14th May 14, 1:57pm 1400032644

LVR limits are not a burden, they are an essential mechanism to reign in over-leveraging. I would prefer to see a total bam on lending below 20% on all properties (new builds included) as this would bring much needed stability to the market.

@Boatman - have a read of Ha-Jong Chang's 23 Things They Don't Tell You About Capitalism then tell me if you think housing is a free market

by Machiavelli | 14th May 14, 2:20pm 1400034016

Say your average Auckland FHB'er wants a house for $500k. They need a $100k deposit. Say they can save $10k p.a. In ten years they'll have their deposit. But wait, house prices will most likely double in this timeframe so when they get to the end of ten years they are still $100k short on their deposit. Therefore, FHB should be saving $20k p.a. for the next ten years to be able to get into a home worth $500k today.

Yep LVR limits are working... But at what cost?

by economist | 14th May 14, 3:18pm 1400037487

Actually they may only need $50,000 as a deposit (as banks do actually lend above 80%). And 5k of this can come from a Kiwisaver first home grant? So they may only need to save 45k.

If their income is under 80,000 (and I am assuming it is as they can only save 10k per year) they can also apply under the Welcome Home Loan Scheme.

Also why does a single FHB NEED to start with a $500,000 home? (An above average cost home in NZ). There are plenty of cheaper homes than this that are fine for a FHB (indeed MOST homes in NZ are cheaper).

If the LVR limits are removed then maybe house prices will double in 10 years, as you suggest, but keeping them on helps restrict this as all FHB are in the same boat. Buyers can only pay what they can afford.

So yes, the LVR limits are working, and it is currently vendors wishing to sell FHB type property who are bearing the cost - they have found that buyers for their property have largely disappeared at the price they want for it (of course buyers will return eventually).

by Happy123 | 14th May 14, 4:57pm 1400043459

FHB expectations will change, they'll be forced to. NZ is a young country and Auckland a young city, you need to look at older western cities to get an idea of the way Auckland will develop. FHBers in Sydney, London or Paris don't buy a freehold 4 bed house on 1000sqm of land 30 mins from the city. They buy what they can afford which is generally a 1 or 2 bedroom flat or apartment, 30 - 60 mins commute to the CBD. Auckland FHBers need to lower their expectations and accept that their first property is likely to be a flat, apartment, terraced house or townhouse. The sooner they do this the better they will be as many apartments are still very affordable.

by dtcarter | 14th May 14, 6:34pm 1400049240

Or FHB can move out of city of 1.5M people to a small town where they can still afford a freehold 4 bed house on 1000sqm of land 30 mins from the city.

by economist | 14th May 14, 3:41pm 1400038879

No they dont ostrich, the sellers have a predicament if they expect to sell that property in 10 years for 1,000,000.

by Machiavelli | 14th May 14, 3:58pm 1400039921

Correct me if I'm wrong but have house prices not doubled in every ten years more or less for many decades now? I'm not speculating or wishing. I'm just saying.

by economist | 14th May 14, 5:23pm 1400045000

In some cases they have, yes. Some decades of high inflation they did significantly more than double (in nominal terms).

But correct me if I am wrong. Hasn't debt to income and income to house prices accelerated way beyond 'normal limits' on a multi-decade time basis'?

And hasn't this largely been because buyers used to need a 50% deposit on a home (like my parents when they bought their first house) as that's the max a bank used to lend on a house?

And aren't 'interest only' mortgages a relatively new thing in NZ? (Allowing people and investors to borrow/buy much more).

And will not the baby boomers be wanting to sell down their houses (and businesses for that matter) as they want the cash to retire with. Who are they going to sell to? They have to sell to someone who can afford it. Can you see this becoming a problem?

I'm just saying, thats all. You can buy cheap property in Kaikohe but I doubt it will double in 10 years, unless of course there is a rush of people to retire there as they cant afford anywhere else...

by rjf | 14th May 14, 7:43pm 1400053403

Open excel. Tap the average income into one column and the average house price into the next column. Under those columns, use a formula to increase income by 2% and house prices by 12%. Drag those formulas down thirty rows. Tell me what you see. Come back and tell me that current house price inflation is sustainable.

by rjf | 15th May 14, 10:03am 1400105015

My spreadsheet highlights that current house price inflation is unsustainble. It isn't a commentary on housing density.

Unless you're suggesting something bizarre like incomes climbing along with height of our skyscrapers I have no idea what you mean.

by dtcarter | 15th May 14, 11:12am 1400109127

Making capital improvements can give you above average gains. Doesn't make average gains sustainable.

by gordon | 15th May 14, 11:26am 1400109988

Kimy this would have to be one of the stupidest comments I have ever seen on this site. Take your blinkers off and take a deep breath or two. If wages are static how will they afford the rent increases you would need to put in place to justify the capital you have tied up in your rental. Or would you be happy with say a yield of one or two percent if that.

by gordon | 15th May 14, 12:22pm 1400113365

Yes but each time you take it to another level you are either putting in cash or debt or both of the aforementioned and you have to justify that input of capital return wise. Your properties are doubling in value because you have put more capital into them not because you are getting double the rent on your original investment. If your property increases in value and the rents do not increase accordingly you might as well sell them and put the money in the bank.

by gordon | 15th May 14, 9:01pm 1400144518

Kimy I love how you landlords put values on your properties when you have not sold them .You can only say something is worth a certain value when it is sold and the money hits the bank. World wide property has been pumped up on debt and Auckland is up there with the worst culprits. I note the increasing chatter about property in China coming under fiscal strain. If that happens it will affect more than just Auckland. By the way I never have much money in the bank as I have it invested in public and private companies which enabled me to retire in my fifties.

by Henry_Tull | 15th May 14, 11:28am 1400110120

kimy, rounding out the feso, would the new house be say 150sqm, and extra rooms on existing shacks 20sqm each (including ensuite)? What build cost are you thinking of - $2xxx.

by Machiavelli | 15th May 14, 12:41pm 1400114489

Fair points economist. Are increases in debt to income and income to house prices a new thing? What is “normal”? Is yesterday’s normal more relevant than today’s normal?

The BB’s will sell to smart gen X’ers, young people from wealthy families and wealthy immigrants.

Kaikohe is not Auckland. It's a bit like talking about Sydney house prices and pointing at Bourke.

by economist | 15th May 14, 3:16pm 1400123780

I dont have data for NZ on hand, but yes, increases in debt to income are a relatively new thing and not just in NZ. Normal is what you can afford based on your income.

There has been a lot of studies on how do you tell when you have a bubble (bubbles are hard to see when you are in them as reasons can always be given by smart sounding people as to why it is not in fact a bubble and this is the new 'normal'). They have found that the simple test works the best - income/return levels. I don't think NZ has a housing bubble as there is still plenty of cheap housing around the country (out of Auckland you can get a 6-8% return for an average home - which is 'historically normal'. As to Auckland, unlike Kaikohe, it been facing increasing demand and supplies not keeping up, on top of that very low mortgages rates, so price has broken upward, its the only thing that could happen. That's just the cycle. There is a lot of places in NZ where prices are only up 20% or less on 2007, 7 years ago. I can't see those places going up 70-80% in the next 3 years (not with increasing interest rates and LVR restrictions) to double in the 7-10 years.

I believe in the US, median house prices to median incomes remained relatively stable until about 2001 when house prices took off and incomes didn't. Sure it lasted a few years and those years largely silenced the critics. What is true on an individual level is true nationally. A nation can't keep spending more than it earns. The effect is delayed by supressing interest rates to very low levels and therefore pushing the day of reckoning out, but in the end this can't go on forever. In the US eventually the 30 year or so bull run in bonds will end, maybe not this year, maybe not next either, but it will end. That will effect NZ interest rates and NZ house prices.

by economist | 15th May 14, 4:05pm 1400126733

Yep we could bring in a couple of hundred thousand rich migrants... that would be one option... It would also make NZs retirement age of 65 keepable for sure too.

by economist | 15th May 14, 4:14pm 1400127249

... and lets make them all live in PalNth for 5 years before they move to Auckland...

by Simon | 15th May 14, 4:42pm 1400128956

Tell ya what they'd love it so much they'd never leave..(that's actually another one of winnies policies)

by economist | 15th May 14, 5:33pm 1400131980

I always thought PN could do with another couple of hundred thousand people...

by Simon | 15th May 14, 5:51pm 1400133096

Couldn't agree more

by steven | 14th May 14, 3:55pm 1400039720

The cost when you look past the emotionl and illogical present wave of FHBs is negligable. Any cost if lost gambling profit by the speculators, no loss in my book.

a) The LVR in place means house prices are not likely to double, especially outside Auckland, and in fact could well now decline in real terms. If not well the LVR should be tightened more. A house is for living in not speculating on.

b) You ignore that house prices are x2 or more. So you are saying they will get to x4 in real terms, I mean a 12 to 1 ratio? when no where has gone past 9 to 1 ? and teh norm is 3 to 1?

The more the gamblers squeal the more it looks like a good idea IMHO.

regards

by dtcarter | 14th May 14, 6:38pm 1400049520

Not that it's something to aspire to, but HK is almost 15:1. Land is a little less scare here.

Hong Kong's average home price rose to 14.9 times gross annual median household income from 13.5 times in 2013, the highest ever level recorded by the survey in its ten-year history.

by Simon | 14th May 14, 2:37pm 1400035041

Or they could buy in palmerston north with what they can afford right now, neutrally geared (rent covering all expenses including rates and insurance), and use increased equity to buy 600-700k house in auckland in 2-3 years time.

Auckland house prices would need to grow at 5 times the rate of p.n prices for this to not work.

I am of the opinion we are around 2003-2004 of last cycle, where auckland prices started to level off and places like p.n saw 20% yoy gains as ripple effect went into full swing.

by Mark | 15th May 14, 10:20am 1400106054

I live in PN, and the last thing we need are a bunch of speculators pulling stunts like this. Sod off!!!

by Simon | 15th May 14, 3:55pm 1400126147

see ya at the open homes...

by Simon | 14th May 14, 2:36pm 1400034988

Put 45k on a 225k rental in p.n; At 8% p.a cap growth over 3 years = 284k worth = 59k tax free equity to add to original 45k; neutral gearing (actually likely to be positively geared with 45k deposit, so +10k after 3 years) so can still save 10k a year = 143k in 3 years time = 715k property in auckland.

If auckland prices level off (due to hitting affordability limits as in last cycle), then take 3% cap growth over these 3 years, so the 500k property you had your eye on is now 546k, can buy this and keep p.n rental as a cash cow.

by bob | 14th May 14, 3:07pm 1400036825

How do you get 8% in Palmy? According to Reinz Manawatu/Whanganui gone from $227,500 to $229,355 over the last year. That's more like 0.8%. You'd need 15-20K rent to break even each year (with $180k loan interest, insurance, rates, repairs etc. - that's like $350 a week rent (whereas on Trademe a $230K houses appear to give under $300wk rent)?.

by Simon | 14th May 14, 3:31pm 1400038289

You said yourself looking at past stats is of little help if i recall?

So you would wait until the prices in palmy rise by 30% then decide to buy, happy to pay a higher price?

I'm taking a punt. Speculating. But because of the yields in palmy and the low prices (and a personal understanding of the town, level of listings, importance of hospital, uni, airforce and army bases to central lower north island, steady population growth, farmers wealth, foodHQ, Ag research, and district plan rules placing a high level of importance on high quality land (farming) when deciding to re-zone for residential use) I don't see much downside.

by bob | 14th May 14, 3:41pm 1400038888

Fair enough - Palmy seems much the same to me as it did 25 years ago so nothing makes me think prices increases would suddenly go from 0.8% to 8% pa.

by Simon | 14th May 14, 3:53pm 1400039613

Secondary cities prices tend to respond to price movements in the main cities.

3 years ago, 400k auck house : 200k palmy house.

Today 650k auck house : 200k palmy house.

Call it catch up or ripple effect. Its happening in secondary cities in england in response to london price rises. Massive increases in equity of property investors in the main centers more often than not find there way outside of the main centers and into higher yielding cities. I've only chosen palmy as an example, do your own research and let me know if you find a better bet.

Wasn't a lot that changed in palmy between 2004-2007 either, yet 20% yoy price gains were had in response to auckland price gains from 2002 onward. You may find 8% to turn out to be too conservative.

by steven | 14th May 14, 3:59pm 1400039947

So you are gambling....yetteh LVR seems to have knee capped the silly rises. Also Palmy isnt even Hamilton (shudder) oh wait..yes its as awful....

regards

by Simon | 14th May 14, 7:27pm 1400052443

What a rational and logical argument.....

by steven | 14th May 14, 7:34pm 1400052846

What is rational about the fact you are gambling? that you know you are gambling?

regards

by Simon | 14th May 14, 8:27pm 1400056050

Because Palmy 'isnt even hamilton' ... Just as awful..

That's your reason for not buying a property in p.n that returns net of expenses 7%+ with any cap gains being a bonus?

You think a house on 800 sqm for 220k earning 350 a week rent in pn is over valued?

Dispite not being to build a house in nz for 220k?

Auckland property over 600k. What happens when winnie buys up all the fringe land and lets developers lose pumping out new houses for 350k on 200k winnie produced sections. Good luck selling your 600k 1970s shack when that happens.

by steven | 15th May 14, 7:08am 1400094499

7% is fair enough...in a BAU scenario.

However only the "good" areas of Auckland are doing exceptionally well...is Hamilton? I'd suggest both H and PN actually are in similar situations...

The price of a house doesnt matter unless there are the jobs/expansion...same argument would be to buy in Invercargill, would you?

"$600k" 1970s shack, Oh yes I agree, I think housing is 50% over-valued, maybe even 75%. ppl with 80~90% mortgages are of course going to be crippled.

regards

by Simon | 15th May 14, 7:23am 1400095400

450 listings and a pop of only 50k invacargil doesn't tick the right boxes for me. Palmy has 300 listings and pop of 80k. On that basis has less listings per capita than auck region. P.n pop is increasing faster than invacargil also. I've done this basic test on a number of cities and pn is my pick.

by gordon | 15th May 14, 7:51am 1400097100

Some people would say PN is the windiest dreariest hole in NZ . Don't put all your eggs in one basket like the landlords suffering in Christchurch Simon.

by Simon | 15th May 14, 8:06am 1400098008

Prefer working off numbers and facts rather than emotion.

As a worse case ; On my next deal in pn I clear $5k net profit a year (of which 3k can be exempt from tax due to allowance to claim travel costs for inspections at a rate much higher than real cost to me, 0.77c/km for max 5000km), and have fixed long to make sure this positive cash flow continues and improves as i pay down mortgage.

Effectively the tenants over time will pay for the entire house for me (less starting deposit). Population increases are far more important to me than an aucklanders hearsay opinion on how much wind the city gets... If you want to make money its often the less glamorous, more boring ventures that can get brought well and get good returns over time.

"You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right—and that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else" - buffet.

by Simon | 15th May 14, 9:28am 1400102882

So p.n house prices have had a long period of consolidation since 2007. Infact you can still buy at close to a 2006 price (so cf with wage growth pn property is now significantly cheaper and more affordable than in 2006).
Since 2006 (to 2013 census) population has increased 6%, or by 4530 people. No 'affordable' housing has even be privately built in p.n (its already affordable, cant build a versatile garage with sleepout for cheaper..), and new builds start from high 390k+.
So if these 4530 people want to buy a starter house they compete for a fixed and limited number of existing houses under 300k (if they want to benefit from FHB schemes, welcome home loans).

Invacargil has seen a reduction in population of 328 people since 2006. Completely differently story.

Also look at the options for renters in p.n A dozen or so 4 bedroom houses in the whole city. I had 13 people all with good reference apply for my last 3 bed I rented out in p.n. It will never get auckland type headlines for 'housing shortage' but anyone who looks closer can see the same things brewing here too.

by gordon | 15th May 14, 11:22am 1400109758

You are very confident Simon when everyone other than you can see PN is a town that is slowly decaying as businesses shut down. Someone I used to be in partnership with built up a portfolio of commercial rentals in PN and it has not been a brillian move. Some of them have been empty for some time as businesses shut down or go to more vibrant cities John Cleese was right. PN does not have much going for it just like Hamilton.

by Simon | 15th May 14, 12:02pm 1400112150

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful . . . Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So, if you wait for the robins, spring will be over"

by gordon | 15th May 14, 12:13pm 1400112802

Couldn't agree with you more Simon. I am making good money out of regular trades in Xero than I have out of trading for some time. I am not intending to hold them long term though as I am not sure about their long term future. Need to see some bigger numbers income wise.

I just never hear anyone saying I cannot wait to shift to PN. I have been a regular visitor of it over the years and I can understand why.

by gordon | 15th May 14, 9:39am 1400103588

Don't live in Auckalnd. Live in a coastal provincial capital which has a lot more going for it than PN and it is growing quicker than PN. Do you have any other investments other than residential tenancies or do you have the eggs in one basket?

by Simon | 15th May 14, 9:53am 1400104405

Yes. See link below. Made over 130% return in last 18 months on this stock alone. And mentioned it on here 3 months ago before the takeover by Igas was announced (so you could have made 40% in 3 months if you followed my tip.)

I don't back many horses, but when I do they normally go alright..

http://www.interest.co.nz/property/68396/qv-says-annual-house-price-growth-slowed-96-past-month-average-price-4675k-auckland-p#comment-775897)

by gordon | 15th May 14, 11:17am 1400109459

A share like that I think I can safely say you had bugger all invested in it so you made 140% on peanuts. Yawn. I bet you have a heavy weighting in favour of boring old houses because they are safe. Like watching dry Simon.

by Simon | 15th May 14, 12:00pm 1400112033

Awesome use of facts and data, getting use to this on this site..

Do I need to post it again?

Post on here somewhere to place 45k today (few weeks granted for timing and placement) that you think (with your superior investment knowledge) will perfrom well over next few years. We will check back in May of each year and compare NUMBERs, (not worthless opinions and comedians quotes).

If you cant do this then that only shows how you are infact the one that's full of it, only able to point at things in highsight with no understanding of trends or money in general.

by economist | 15th May 14, 3:28pm 1400124498

You mean melting ice 'cap' kimy.

The Artic is one giant ice berg. If you melt an ice burg the sea level doesn't go up, it stays the same. [Ice is less dense than water which is why it floats]. Still I think home current owners would have sold, retired and died well before rising sea levels became an issue for NZ coastal towns.

by Simon | 14th May 14, 3:43pm 1400039032

180k loan at 6% = 10800 + 2850 rates and insurance = 13650 = 262/week.

A 225k property will get 320 a week = $58 per week positive cash flow.

You live in auck? Inspect that property 4x a year = 4216km tax deductable travel at 77c a km = $3246 tax deductable (for $630 spent on petrol @ 14km/L, assuming a 1800cc or lower petrol powered car in average condition). No tax to be paid.

maintance can be deferred; from personal experience over last 2 years its cost me $60 (that sixty) a year per property while I choose to use cash flow to buy more property. Just dont buy a house that needs re-roofing or painting in the next 3 years and you'll be fine.

by bob | 14th May 14, 3:48pm 1400039309

I guess I spent too much time in Palmy student flats during the 90's.

I can understand why our Grey Lynn/Kingsland 90's student hovels have become million dollar plus pads, but can't see it happening to Palmy ones.

by Simon | 15th May 14, 10:41am 1400107268

I'm not assuming im using actual experience and average senarios, which are less attractive to my own. E.g for me personally Ive had 5.25% mortage (not 6% used in rough calc above) for last 2 years on half mortage, 5.95% fixed for 5 years on other half. No 'mortgage costs' other than interest; to the contrary, the banks have given me over $2k in cash or cash equivalent during this period to take up various fixed specials along the way.

Letting cost: $50 trademe. Tax deductable.

Legal: one off $1k, can tax deductable, more likely paid by bank, so zero cost here too.

Vacancy periods? I've had zero over past 2 years. With 13 good tenents to choose from I choose the one with the best independent reference from a past property manager.

Prop manager fees: Zero, I manage it myself, and due to the step above, have had no issues at all.

45k at 4% bank return before tax doesnt excite me much ($1260 a year).... I didn't include this but this can be used as the alternative/opportunity cost to compare cash returns from rental with. My returns of 3.5k (of which most is tax free after travel expenses taken off, I won't get into depreciation of chattles but a lot options there to) from 45k dep gives 7.8% net return on equity. Banks dep rates would need to be 11.64% before tax to match this return (assuming you are on top tax rate of 33%).

And a 'cost free' option to gain from price appreciation that will happen over next 5 years.

I've been posting on here since 2006. So more than happy to come back to this post if a few years time. Please let me know your 'better use' of 45k cash today, and we can compare them in a few years time too.

by Simon | 15th May 14, 12:25pm 1400113548

No. I own the entire asset. I also owe the bank money that is secured against the property.

If the property goes up in value I do not need to sell to 'realise' the increased equity as banks realise it when they take an updated RV of the higher value. This equity is as good equity held in any other forms.

by Simon | 15th May 14, 2:32pm 1400121162

I am on the title along with my banks interest as security... If council had a drain running through back section they would also be on title.. Big deal. I own and control the asset and get 100% of both rental returns and cap gains.

by Simon | 15th May 14, 12:34pm 1400114076

petrol $600 for $3500 'expense' to be claimed (mentioned in another post).

How come you didnt pull me up on neglecting to mention depreciation of chattles? Easy $1-2k p.a 'expenses' claimed their.

You didnt pull me up on neglecting the capital apreciation Ive had (through RV) on the property? 10k after 1st 6 months of owning; best guess would be another 10k since, no incentive to re-value as already have more than enough equity for next deal. 25% return on deposit right there in 1st 6 months. Plus equ. to 11% return on equity on going. Please show me better places for me to put my money? Or do you specialise in sitting there pointing out flaws in everone else while too -ussy to show your hand?

What is house prices fall?

Govt. fhb grants put a backstop on low priced property.

by Simon | 14th May 14, 4:01pm 1400040082

I dont see that either. I see a 200k property becoming a 300k property (note 300k is also the limit for welcome home loans and first home buyer grants, so even after 50% gain still very affordable).

And I see that as much more likely than a 50% further gain anywhere in auckland

by Simon | 14th May 14, 4:32pm 1400041920

Nice. I did a very similar thing to a 50 sq m apartment in central welly, converted to 2 bed, extra 100 a week in rent, reno paid for within a year. Yet to re-value, hopefully similar gains to yours. Around 14% return p.a on equity based on current rent; apartments are good like that. Just lack the land which tends to be the main thing that appreciates over time.

I'm using averages for my figures above for palmy. My current deal in p.n involves a 3 bed 2 living that Im making 4 bed. 225k, rent for 360-380 as a 4 bed (as opposed to 320 as 3 bed). On 800 sq m of land. In palmy 350 sqm is required per dwelling, so there is potential future options there too (happy to wait until the RMA and council development contributions/ripoffs get sorted before I do anything with it).

by bob | 15th May 14, 12:07pm 1400112471

I suspect wealth tends to clump geographically with distribution increasingly distorted. So ripple effect mightn't go far (UK with 60m people has more to riple through).

So I'd bet a $1.5m Grey Lynn villa (where income/cost is not relevant to purchasers worth more than that) will be worth $2.25m a long time before 6 $250K Palmy houses (which are price sensitive) are each worth $375K. Who knows.

by Simon | 15th May 14, 12:22pm 1400113328

So pn property doesnt increase in value? 280k has been the price for property in pn for the last several decades?

Rediculous. Infact in 2002 was closer to 140k median. How did it double to 280k? Did it take massive development and growth of the city? Or was it simply a re-rating of values in light of increased property prices in auckland.

by gordon | 15th May 14, 12:31pm 1400113894

One off storm Simon. In 2002 assets were cheap and interest costs were low. People were fearful of their futures and saw the need to invest. Boomers were in a position to take advantage of this scenario and they did like pigs in a trough. They went for it and world wide prices went up. Stopped in 2007/2008 and places like PN have hardly kept up with inflation since then. We will never see increases like it again in our lifetimes especially in places like PN where the population is increasing at a very slow rate and for good reason. It is hard to get a good job there. Auckland is going better but you still need to strip out inflation which many conveniently forget to talk about and many of the houses have had a lot of money spent on them to bring them up to date. There are always anomolies where someone flukes a great trade.

by Simon | 15th May 14, 12:52pm 1400115140

Ok. So pn real estate has 2 values now? A pre 2002 'storm' value and post value? It will only ever have this one time only value re-rating?

So before 2002 has only ever been worth 140k?

Not $20k as in my properties value in early 80s?

And unless it becomes a tourist attraction it will never see house price rises? Its too 'boring and windy' for people to ever place value on owning a stand a lone home on 700 sqm section?

Will check back in 3 years time (may 2017). I was hoping someone would say buy USD or USD assets/stocks/property, and then if a major correction occurs and NZD falls, bring up the trend and boost of the 50% plus gains they got. No way of telling exactly when though. And yes, I have some $ hedged for this inevidible event.

by gordon | 15th May 14, 1:06pm 1400115979

Yes we should be all buying US dollars but in that game you are playing with the big boys who can turn the market on one trade. The cold hard reality for a lot of NZ is that good jobs will get increasingly harder to get and so people will move to Auckland ( and Christchurch for now) to get them. I live in a vibrant coastal provincial centre and even here good paying jobs are hard to get unless you are qualified. Australia will recover and people will look to it again for better wages. PN is like a lot of provincial cities. It has relied on farming for survival and now that farms are getting bigger and bigger there are less people involved in farm ownership so there is an inevitable downturn. Have we really recovered from the great recession? Go ask a retailer and he or she will tell you no.

by dtcarter | 15th May 14, 1:08pm 1400116109

I got $20 bucks left over from a holiday in Lebanon. Can't wait for the NZD to drop and my hedge to bear fruit.

by Simon | 15th May 14, 12:53pm 1400115195

by bob | 15th May 14, 1:13pm 1400116380

No I didn't say it doesn't increase in value - just that I personally don't see it as having potential to increase in value as fast as central Auckland. It's no doubt ok for cashflow - Duneduin must be even better?

by Rob | 14th May 14, 4:11pm 1400040676

The good thing about the LVR, is it encourages people to save for a dbigger deposit, which is a good thing, as it means over time they will be paying less in interest back to the bank, so the banks will be earning less, which is a good thing. It only really delays people buying, so there maybe a drop now, but if they stayed in place, some time in the future, those buyers will be back with as they would have saved with the bigger deposit.

by DFTBA | 15th May 14, 12:38pm 1400114284

The last time I saw a nation this obsessed with real estate, was in Ireland in 2008.

The economy will take a downturn, at some stage, and people will start leaving again.

It's inevitable when you consider where we are, and the added cost of keeping an economy going when we're so ar away from everything.

by Simon | 15th May 14, 3:51pm 1400125872

When things look like a one way bet and everyone is in agreement that when you know we'll be in trouble.

Does it sound like anyone is in agreement here?

Still a lot of 'bears' sitting on the sidelines with there hands tight around their piggy bank waiting for the world to fall apart' who over time become bored of such predictions as they fail to materialise. They then enter the market adding further steam until a point where everyone is a bull. Then, with no one else to sell to, and only then, will the market fall apart again. Best guess for me, 2018. Slowly accululate safe haven currencies during times of high NZD along the way and you'll have something in the kitty to buy the bargins that will present.

by economist | 15th May 14, 5:31pm 1400131876

Hopefully you aren't buying too many of those USD Simon....

http://www.counterpunch.org/2014/05/13/the-federal-reserve-and-an-unsus…

by Simon | 15th May 14, 5:55pm 1400133317

Dollar cost average over the next few years starting now and you'll be sitting pretty during next crisis when nzd-usd falls back to under 50c.

by Mark | 19th May 14, 9:38am 1400449110

I'll bring the spraypaint