Real estate, post level 4

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#2679577 24-Mar-2021 07:15

eracode:
Of course our tax system is not consistent but the fact that there are existing anomalies that have arisen over time doesn’t legitimise the introduction of a new major distortion like this one.

Of course this introduces a distortion. It's designed to do so.

There is nothing inherently virtuous about an undistorted tax system - it's all social engineering to some degree.

GV27

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#2679578 24-Mar-2021 07:18

eracode:

Of course our tax system is not consistent but the fact that there are existing anomalies that have arisen over time doesn’t legitimise the introduction of a new major distortion like this one.

The fact that you can operate an 'investment' at a loss for years for the sake of a tax-free capital gain and then claim that the capital gain didn't form part of your intent when purchasing is massively distortionary - on our tax system, on our social fabric, etc.

Sorry, but investors have had it far too good for far too long. All that's happening is some of those advantages are being pulled back, all be decades too late.

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#2679580 24-Mar-2021 07:24

quickymart:

Not 100% sure how today's announcement will help me, but I suppose it's better than doing nothing.

Doing nothing could well work out a better solution than the announcements yesterday. Only time will tell, but there is certainly a lot of risk in doing what the Govt have announced, and this could well be like throwing a huge can of petrol on the fire and it achieving the exact opposite of what was intended.

The tax changes were opposed by the IRD because they fundamentally go against the principles of how tax is paid in any business (and property is a business at the end of the day), and pretty much everybody has acknowledged it will result in higher rent prices.

The changes have also sent a signal that lower interest rates are here to stay in the medium to longer term, which in turn could further drive the market for gains at a time where the returns from money sitting in the bank are actually negative after accounting for inflation.

I would not be surprised to see housing prices still escalate, and that by the end of the year we're looking at prices another ~20% or so higher than they are now. I don't know what the Govt will then do..

Around parts of Lower Hutt the 2008-2018 10 year period saw prices increase by around 30% in total over that 10 year period. Since 2018 house prices have gone up by 100% (houses that were $350k in 2018 are now $700k - $750k), another 20% on top of that is going to mean an entry level ex state house which has been a typical first home for many people selling for ~$850k

The simple reality is no Govt whether they be National or Labour who placed in this very same position actually want prices to fall. Our economy is being driven right now by people spending because they're feeling wealthy because their homes have gone up. A re-correction of any significant extent is the sort of thing that results in losing elections.

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#2679583 24-Mar-2021 07:44

dafman:

We are in the ultimate catch 22 as a country.

If prices fall, a significant proportion of mortgage holders will end up in a situation of negative equity.
If prices don’t fall, the majority of people who don’t own a home never will. That’s never.
There is no easy win, ultimately one of the two groups above will feel aggrieved.

The reality is that we are the most indebted nation in the world when it comes to housing. If our appetite for housing debt outstrips every other developed nation, then something must be out of balance. I emphasise with investors, but something had to be done. Today’s changes were not only needed, they were long overdue IMHO.

Yes. Its a simple matter of trying to move investors out of playing with housing, they can invest in other ventures.

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#2679586 24-Mar-2021 07:53

tdgeek:

Yes. Its a simple matter of trying to move investors out of playing with housing, they can invest in other ventures.

You mean into sharemarkets which are so overcooked that a collapse isn't a case of if, but when?

What else should people invest into that will deliver a return and is moderately risk free?

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#2679590 24-Mar-2021 07:59

sbiddle:
tdgeek:

Yes. Its a simple matter of trying to move investors out of playing with housing, they can invest in other ventures.

You mean into sharemarkets which are so overcooked that a collapse isn't a case of if, but when?

What else should people invest into that will deliver a return and is moderately risk free?

There is no such thing as a risk free investment. Saying that almost any diversified portfolio will do well over a 5-10 horizon. If you don't bother to diversify or if you want to make big returns in the short term you may as well just go to the casino.

GV27

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#2679591 24-Mar-2021 08:08

sbiddle:

You mean into sharemarkets which are so overcooked that a collapse isn't a case of if, but when?

What else should people invest into that will deliver a return and is moderately risk free?

It has literally never been easier to invest in all sorts of products across the globe - indexed funds, crytpo, shares in almost any jurisdiction, as well as having the option of topping up your own Kiwisaver, which you can do through your own online banking app.

You don't have a god-given right to accumulate as many houses as possible and expect the government to completely de-risk your investment, while at the same time it also has to cover the social costs of ever-increasing rents and property prices.

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tdgeek

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#2679592 24-Mar-2021 08:12

And you can look at growth companies on the sharemarket for long term investment, light commercial property, commercial property, a silent share in a business, as well as what GV outlined.

GV27

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#2679596 24-Mar-2021 08:16

Frankly, if prices do unwind because of these or future RBNZ interventions, the ones who should be left carrying the can are investors.

I'd be happy for owner-occupiers to be given the opportunity to refinance using subsidised interest rates. Recent FHBs aren't the ones who drove the market into a frenzy looking for 'risk-free' capital gains.

If it means getting house prices back to 4x median incomes then it will be the best money this country ever spends.

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#2679601 24-Mar-2021 08:23

GV27:

Frankly, if prices do unwind because of these or future RBNZ interventions, the ones who should be left carrying the can are investors.

I'd be happy for owner-occupiers to be given the opportunity to refinance using subsidised interest rates. Recent FHBs aren't the ones who drove the market into a frenzy looking for 'risk-free' capital gains.

If it means getting house prices back to 4x median incomes then it will be the best money this country ever spends.

Unless an investor is incredibly highly leveraged they're not at a high risk of failure.. It's home owners who are now faced with mortgages that are far higher than the value of their properties that will really suffer. That's why no Govt wants to ever see prices fall.

GV27

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#2679604 24-Mar-2021 08:31

sbiddle:

Unless an investor is incredibly highly leveraged they're not at a high risk of failure.. It's home owners who are now faced with mortgages that are far higher than the value of their properties that will really suffer. That's why no Govt wants to ever see prices fall.

Without getting into the political side of it, that's why an engineered soft-landing for owner occupiers (you still need people to spend money in the economy and keep things moving) is better for all concerned.

As for leveraged investors, something like 40% of all investor lending is interest-only. RBNZ is still apparently making its mind up on whether this is a bad thing or not.

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#2679605 24-Mar-2021 08:34

Yes, and the intention is not to have rising house prices, just stable house prices that rise slower. AFAIK there was no intention to crash house prices, but one day if there are enough developements, the mismatch of supply and demand would equalise. If prices were flat for 10 years thats probably the most realistic option to hope for

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#2679606 24-Mar-2021 08:39

Handle9:

dafman:

New Zealand is the most-leveraged country in the developed world for housing debt

Do you have a citation for this?

Not that I can share. It was a slide from a economist's presentation at a conference last week. They said it specifically related to mortgage debt, not total household debt (which adds in credit cards, personal loans etc).

So I am taking their claim at face value as correct.

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#2679617 24-Mar-2021 09:21

GV27:

sbiddle:

Unless an investor is incredibly highly leveraged they're not at a high risk of failure.. It's home owners who are now faced with mortgages that are far higher than the value of their properties that will really suffer. That's why no Govt wants to ever see prices fall.

Without getting into the political side of it, that's why an engineered soft-landing for owner occupiers (you still need people to spend money in the economy and keep things moving) is better for all concerned.

As for leveraged investors, something like 40% of all investor lending is interest-only. RBNZ is still apparently making its mind up on whether this is a bad thing or not.

A soft landing isn't going to put an end to incredibly overpriced houses. The horse has bolted after 3 years of insane increases, and that can't be fixed.

The reality is the ~$700k - $750k ex state homes in Lower Hutt that were only $350k 3 years ago are simply not worth that sort of money. They're not going to drop in price, nor are they going to drop in comparison to other properties.

These should be affordable entry level homes, and up until 2018 they were. Even a drop down to $500k would still make them unaffordable for many, and a drop even to that value is simply highly unlikely to happen without taking out economy with it.

GV27

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#2679928 24-Mar-2021 18:37

sbiddle:

A soft landing isn't going to put an end to incredibly overpriced houses. The horse has bolted after 3 years of insane increases, and that can't be fixed.

The reality is the ~$700k - $750k ex state homes in Lower Hutt that were only $350k 3 years ago are simply not worth that sort of money. They're not going to drop in price, nor are they going to drop in comparison to other properties.

These should be affordable entry level homes, and up until 2018 they were. Even a drop down to $500k would still make them unaffordable for many, and a drop even to that value is simply highly unlikely to happen without taking out economy with it.

We are a small leaf in a very big stream. If global sentiment changes, we could find our market is going backwards whether we want it to or not. Either we do it on our terms or something will do it for us.

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