Real estate, post level 4

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#2680847 26-Mar-2021 07:13

mattwnz:

The problem at the moment is there is a lack of good rentals, and rents increased 10% in just a year. Therefore there is more demand than supply, and renters could get screwed by this change. So that is why I wonder if the government won't bring in some form of rent control. But guessing they are doing a 'wait and see' approach, so they have some evidence.

Are you sure? If houses rise 20% in a year, you would expect rents to rise also

Handle9

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#2680876 26-Mar-2021 08:30

mattwnz:

I have heard that a lot of peoples reasons for buying up lots of houses, is that they want to make sure their children are also set up well. But IMO this is a bit of an odd one, because don't they want their children to make their own way in the world? Or are they thinking that they could sell it to pay for university fees etc. It isn't something that was ever thought about I don't think, when I was a child.

What does wanting your kids to make their own way have to do with maximising return? Investment is about return and risk.

alasta

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#2680879 26-Mar-2021 08:37

tdgeek:

mattwnz:

The problem at the moment is there is a lack of good rentals, and rents increased 10% in just a year. Therefore there is more demand than supply, and renters could get screwed by this change. So that is why I wonder if the government won't bring in some form of rent control. But guessing they are doing a 'wait and see' approach, so they have some evidence.

Are you sure? If houses rise 20% in a year, you would expect rents to rise also

Not necessarily. In a rational market house prices should be determined based on:

Rental yields.
Cost of capital (i.e. interest rates and forgone returns on equity).
Operating costs (i.e. rates, insurance, maintenance).

In recent years house prices have increased disproportionately to rents due to reduced cost of capital.

tdgeek

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#2680888 26-Mar-2021 08:55

alasta:

Not necessarily. In a rational market house prices should be determined based on:

Rental yields.
Cost of capital (i.e. interest rates and forgone returns on equity).
Operating costs (i.e. rates, insurance, maintenance).
In recent years house prices have increased disproportionately to rents due to reduced cost of capital.

Yes, if you base that off just the purchase cost. But there is an opportunity cost of the additional value of the house. You would therefore be accepting a zero yield. Or you could sell the house, pocket the gain and invest it

GV27

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#2680891 26-Mar-2021 09:02

Rents are already bloated in this country due to the price floor affect of accommodation supplements at the lower end as well.

alasta

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#2680942 26-Mar-2021 10:40

tdgeek:

alasta:

Not necessarily. In a rational market house prices should be determined based on:

Rental yields.
Cost of capital (i.e. interest rates and forgone returns on equity).
Operating costs (i.e. rates, insurance, maintenance).
In recent years house prices have increased disproportionately to rents due to reduced cost of capital.

Yes, if you base that off just the purchase cost. But there is an opportunity cost of the additional value of the house. You would therefore be accepting a zero yield. Or you could sell the house, pocket the gain and invest it

This is what I was referring to as "foregone returns on equity" in my post above.

When calculating the ROI on residential property you should calculate the cost of capital based on the interest on your mortgage, plus the returns that you would otherwise get if you invested your equity elsewhere. This should be based on the current market value of the property, not its original purchase price.

martyyn

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#2682671 29-Mar-2021 17:02

martyyn:

$135k in four months could be some nice coin.

It's not slowing down around here.

2 bed, 130m2 (inc single garage), small garden, RV $275k.

Sold in June 2020 for $390k and then given the standard grey carpets, grey curtains, white walls, Bunnings kitchen but ignored the bathroom. It sold last month for $621k.

$230k in 7 months.

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mattwnz

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#2682679 29-Mar-2021 17:35

Handle9:
mattwnz:

I have heard that a lot of peoples reasons for buying up lots of houses, is that they want to make sure their children are also set up well. But IMO this is a bit of an odd one, because don't they want their children to make their own way in the world? Or are they thinking that they could sell it to pay for university fees etc. It isn't something that was ever thought about I don't think, when I was a child.

What does wanting your kids to make their own way have to do with maximising return? Investment is about return and risk.

I was meaning that it sounds like they are buying their childrens houses now, rather than it being the parents own investment. So their children don't pay possibly even more crazy inflated prices in the future, they are locking in todays house prices. When many parents also would want their children to make their own way in the world. Buying now also takes away supply from current first home buyers, and many are ending up having to rent these same houses. But the current situation with first home buyers almost relies on children getting a large part of the deposit for their first home from their parents.

Handle9

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#2682686 29-Mar-2021 17:52

mattwnz:

I was meaning that it sounds like they are buying their childrens houses now, rather than it being the parents own investment. So their children don't pay possibly even more crazy inflated prices in the future, they are locking in todays house prices. When many parents also would want their children to make their own way in the world. Buying now also takes away supply from current first home buyers, and many are ending up having to rent these same houses. But the current situation with first home buyers almost relies on children getting a large part of the deposit for their first home from their parents.

Who cares about someone's motivation for investing? It's totally irrelevant and only the business for the investor. Are we only allowed to make money for worthy reasons?

mattwnz

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#2682701 29-Mar-2021 18:36

Handle9:

mattwnz:

I was meaning that it sounds like they are buying their childrens houses now, rather than it being the parents own investment. So their children don't pay possibly even more crazy inflated prices in the future, they are locking in todays house prices. When many parents also would want their children to make their own way in the world. Buying now also takes away supply from current first home buyers, and many are ending up having to rent these same houses. But the current situation with first home buyers almost relies on children getting a large part of the deposit for their first home from their parents.

Who cares about someone's motivation for investing? It's totally irrelevant and only the business for the investor. Are we only allowed to make money for worthy reasons?

Why do people think that property is a guaranteed and safe investment which that is guaranteed to never lose value, and will gain at least 4-5% a year minimum, or 20% on a very good year + rent so will always make money?. This seems to be part of the problem cuasing FOMO and people piling into buying rentals

Isn't the taxpayer also an interested party, as isn't the taxpayer essentially subsidizing some peoples rent with the interest deductions that investors could get? This is why many landlords are now saying that they are going to have to put up rents.

I was listening to a NZ finance podcast this week, and the person they were interviewing said that NZers see it is as a right to be able to profit off property, in a similar way to the right of US citizens to bear arms, despite the harm that maybe caused. They went on to say that NZ homes are killing people due to the poor standard of some of them and lack of investment to get them up to a healthy standard

I think we could be heading towards professional companies owning residential rentals long term, as required standards increase. That could be where the building warrant of fitness comes in. They already seem to want landlords to own new warm homes that are built to the current standards, based on the change to the interest deduction law. So suspect things may only get harder for landlords. I was warned about investing in one by a family member because they say it is a moving target.

Handle9

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#2682702 29-Mar-2021 18:38

mattwnz:

Handle9:

Who cares about someone's motivation for investing? It's totally irrelevant and only the business for the investor. Are we only allowed to make money for worthy reasons?

Why do people think that property is a guaranteed and safe investment which that is guaranteed to never lose value, and will gain at least 4-5% a year minimum, or 20% on a very good year + rent so will always make money?. This seems to be part of the problem cuasing FOMO and people piling into buying rentals

Isn't the taxpayer also an interested party, as isn't the taxpayer essentially subsidizing some peoples rent with the interest deductions that investors could get? This is why many landlords are now saying that they are going to have to put up rents.

I was listening to a NZ finance podcast this week, and the person they were interviewing said that NZers see it is as a right to be able to profit off property, in a similar way to the right of US citizens to bear arms, despite the harm that maybe caused. They went on to say that NZ homes are killing people due to the poor standard of some of them and lack of investment to get them up to a healthy standard

I think we could be heading towards professional companies owning residential rentals long term, as required standards increase. That could be where the building warrant of fitness comes in. They already seem to want landlords to own new warm homes that are built to the current standards, based on the change to the interest deduction law. So suspect things may only get harder for landlords. I was warned about investing in one by a family member because they say it is a moving target.

What does any of that have to do with my post?

mattwnz

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#2682710 29-Mar-2021 18:59

tdgeek:

alasta:

Not necessarily. In a rational market house prices should be determined based on:

Rental yields.
Cost of capital (i.e. interest rates and forgone returns on equity).
Operating costs (i.e. rates, insurance, maintenance).
In recent years house prices have increased disproportionately to rents due to reduced cost of capital.

Yes, if you base that off just the purchase cost. But there is an opportunity cost of the additional value of the house. You would therefore be accepting a zero yield. Or you could sell the house, pocket the gain and invest it

If the motivation to buy is capital gain rather than income from rent, then is that an investment or speculation?

Handle9

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#2682714 29-Mar-2021 19:00

mattwnz:

tdgeek:

Yes, if you base that off just the purchase cost. But there is an opportunity cost of the additional value of the house. You would therefore be accepting a zero yield. Or you could sell the house, pocket the gain and invest it

If the motivation to buy is capital gain rather than income from rent, then is that an investment or speculation?

It could be either.

dafman

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#2682725 29-Mar-2021 19:35

Handle9:

“It could be either.”

Yes, it could be, but for most, motivation is a misplaced belief in “investment”.

Speculation introduces the possibility of loss, something which most New Zealanders buying property don’t understand, or even think possible.

mrdrifter

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#2682730 29-Mar-2021 19:52

The part that keep bugging me, people describing the tax deductibility as a loophole - People saying 'oh great they closed the loophole' have just bought into the PR spin and I'm sure the government thanks you. If you are a landlord renting a house for compensation, it's a business, any other business can claim a tax deduction against interest on business borrowing as well, it's not actually taking anything from the taxpayer as that is how the law was written and a business can claim the deductions. Businesses borrow for all sorts of reasons. This is the government saying not all businesses are equal.

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