How I propose to fix the property market.

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#1599335 27-Jul-2016 06:59

Whilst its all difficult, I do think that there should be an extra tax on any profits which go overseas made by any company/trust/land/person whatever operating in NZ.

The danger is that NZ returns to becoming an economic colony... a cow to be milked as fast as possible, fed the minimum, and with no care for the future. Keep Kiwis poor whilst the profits are extracted to the overseas landlords.

surfisup1000

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#1599411 27-Jul-2016 10:49

dejadeadnz:

mattwnz:

I know a builder who got trips to the rugby after selling a certain amount of product. There was a story on TV about these perks, and the NZ building industry and why prices were so high. I don't think these kickbacks were ever disclosed to the person who was building and paying for the house to be built. It really needs to be looked at. In other industries kickbacks have to be disclosed.

To clarify on this point. In ANY industry where an agent (agent/agency here is used in a legal sense) accepts undisclosed (to the principal who hires the agent -- in many cases this will cover builders and customers in a contractual relationship) inducements/rewards to show favour/disfavour towards a third party in relation to the principal's business, which can include the principal's building project obviously, is in breach of the Secret Commissions Act. This is actually a crime.

Maybe it depends on how the favour is 'structured'.

It certainly happens though. Law breaches occur all the time, there is insufficient resource to chase them up.

eg, I have trouble with the way that companies like Farmers/Briscoes/Harvey Norman have constant sales going on. I'd have thought what they are doing is against the law, or at least the 'spirit' of the law. Yet they are able to structure things so they don't technically breach the law.

sir1963

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#1599416 27-Jul-2016 10:58

frankv:

sir1963:

And who compensates the Banks etc who have mortgages ?

Compensate the banks???? Why????

The banks have been lending money to people in the full knowledge that the house that is security against that loan is over-valued. The banks are the sharks in this particular pond as much as anyone else. If they want to make risky loans, then let them take the consequences of those risks. Part of the problem is that they escaped the consequences last time, so they're doing it again. [/rant. Wipes froth from lips]

It's the GEC again. I like the Icelandic solution.

Yes, compensate the banks. If you create a policy that forces a significant number of people to become insolvent why should the banks not be compensated ?

An example of this is if the council allowed someone to set up a recycling centre next to your house and the price of your asset plummeted because of this, I am sure you would expect some compensation.

If you FORCE landlords to get rid of their properties, you have taken away their property rights/property ownership, so yes, compensation.

MikeB4

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#1599424 27-Jul-2016 11:09

One thing that bothers me, if we make it uneconomic for people/corporations to own and let investment properties what will happen. I feel these folk will move their investments elsewhere and possibly off shore, the number of rental properties will diminish and the cost of rentals will rise quite considerably due to supply and demand, this will make it harder and harder for those in rentals to live and save for a home and their futures e.g retirement.

As the demand for rentals grows and the rental stock diminishes due to lack of investment a housing issue will develop where folks cannot buy and cannot rent. Where do they go and what do they do? build shanty accommodation? is that what we want to increase in NZ?

jmh

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#1599504 27-Jul-2016 13:57

MikeB4:

One thing that bothers me, if we make it uneconomic for people/corporations to own and let investment properties what will happen. I feel these folk will move their investments elsewhere and possibly off shore, the number of rental properties will diminish and the cost of rentals will rise quite considerably due to supply and demand, this will make it harder and harder for those in rentals to live and save for a home and their futures e.g retirement.

As the demand for rentals grows and the rental stock diminishes due to lack of investment a housing issue will develop where folks cannot buy and cannot rent. Where do they go and what do they do? build shanty accommodation? is that what we want to increase in NZ?

That's the free market for you. Last time this happened the government stepped in and built high-quality housing - this could be sold or let at market rates to cover cost plus a return that could be invested in the community. Of course, these days people don't like government intervention saying that it is too inefficient - the market provides, except when it doesn't.

mattwnz

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#1599521 27-Jul-2016 14:22

jmh:

MikeB4:

One thing that bothers me, if we make it uneconomic for people/corporations to own and let investment properties what will happen. I feel these folk will move their investments elsewhere and possibly off shore, the number of rental properties will diminish and the cost of rentals will rise quite considerably due to supply and demand, this will make it harder and harder for those in rentals to live and save for a home and their futures e.g retirement.

As the demand for rentals grows and the rental stock diminishes due to lack of investment a housing issue will develop where folks cannot buy and cannot rent. Where do they go and what do they do? build shanty accommodation? is that what we want to increase in NZ?

That's the free market for you. Last time this happened the government stepped in and built high-quality housing - this could be sold or let at market rates to cover cost plus a return that could be invested in the community. Of course, these days people don't like government intervention saying that it is too inefficient - the market provides, except when it doesn't.

It all goes in cycles. The lack of housing led to state housing in the early 20th century , which ended up being too expensive. Then again they were started in the 30's and 40's. A alot of the actual flats have been demoed recently due to 'earthquake risk' . Now labour is proposing another go at it. But it shows that in NZ the free market doesn't work, and it needs government intervention to build the quantity required. Poor quality and designed housing becomes a ghetto, and I have seen some rent housing developments that are already quite ghetto like. Looks like Auckland are now due for over 100,000 new homes in the next 10 years. Wonder if that will be enough with current immigration numbers. I wonder if we really want NZ to become a country with a high population? With that comes it's problems and big urban spread. Yet we aren't really creating any new cities or towns, just urban spread, where towns end up merging.

dejadeadnz

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#1599524 27-Jul-2016 14:31

surfisup1000:

Maybe it depends on how the favour is 'structured'.

It certainly happens though. Law breaches occur all the time, there is insufficient resource to chase them up.

eg, I have trouble with the way that companies like Farmers/Briscoes/Harvey Norman have constant sales going on. I'd have thought what they are doing is against the law, or at least the 'spirit' of the law. Yet they are able to structure things so they don't technically breach the law.

You are undoubtedly right. And I think most people have enough common sense or exposure to reality to accept that people will sometimes buy things from convenient places to get "freebies" whilst providing service to a client. I, for example, would have little issue with a builder buying materials from places that give him Flybuys or whatever reward points, provided I am not substantially disadvantaged by his choice. The really egregious cases are, for example, insurance brokers convincing life insurance customers to churn from company A to B, claiming that it will save them a measly X dollars a year. But what a lot of these douchebags don't tell the client is that they get to pocket all the client's premiums for the first year and/or get free holidays and the clients lose coverage for any pre-existing conditions.

As a volunteer as a community law centre, I've seen the utter devastation this kind of conduct has caused and had in one case made a complaint to the police/SFO on the client's behalf. Still being investigated...

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Trade NZ and US shares and funds with Sharesies (affiliate link).

MikeAqua

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#1599525 27-Jul-2016 14:34

dejadeadnz:

MikeB4:

One example, Kiwi Saver. Those funds will be very adversely affected and that will have repercussions for a very long time.

Any resolution has to look to the long term and the short term, it is no easy fix.

The sentiments are broadly correct but the actual example isn't a very good one at all. Let's use the asset allocation of ANZ Bank's (one of the largest Kiwisaver providers, if not the largest) KS funds as an example, their funds' exposure to Australasian property funds (which by definition includes NZ funds but not exclusively) range from 1.50 to 6.30%. And property funds almost never invest in residential property, so a residential property crash/sudden correction is not likely to affect them directly.

How much exposure to mortgage funds do KS fund have.

While reserve banks stress testing shows that banks would survive a 40% drop in house value, on what terms would they be able to lend to home buyers afterwards?

Mike

MikeB4

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#1599528 27-Jul-2016 14:54

MikeAqua:

dejadeadnz:

MikeB4:

One example, Kiwi Saver. Those funds will be very adversely affected and that will have repercussions for a very long time.

Any resolution has to look to the long term and the short term, it is no easy fix.

The sentiments are broadly correct but the actual example isn't a very good one at all. Let's use the asset allocation of ANZ Bank's (one of the largest Kiwisaver providers, if not the largest) KS funds as an example, their funds' exposure to Australasian property funds (which by definition includes NZ funds but not exclusively) range from 1.50 to 6.30%. And property funds almost never invest in residential property, so a residential property crash/sudden correction is not likely to affect them directly.

How much exposure to mortgage funds do KS fund have.

While reserve banks stress testing shows that banks would survive a 40% drop in house value, on what terms would they be able to lend to home buyers afterwards?

The direct impact of a large drop in house values will affect KS funds in small to medium. However the impact on the wider economy will be profound and will touch all sectors and have long term consequences which very much affects long term and retirement savings.

We could see a big drop in house prices with little improvement on affordability due to retraction of earnings.

dejadeadnz

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#1599545 27-Jul-2016 15:25

MikeAqua:

The sentiments are broadly correct but the actual example isn't a very good one at all. Let's use the asset allocation of ANZ Bank's (one of the largest Kiwisaver providers, if not the largest) KS funds as an example, their funds' exposure to Australasian property funds (which by definition includes NZ funds but not exclusively) range from 1.50 to 6.30%. And property funds almost never invest in residential property, so a residential property crash/sudden correction is not likely to affect them directly.

While reserve banks stress testing shows that banks would survive a 40% drop in house value, on what terms would they be able to lend to home buyers afterwards?

I would have thought (although I haven't examined the KS funds' asset allocations in great detail), exposure to mortgage funds would be none or bugger all. The more aggressive funds have most of the money allocated to shares; conservative funds are either in cash/fixed deposits.

mattwnz

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#1599547 27-Jul-2016 15:26

MikeB4:

MikeAqua:

dejadeadnz:

MikeB4:

One example, Kiwi Saver. Those funds will be very adversely affected and that will have repercussions for a very long time.

Any resolution has to look to the long term and the short term, it is no easy fix.

The sentiments are broadly correct but the actual example isn't a very good one at all. Let's use the asset allocation of ANZ Bank's (one of the largest Kiwisaver providers, if not the largest) KS funds as an example, their funds' exposure to Australasian property funds (which by definition includes NZ funds but not exclusively) range from 1.50 to 6.30%. And property funds almost never invest in residential property, so a residential property crash/sudden correction is not likely to affect them directly.

How much exposure to mortgage funds do KS fund have.

While reserve banks stress testing shows that banks would survive a 40% drop in house value, on what terms would they be able to lend to home buyers afterwards?

The direct impact of a large drop in house values will affect KS funds in small to medium. However the impact on the wider economy will be profound and will touch all sectors and have long term consequences which very much affects long term and retirement savings.

We could see a big drop in house prices with little improvement on affordability due to retraction of earnings.

Where is your source on that, or is it just speculation? The Reserve bank has already done stress tests to how that a big drop of 40% won't cause problems, and that is fact.

Affordability, and the price a house costs, are different things. Affordability actually hasn't changed that much over the last few years, because interest rates have been dropping. But do people really want to pay a million dollars for a timber shack, and have that noose around their neck. Or would they prefer to pay 400k and pay 15% interest. They may end up paying the bank about the same amount to the bank each month under both.

Essentially houses can be made more affordable by just reducing the interest rate banks are lending at, but that just pushes the price even higher, as people can afford to borrow more. It also has the problem of people pulling their savings out of the bank and putting it into property.

The big problem though is that people should be using this period of low interest rates, to pay off their loan. This is what the CEO of ANZ said, so that fact that he has said it would indicate that not enough people aren't doing this. I suspect this is because they can't afford to, as they have borrowed so much. This is scary, because it means when interest rates do go up, there will be people who can't afford to service their mortgage.

dejadeadnz

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#1599551 27-Jul-2016 15:36

mattwnz:

Where is your source on that, or is it just speculation? The Reserve bank has already done stress tests to how that a big drop of 40% won't cause problems, and that is fact.

You need to stop endlessly throwing out the RBNZ stress test result as proof that a 40% drop in property prices won't create macro economic problems. The stress test did not measure the impact upon the economy. A quick read of what's on the RBNZ website will tell you why you are mistaken.

Stress tests play two important roles in the Reserve Bank’s prudential framework. First, stress tests help the Reserve Bank identify and assess risks to the financial system. Second, stress tests are used to identify and manage risks to individual institutions’ capital and liquidity buffers. Individual institutions are expected to use stress tests to assess the viability of current business plans, including as part of their Internal Capital Adequacy Assessment Process (ICAAP). Stress test outcomes are also an important input into supervisory discussions with participating institutions.

In late 2015, the four largest banks in New Zealand participated in a common scenario ICAAP test. This test was a hybrid between an internal test (conducted regularly with each institution choosing their own scenarios) and a regulator-led stress test (occurring every 2-3 years with common scenarios and assumptions). Due to the use of a common scenario across banks, the results of the test provided insights for the financial system as a whole. However, the test featured less standardisation of methodology than a full regulator-led exercise. For example, there was no ‘phase 2’ where loss rates were standardised.

What the result of the stress test showed was that our four largest banks had sufficient liquidity buffers and prudential management to stay liquid/not to be a systemic threat to the financial system in case of a substantial macroeconomic downturn which includes, amongst other things, drops of 40% in residential property prices. The result of this stress test cannot be used to prove that such a drop does not cause substantial macroeconomic shocks. FWIW, ultimately we will need to bear the pain of the inevitable price drops and some of the claimed consequences of substantial property price crashes seem to me to be a bit unfounded, i.e. some of the claims around Kiwisaver, for example. But that's an altogether different matter to what the stress test really can tell us.

Guys, if you want to discuss these things, please read up on them.

Source: http://www.rbnz.govt.nz/financial-stability/financial-stability-report/fsr-may-2016/results-of-the-2015-common-scenario-icaap-stress-test

RUKI

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#1600038 28-Jul-2016 09:54

With the introduction of the new Unitary Plan (draft has been released yesterday and you and me have absolutely no say :-() Government is about to make a huge mistake - i.e. prices for existing and new homes will rocket up again as the new plan allows for such density you had never seen in Auckland suburbs before. Many current houses would be demolished and 3-storey mini-towers being built blocking sunlight.

The price of the newly built 3-story mini-towers standing shoulder to shoulder so that you can hear one wispering in the neighbour's bedroom will not be cheap.

Recent example many newly built "dwellings" in Glenn Innes. Asking price is about 1 million. With your neighbours next door getting those for free from the Housing New Zealand.

Sections where previously only couple of 2-storey houses were allowed will now host 4 to 5 three-storey dwellings.

Will they be affordable as Unitary Plan claims as a goal? Don't think so.

New Unitary Plan will significantly impact current house prices - they will go up again and quickly.... because of the "development opportunity" ...

Reminds me "UP", very sad.

surfisup1000

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#1600045 28-Jul-2016 10:14

jmh:

That's the free market for you.

- the market provides, except when it doesn't.

You assume the market is free. The very opposite is true.

We built our house such that the land could be subdivided in future. After construction, council introduced new rules so now I cannot subdivide.

What is free about that?

Soon I'll need a law degree just to breathe the way things are going.

surfisup1000

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#1600049 28-Jul-2016 10:22

RUKI:

With the introduction of the new Unitary Plan (draft has been released yesterday and you and me have absolutely no say :-()

Auckland needs to intensify to fit more people.

I quite like the general direction of the unitary plan.

You certainly did have a say, did you make any submissions?

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