Comments on: Looking at the bigger picture http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture A blog for New Zealand landlords and property investors Thu, 09 Feb 2012 07:09:47 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Stig Rohl http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture/comment-page-1#comment-385 Stig Rohl Wed, 25 Jun 2008 11:25:46 +0000 http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture#comment-385 For Kathy: Theres nothing wrong with geared property as an investment, but NZers shouldn't be blinded into thinking its the only asset they can gear up, and thus the main reason to invest. Even brokers with a conservative streak will allow you to gear a portfolio of equities by 50% (up to 90% once they're in love with you). And if you're really desperate to gear up and want to take a level of risk that is about equal to NZ residential property, you can trade on margin for up to 200 times the amount of your capital (I wouldn't recommend more than 1:5 personally). No mortgage interest rates to worry about, no tenants turning your property into a P lab, no annoying mortgage application and income proof to produce for those pesky banks. If you buy shares in a low cost mutual fund like an index tracking exchange traded fund (e.g. one that owns all the shares in a Dow Jones, S&P or FTSE, etc), you get to diversify your risk across a whole bunch of the largest income producing companies in the world, and you can liquidate the assets at the click of a mouse. Statistics prove that over the last century, NYSE listed securities(for example), have produced a return of 12.3% p.a. Sure, invest in property, but cover your ass NZ, with diversification. Happy Investing, Stig For Kathy:
Theres nothing wrong with geared property as an investment, but NZers shouldn’t be blinded into thinking its the only asset they can gear up, and thus the main reason to invest. Even brokers with a conservative streak will allow you to gear a portfolio of equities by 50% (up to 90% once they’re in love with you). And if you’re really desperate to gear up and want to take a level of risk that is about equal to NZ residential property, you can trade on margin for up to 200 times the amount of your capital (I wouldn’t recommend more than 1:5 personally). No mortgage interest rates to worry about, no tenants turning your property into a P lab, no annoying mortgage application and income proof to produce for those pesky banks.
If you buy shares in a low cost mutual fund like an index tracking exchange traded fund (e.g. one that owns all the shares in a Dow Jones, S&P or FTSE, etc), you get to diversify your risk across a whole bunch of the largest income producing companies in the world, and you can liquidate the assets at the click of a mouse.
Statistics prove that over the last century, NYSE listed securities(for example), have produced a return of 12.3% p.a. Sure, invest in property, but cover your ass NZ, with diversification.

Happy Investing,

Stig

]]> By: Joe http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture/comment-page-1#comment-367 Joe Sat, 21 Jun 2008 05:54:46 +0000 http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture#comment-367 PS Kathy your amateur arithmetic does not take into account interest payments. If prices go up 5% you're only breaking even given current interest rates relative to rents. Interest rates are nearly 10% but rental yields less than 5%. And if prices fall only 5%, inclusive of your 5% cash flow loss you've lost 50% of your money! PS Kathy your amateur arithmetic does not take into account interest payments. If prices go up 5% you’re only breaking even given current interest rates relative to rents. Interest rates are nearly 10% but rental yields less than 5%. And if prices fall only 5%, inclusive of your 5% cash flow loss you’ve lost 50% of your money!

]]> By: Joe http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture/comment-page-1#comment-366 Joe Sat, 21 Jun 2008 05:50:38 +0000 http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture#comment-366 The QV figures are misleading. They use the average price over the quarter to May-08 and compare that to the average price in the quarter to May-07 to calculate that number. This methodology understates that May-07 number (as prices were rising then so the average would understate prices at May-07) and the methodology also overstates May-08 valuations (because prices are now falling so the average would be higher than values prevailing as at May-08). Adjusting for these factors, prices would be down slightly over the full year. This adds up to a significant loss where properties are leveraged and people are paying interest rates of 8-10% but only receiving rental payments (net of costs) of about 3-4%. There is also the problem that collecting reliable data on the market is difficult, and QV, REINZ, and B&T all have huge incentives to portray the market as much more healthy than it really is. I would expect to see QV to change its methodology around to suit whichever numbers portray the market in the best light in the future. I simply don't believe the figures these agencies are currently putting out. Talk to any real estate agent you can trust (ie who aren't putting out public spin) and they will tell you that average prices are down anywhere from 5-20% depending on the region since hitting highs in mid 2007. And we have a LONG LONG way to go. Kathy sayd: "It always amazes me when people try to compare apples with “lemons”. Property is a long term investment and generally doubles in value every 5-10 years. The interesting part of property investment though, compared to other types of investment is that you get growth over the entire value of the property even if you only paid a 20% (or less) deposit. You effectively make a return on other peoples (eg bank) money. For example, if you bought a property for $300,000 and paid 20% deposit ($60k) and received 5% growth in a slow year, your % return on YOUR investment would still be 15/60 = 25%. In a good year, say 20% growth, you would earn 100% return (60k growth/60k deposit). In my book no other investment strategy even comes close to property investment over the long term!" It is this type of idiocy that is the reason why we have had a mega-mega property bubble in NZ and why prices still have so much further to fall. Property generally doubles in value every 5-10 years?? What kind of "quick-rick-quick" books have you been reading or seminars have you been attending? Why? It's the same piece of land and if anything the structure itself has aged and declined in value. Unless people's incomes are also doubling every 5-10 years also this is a ridiculous statement. Go and do some research about past property cycles - you will save yourself some money. Prices in the US have fallen 30% in Califonia in the past 6 months, and 14% across the US overall. Prices have fallen 70% in Japan over the past 14 years. Don't say it can't happen here. NZ house prices relative to income are conservatively overpriced by about 100% given current interest rates, and we are heading into a recession. Prices will need to fall at least another 20-40% over the next three years, and naive leveraged punters like Kathy will get what's coming to them. The QV figures are misleading. They use the average price over the quarter to May-08 and compare that to the average price in the quarter to May-07 to calculate that number. This methodology understates that May-07 number (as prices were rising then so the average would understate prices at May-07) and the methodology also overstates May-08 valuations (because prices are now falling so the average would be higher than values prevailing as at May-08).

Adjusting for these factors, prices would be down slightly over the full year. This adds up to a significant loss where properties are leveraged and people are paying interest rates of 8-10% but only receiving rental payments (net of costs) of about 3-4%.

There is also the problem that collecting reliable data on the market is difficult, and QV, REINZ, and B&T all have huge incentives to portray the market as much more healthy than it really is. I would expect to see QV to change its methodology around to suit whichever numbers portray the market in the best light in the future.

I simply don’t believe the figures these agencies are currently putting out. Talk to any real estate agent you can trust (ie who aren’t putting out public spin) and they will tell you that average prices are down anywhere from 5-20% depending on the region since hitting highs in mid 2007. And we have a LONG LONG way to go.

Kathy sayd:

“It always amazes me when people try to compare apples with “lemons”. Property is a long term investment and generally doubles in value every 5-10 years. The interesting part of property investment though, compared to other types of investment is that you get growth over the entire value of the property even if you only paid a 20% (or less) deposit. You effectively make a return on other peoples (eg bank) money. For example, if you bought a property for $300,000 and paid 20% deposit ($60k) and received 5% growth in a slow year, your % return on YOUR investment would still be 15/60 = 25%. In a good year, say 20% growth, you would earn 100% return (60k growth/60k deposit). In my book no other investment strategy even comes close to property investment over the long term!”

It is this type of idiocy that is the reason why we have had a mega-mega property bubble in NZ and why prices still have so much further to fall.

Property generally doubles in value every 5-10 years?? What kind of “quick-rick-quick” books have you been reading or seminars have you been attending?

Why? It’s the same piece of land and if anything the structure itself has aged and declined in value. Unless people’s incomes are also doubling every 5-10 years also this is a ridiculous statement. Go and do some research about past property cycles – you will save yourself some money. Prices in the US have fallen 30% in Califonia in the past 6 months, and 14% across the US overall. Prices have fallen 70% in Japan over the past 14 years. Don’t say it can’t happen here.

NZ house prices relative to income are conservatively overpriced by about 100% given current interest rates, and we are heading into a recession. Prices will need to fall at least another 20-40% over the next three years, and naive leveraged punters like Kathy will get what’s coming to them.

]]> By: kathy schofield http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture/comment-page-1#comment-295 kathy schofield Thu, 12 Jun 2008 06:01:16 +0000 http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture#comment-295 It always amazes me when people try to compare apples with "lemons". Property is a long term investment and generally doubles in value every 5-10 years. The interesting part of property investment though, compared to other types of investment is that you get growth over the entire value of the property even if you only paid a 20% (or less) deposit. You effectively make a return on other peoples (eg bank) money. For example, if you bought a property for $300,000 and paid 20% deposit ($60k) and received 5% growth in a slow year, your % return on YOUR investment would still be 15/60 = 25%. In a good year, say 20% growth, you would earn 100% return (60k growth/60k deposit). In my book no other investment strategy even comes close to property investment over the long term! It always amazes me when people try to compare apples with “lemons”. Property is a long term investment and generally doubles in value every 5-10 years. The interesting part of property investment though, compared to other types of investment is that you get growth over the entire value of the property even if you only paid a 20% (or less) deposit. You effectively make a return on other peoples (eg bank) money. For example, if you bought a property for $300,000 and paid 20% deposit ($60k) and received 5% growth in a slow year, your % return on YOUR investment would still be 15/60 = 25%. In a good year, say 20% growth, you would earn 100% return (60k growth/60k deposit). In my book no other investment strategy even comes close to property investment over the long term!

]]> By: richard evans http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture/comment-page-1#comment-294 richard evans Thu, 12 Jun 2008 05:21:10 +0000 http://www.landlords.co.nz/blog/%e2%80%98stats-week%e2%80%99-looking-at-the-bigger-picture#comment-294 The slow down in sales might not automatically signal a drop in prices, as many owners will hold and or rent out till the volumes get back up. That is happening widely around the country with the supply of rental homes increasing at a great pace. It has not yet affected rent levels but the price of petrol has reduced demand for rural properties which are now staying vacant longer too. The slow down in sales might not automatically signal a drop in prices, as many owners will hold and or rent out till the volumes get back up.
That is happening widely around the country with the supply of rental homes increasing at a great pace. It has not yet affected rent levels but the price of petrol has reduced demand for rural properties which are now staying vacant longer too.

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