What is this addiction you speak of?

We are continually being told we have a “property addiction”. NZ property investors have now been stripped of the ability to depreciate their assets and flow through losses from their income through to their fledgling investment businesses. We don’t have an addiction to property. We were given opportunities by previous governments to make money in property and now as property investors we are being punished for this because, boo hoo, “disadvantaged” Gen Yers can’t seem to buy their own homes. 
As a property investor in New Zealand I am now a second class citizen. I’m single-handedly responsible for the parlous state of the economy. Should a left wing government be elected I can be assured that a capital gains tax will be imposed which should quench my misbegotten, negative-gearing, property accumulating ways. This will fix the economy and supply a flood of money to the government to farm out to the governments pet projects and, “struggling citizens”. This move will also give me an incentive to sink my monies into the NZX.

FOOLS! A few brief reasons why this won’t work: Then an explanation of why property is so attractive, and why there is no going back to our previous, entitled, first home owning, utopia.
1. I am what is known as a “habitual investor”, a term I first came across when I came into contact with the doomed Dan McEwan Investors Forum ventures. As a habitual investor I wouldn’t say I know everything or even much about the financial markets. I tend to stick to what I know, and that is property; investment for the long term. However I have made a number of financial decisions in my time. I tend to keep my nose to the ground and follow the flows of the world markets. There is no way I’d be sinking my money raw into the NZX. I might get punished by Hone’s tax, for one. Also the big money is currently on the returns in emerging markets; I am more likely to invest out of Hong Kong or the US into Asia, or into China via market access through NZ. Either way my money is going into Asia.
2. Assuming a tax is going to be imposed at the point of sale, those who own additional stock are going to either dump it on the market, or not sell until the price ratchets up enough to provide an acceptable return. Either way the price of good property is going up, and poor quality stock will not be improved.
The property “bubble” is merely a re-balancing of the worth of property in line with the rest of the world. Previously property was cheap. Now it is merely slightly overpriced, but not significantly. The only reason why property has increased in price is not because of some spurious “addiction reason”; it is due to the introduction of the OCR in 1999 and the ability of the banks to settle overnight with the Reserve Bank. All of a sudden property became attractive to the banks to lend on. They loosened their criteria for lending. You needed less capital to buy more. Hence the upgrades and the requisite flash abodes.This is is entrenched and irreversible. More on property in later posts.

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  • http://www.blogger.com/profile/11495995981682025219 nasska

    Good post but there are other factors which have influenced NZ investors.

    1) Security: There’s one old saying about land…they ain’t making any more of it. Chances are with the usual cost plus mentality of local bodies imposing their ‘improved’ building standards the building on the land is a bargain too. Even if the return isn’t too flash it is unlikely that some arsehole will rip your investment from under you & piss up the proceeds in the Bahamas.

    2) Control: Many people are prepared to take a bath & not bitch about it if the debacle was of their own making. In this respect contrast property investment with the stockmarket. In the latter the small investor has effectively no say so. The company you choose to invest in is effectively controlled by large institutional investors & over rewarded CEO’s.

    I don’t know how the situation can be improved & it is a fact that NZ is short of investment capital but the sum of small investors’ financial knowledge is beating that of the experts to date.

  • http://www.blogger.com/profile/02460369409907479603 Drongo

    Monique – a position like yours is based on nastiness and contempt for others, especially others who aren’t as lucky as you to have the skills and ability to take complete advantage of our one-sided and unfair system the “haves” have created to suit their own ends.

  • http://www.blogger.com/profile/12538783137602201932 Monique Watson

    Drongo It’s not contempt, it’s the truth as I see it.
    with that kind of statement you promote a culture of victimhood that is killing our sense of community in New Zealand.
    For the record I started out with a $2500 credit card and a 50k student loan that I am only just starting to pay back. With that I bought two properties to hold; they are designed not to give me a flash Merc driving lifestyle, but to pay off my debt and provide for my old age.

  • http://www.blogger.com/profile/12538783137602201932 Monique Watson

    Thanks Nasska

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