PropertyProfit Weekly Update

Interest Rates - act now... or wait until next week?

2010-07-20T07:28:00+12:00

Fixed Rate, Floating Rate, or a Combination?

As at today’s date, one week out from the next OCR announcement nothing is certain.

However reading between the lines I think there are signs to guide us in one direction more than another but let’s first look at what a few bank economists have to say.

For a more in-depth read click on Interest Rates as most reports are updated weekly.

Westpac - "The decision to fix or float remains finely balanced. Floating rates remain lower than short-term fixed rates at the moment, but they are likely to rise faster as the RBNZ increases the OCR. Fixing, if even for a short term, has the advantage of greater certainty around cash flows, at a time when floating rates could be rising rapidly. Repaying more than the minimum amount, and spreading the loan over a mix of terms, can also help to reduce the overall risk around uncertain future interest rate changes."

BNZ – “Last week we noted retreating expectations about the speed with which monetary policies would be tightened around the world which on the face of it argues for staying at a floating rate as long as possible and taking a punt on the RB pausing in their tightening cycle. But at the same time these changing offshore tightening expectations have reduced medium to long term funding costs and produced lower fixed housing rates here in NZ. So now we need to examine things again to see if we are still slightly in favour of floating or whether one might want to jump into one of the newly discounted 1-3 year fixed rates purely in an opportunistic manner as discussed since the middle of last year.”

Unfortunately, only two economists put up their hands, but between them it is a fair overview of what others have told me. Generally, they expect interest rates to increase as we all do but the big question remains as to when, and by how much.

I feel the OCR is likely to remain unchanged on the 29th and could lead to retail interest rates easing as lenders scramble to increase the subdued volumes as of late. In addition, another good reason is to help stabilise a stalling economy.

Should that prediction prove to be right then one would be advised to wait a week or two before deciding. And if the opposite applies and the OCR is increased, soon after I would be looking seriously at that new discounted longer term rates.

A combination of fixed and floating or even two different fixed terms could be the way to go.

I am sorry, I do not have a crystal ball, and lending structures are never black and white. All I can do is try and read between the lines and call it as I see it.

Much of what I have to say may not be all that useful, or even conclusive. But that’s all right. I am trying to start a conversation, not have the last word, email me or leave a comment.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

Is The “Property Bubble” About To Burst?

2010-07-08T07:46:58+12:00

Some are predicting it is only a matter of time and that time is growing near when we will be rattled by an unprecedented property melt down.

A scary thought for many I should imagine. But where do these scare mongers gather such evidence.

First, I should point to the fact that these people tend to generalise by throwing everything into the same mix; a two million dollar house [in] with a first home in Invercargill for example. Not being derogatory to Invercargill, but you get my point.

My argument is this, for properties in the lower price bracket to fall below current values, the cost to build, land, or a combination of both, would need to fall by around 50%.

Sure, in some regions where communities are facing hardship due to industry layoffs and closure there will be the exception and there always will be, as supply and demand is an ever changing factor in any commodity.

However I think anyone would be hard pressed to identify any region expected to take a hit of that magnitude.

Yes it did happen in other countries and there is good reason for it happening there but it is unlikely to here. One should remember we are not comparing apples with apples.

So I think it is safe to predict that house values in the lower level (in this country) will at worse remain static, with the upside being capital gain. Capital gain being a very real possibility.

As for the bulk of the market, medium to mid priced homes it is going to be a mixed bag and there is very little that can be done about it apart from a massive price reduction and that is simply not going to happen.

The reason I am so sure about this is people will strive to protect what they have. Why would someone sell at a loss unless they have no choice? Yes there will be some that will have no alternative but to do so, hence mortgagee sales still being at high levels.

But I should point out that the mortgagee sales have little to do with the current market and are an after shock of the financial meltdown that unearthed dodgy lending practices which no longer exist.

So yes, there may be price reductions in the medium to mid price brackets in some regions but not across the board.

For example, if you live in an area where there is very little if any building activity, there is less likely to be a shift in property values as opposed to an area were there is a reasonable level of building activity. The reason being new homes will generally attract more interest than a tired dated home. So to remain competive people with the older homes may be forced to reduce their expectations to attract a buyer.

Will the increase in GST, the increase in interest rates, the increase in this, the increase in that, have an impact on the real estate market? Of course it will, just as it will on all industry, hence the reason the economy is slowing down.

So what will happen to the property bubble? Nothing as there isn’t one.

Commentators tend to sensationalise. How else would they stand out and sell their wares?

I think the real estate market will remain much as it is for the next six to 12 months.

As boring and un-newsworthy as that may sound, I think that is good news for the real estate market when one looks further afield, for example the States and the UK. Plus remember, if you are buying and selling in the current market you are likely to come out trumps in the long term.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

A Milestone for First Home Buyers and KiwiSaver

2010-07-02T06:36:08+12:00

The clock is ticking and my advice to those in KiwiSaver that qualify and have time on their side, take action now.

As I explained to a reporter yesterday, the housing market is flat and as the majority of first homebuyers will be below the age of 40, they have plenty of time to build a KiwiSaver nest egg.

So why not take advantage of what they already have in the pot, as there may never be a better time to do so.

KiwiSaver is now three years old and so far over 1.4 million Kiwis have chosen to secure their future by joining KiwiSaver, but that doesn’t entitle all to the first home purchase subsidy.

The incentives are only available to KiwiSaver members that meet certain eligibility criteria;

Basically the incentives and subsidy are aimed at assisting members to purchase their first home, however previous home owners can be eligible for the KiwiSaver first home withdrawal and KiwiSaver deposit subsidy if for example their income, assets and liabilities represent a financial position that would be expected of a person that has never owned a home.

If after reading this article you decide to apply for the subsidy, I would encourage you to first visit the following website www.hnzc.co.nz/kiwisaver or to contact your KiwiSaver provider.

After three years of KiwiSaver membership members aged over 18 can withdraw all of their own contributions, employer contributions and investment returns, (but not the $1,000 kick-start or the matching government contribution of up to $1,042.86 per annum,) to purchase an owner occupied property.

The first home purchase subsidy of up to $5,000 is available to members who have contributed to a KiwiSaver scheme for three years or more, and meet the eligibility criteria.

They are entitled to a home ownership deposit subsidy of $1,000 per year of savings, up to a maximum of $5,000 per person.

Any purchase must be made as per current KiwiSaver regulations for example; the property must be intended to be the principle place for you, or you and your family. You cannot use the funds to purchase an investment property.

Purchaser or purchasers’ income must be within the income caps established for general eligibility for the deposit subsidy. The income caps are currently $100,000 before tax for one or two people, and $140,000 before tax for more than two people.

The purchaser(s) have realisable assets of no more than 20 percent of the relevant regional house price cap which are; $400,000 for Auckland City, North Shore City, Rodney District, Wellington City and Queenstown Lakes District and $300,000 for all other areas. Currently, Manukau City, Waitakere City, Franklin District and Papakura District are considered ‘other areas’.

The new Auckland boundaries and new Auckland Council does not take effect until 1 November 2010. HNZC has indicated that the house price caps will be reviewed then.

This asset test is to ensure that previous home owners who have insufficient assets to obtain a mortgage without Government assistance will qualify for first home withdrawal. HNZC’s website provides a summary of what it regards as realisable assets for this purpose.

Although too late for some, at last we have a genuine first homebuyer subsidy on offer that should not be over looked by those eligible.

Please Note: I recommend KiwiSaver Members apply early in the purchase process to determine eligibility.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

Housing New Zealand Opens Its Doors To Private Investors.

2010-06-30T11:29:31+12:00

Few are now talking about the changes to tax on residential property investment which is understandable as the government has done just enough to keep opposing sides happy.

It was always going to be that way whilst there is a shortage of affordable rental accommodation throughout New Zealand. The Government simply cannot afford to build the number of properties required to house the less fortunate hence to door to benefits for private investors being left ajar.

With so much negative publicity surrounding all types of investments it’s little wonder many are opting for the safety of a bank volt, however in doing so that could erode away the original value of their investment if one chooses to live off the return.

Let’s take a quick look at the return on investment when money is placed in a bank vault and left to others to invest as opposed to you taking control of your money and investment.

Say ten years ago you put $250,000 on term deposit and I chose to purchase an investment property for $250,000.

My investment property today would be worth just under $450,000 and your $250,000 would be worth, $250,000. That is if we both lived of the returns.

Say I purchased not one, but two investment properties and between the tenants and myself repaid the mortgage so now I have $900,000.

Sure there are other factors to take into account, compounding interest if you were to reinvest the interested earned on your cash investment, and capital gain if you invested in property. I’m not going to bore you with the figures but instead will leave that to the procrastinators with nothing better to do.

I look forward to seeing the figures in the comments section for if they are calculated correctly they will support what I already know. Residential Property investment is still well worth a look.

The only real change needed to become a successful property investor is to pay down debt rather than shelve it, as has been the preference of most investors in the past. This is why things got so out of control and brought the world to its knees. People living beyond their means.

I feel although it wasn’t the government’s responsibility to do so, they should at least have put pressure on loan providers to abolish interest only loans for purchasing residential property unless it is for short term, speculative investment. Leave the carrot dangling and eventually it will be nibbled at, starting another cycle destined to end in the same way. Boom and bust.

I have encouraged people for years to invest in residential property and will continue to do so should it prove to be in their best interest. Sure investing in property isn’t for everyone and I have never said it is. However, if it is affordable to do so, investing in property will probably feature very high on one’s list, or should do.

Housing New Zealand’s Lease programme without doubt would have to be one of the most secure types of investments you could get into. Rent guaranteed for a period of time, Management cost known up front, and unlike other investments the original amount you invest is likely to increase in value without the need to reinvest the return on investment.

Couple this with the fact that Housing New Zealand require properties to lease throughout the country and the demand on rental properties is said to increase, I find it difficult to understand why anyone would disagree.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

Are You Eligible for a KiwiSaver Top-up from the Government?

2010-06-23T00:11:30+12:00

If you are a KiwiSaver member, you may be eligible for a top-up from the government!

This is called a Member Tax Credit and it is paid as an annual lump sum after 30 June to eligible members.

The annual top-up you may be eligible for can be as high as $1,042.86!

Are you eligible?

To be eligible for the top-up, you must be a KiwiSaver member and:

Be 18 years of age or older; and
Have your principal place of residence in New Zealand, with the exception of some government employees and certain people working overseas for charities for nominal remuneration.

How much will you get?

The government will top-up your KiwiSaver account up to a maximum amount of $1,042.86 each year. To receive the full top-up from the government, you need to have contributed at least the same amount yourself and have been in KiwiSaver for a full year (1 July – 30 June).

If you meet the above criteria, but only for part of the year, or you haven't been a KiwiSaver member for the full year, then you'll be eligible for a proportionate amount of the maximum top-up for the number of months you have been a member.

How can you access the maximum top-up?

You have until 30 June 2010 to make the most of this year's top-up!

If you haven't contributed enough to your KiwiSaver account since 1 July 2009, you'll miss out!

Don't delay - top-up your KiwiSaver account today!

The Increase To Building Costs Is Going To Affect Us All

2010-06-01T15:53:28+12:00

Last week I put the following question to a Master Builder that we work with that specialises in building residential investment properties in Hamilton.

What impact to you think the increase to GST will have on the building industry?

This is what John had to say:

We have been eagerly awaiting the budget for many months now and its arrival comes with a bit of a Christmas Day like disappointment. Yes, it’s pretty much what we were expecting and yes, it could have been worse, but it was still a cheap shot at those New Zealander’s who are trying to be proactive about their retirement.

Besides the negative impact on property investors, I believe the budget will be good for the overall economy over the coming years. New Zealand has a high level of debt and it’s still increasing. The government (the tax payer) are borrowing $220 million per week at present to fund our commitments thanks in large part to the outgoing governments over spending, so this clearly needs to be brought under control.

So what’s the budget’s impact on the average investor?

While we don’t purport to be the property finance experts, our numbers point towards the average investor who owns one residential investment property having to come up with another $15-$25 per week to fund their investment.

Is this going to stop people buying residential investment property? Hardly.

One thing we do know for certain is that the cost of new houses will rise, in part due to the GST increase, but also thanks to the ever increasing new building requirements. Some of the recent new requirements include:

- Storm water detention tanks. The cost of this alone for 9 townhouses on Greensboro Street is just over $20,000. These tanks do not provide any value to the buyer. We need to install them so the council don’t need to upgrade their infrastructure, we still have to pay the same development contributions however.

- New acoustic requirements. Near busy roads we have to build with double thickness double glazing, Noiseline GIB (over the standard GIB) and vents to bring air inside without having to open windows.

- Datum. These now need to be verified by the surveyors at the cost of approx $2000 per development site.

- Double glazing, bought in as a requirement last year and no doubt we will face further cost increases on the next development. We already know that timber is going up in price by 20% this year due to increased demand from China.

Here is how the GST increase from 12.5% to 15% will affect the price of town houses. As a building/development company we are required to return GST on all sales. Currently when we sell a $330,000 townhouses we pay the IRD $36,666.67. When GST increases to 15% we will have to pay the IRD $43,043.48 - an increase in GST (read tax) of $6,376.81.

When we get our next development valued this increase will be reflected in the valuation/sale price.

All of this aside, the economy is growing and as the economy grows inflation continues. Add to this the inflationary effects of the money printing that the reserve banks have been doing around the world and an increase in inflation is a given.

As inflation increases so too does the cost of new houses, which carries up the cost of existing homes, and so rents go up too. So, as long as you are buying for the long term (10years+) then now is a good a time to buy a house as any.

In fact I have gone unconditional on a new development site next to the University in Hamilton, so at least I’m putting my money where my mouth is.

Thanks John, reading between the lines, anyone contemplating investing in a rental could well be advised to check out Hamilton sooner than later.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

The Average Property Investor Is Set To Lose $1000 A Year And It Won’t Stop There

2010-05-25T08:19:20+12:00

It has been reported that due to depreciation been done away with on the improvement portion of investment property (takes effect on 1 April 2011 next year) some are set to lose as much as $1000 a year and some are saying it won’t stop there.

As first homebuyers cannot afford to purchase homes due to lenders being unwilling to accommodate them this will lead to property values falling as much as 5% to 10% within the next six to nine months as investors bail out.

Kieran Trass - Hybrid Group, is that convinced that the property market is going to take a hit he made the commitment on Campbell Live that if it doesn’t, he will be prepared to walk the length of the country. Kieran, I hope you have a good pair of walking shoes as John said he would save a copy of that commitment in the archives.

As to lenders not being accommodating when it comes to first home buyers with less than 20% deposit, that statement is so out of date and so untrue. Westpac for one, has increased staff numbers in an attempt to try and keep up with the surge of applications

It is still too early to tell how this will affect tenants as rents are largely determined by the strength of the economy and the number of people looking for accommodation, however it hasn’t deterred people from commenting.

The New Zealand Property Investors Federation (NZPIF) are saying rents could increase by 4.5 percent whist the Treasury’s estimate over three to four years say it could be much lower at 1.5 percent.

There is no doubt in my mind that rents will increase, as will other products and services as GST increases to 15 percent.

As far as residential housing is concerned, the budget will have a neutral effect on individual owner-occupiers as capital gains, or a specific property tax “has not been introduced”. This is also positive for investors.

Finance Minister Bill English and Revenue Minister Peter Dunne said the moves would help rebalance the economy toward productive investment and reduce the incentive for people to buy rental property purely for tax reasons.

Investors, in fact all of us, need to take a step back and read the writing on the wall, DEBT REDUCTION IS THE WAY FORWARD.

Auckland Chamber of Commerce chief executive Michael Barnett said the changes in the tax treatment of investment property invited a move towards productive investment and I agree with him, but do we need to look further afield than residential property investment? I don’t think so.

Simply keep away from negative gearing (interest only loans) pay down debt and work within a budget like any successful business should.

Sure, by doing so you will end up paying taxes but you only pay taxes in this country if you make money and isn’t that the point.

If you have a number of properties and multiply the average loss of $1000 per property several times it may be daunting but the solution is not rocket science

Each day I am talking with seasoned investors, new and potential investors, first home buyers and I can assure you the mood is generally positive and uplifting.

Yes the market is likely to remain subdued for a while.

Will a property tsunami hit our shores due to the 2010 budget? I very much doubt that as we have faced worse and still look in good shape.

REINZ Monthly Housing Price Index - New Zealand

     January    2005    $265,000
     January    2006    $300,000
     January    2007    $327,000
     January    2008    $340,000
     January    2009    $325,000
     January    2010    $350,000

If you want to sit on the fence for the next six to nine months waiting Kieran Trass to pass by, that is completely up to you.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

The Collapse of the New Zealand Real Estate Market may only Be Days Away

2010-05-13T21:03:46+12:00

If what you read is true - Hold On.

A collapse of the New Zealand Residential Property Market may only be days away as property investors ready themselves for the government’s much-awaited 2010 budget.

Will they or wont they come down hard on residential property investors, the very people building rental properties and leasing them back to the government at a time when it is reported immigrants who cannot afford rental housing on their own and are doubling up on accommodation, or even living in vans due to a shortage of affordable accommodation.

Some are further cutting costs by spending nights in their vehicles parked on the side of rural roads or in public car parks, rather than going to campervan parks or camping grounds.

That is what happens when incentives are threatened and property investors put things on hold.

Will slamming property investor’s with unfair tax increases elevate the problem or will the opposite occur and see tenants paying more.

Sure no doubt a few are cheating the system just like in any business, however a blanket approach is certainly not recommend as the current tax system is fundamentally workable in its current form.

It has been reported uncertainty over next week's Budget with its potential for tax increases for landlords is being blamed for a sluggish property market.

Not surprising really, why would someone put their foot in the door having been told it could very well be slammed shut, and hard.

I could be wrong, after all we are relying on politicians to do the right thing and they won’t get any brownie points from those that think property investors should be hit with a 4 x 2 if they don’t swing hard, but I think things may pan out a little differently. Guess time will tell and we don’t have much longer to wait.

Like a car engine that isn’t running smoothly, do we analyse and tune, or do we rip it out and replace it with another in what could be a very costly exercise.

My call would be for the tune-up.

QV Valuations spokeswoman Glenda Whitehead said sales in April had been slow, with fewer properties for sale on a "flat" and "patchy" market.

While this was expected because of Easter and school holidays, doubts around the May 20 Budget, as well as possible increases to interest rates, were holding house-buyers back but even after the Budget announcement the property market is likely to remain relatively subdued.

If confidence returns in the investment sector then we might see an increase in activity but will that lead to another property boom, not likely as the "hangover" from the recession is not over yet.

So will the market collapse like in America and England? I very much doubt it. More likely the market will remain relatively subdued for the better part of 2010.

In closing, let’s hope commonsense prevails as there is far more at stake than the pockets of investors and tenants.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry.

We Export in Raw Material the Equivalent of 333,000 Houses a Year

2010-04-21T08:19:17+12:00

Exporting valuable raw materials such as (logs) helping to sustain manufacturing in other countries when we could be creating jobs in our own country, I find absurd.

In NZ we have the expertise and the raw material in abundance to export kitset homes instead we export raw material (logs). Researching this article I tried to find out why and was told repeatedly, loggers get a better price offshore.

This made me even more determined to ask the hard questions but then the doors started to close.

A similar thing happened when I started questioning others as to why we hand out millions and millions of dollars in aid money when houses gets destroyed by hurricanes instead of exporting kitset homes made in New Zealand that can withstand extreme weather conditions.

I was talking to a guy that sent several containers of building material to one of the devastated islands and he said people where turning up one by one putting a couple of lengths of timber on their shoulders and wandering off to build who knows what.

He also made a comment that these communities were using aid money to purchase substandard building materials - thinking that were getting a good deal - which would only result in the shacks, as he called them, being demolished in the next big blow.

Another company director of a prominent building company said he had tried and tried over the years but governments showed very little interest and in fact would not even return his calls.

New Zealand forest owners started shipping logs to Japan in the late 1960s, but for decades exports were restricted by government policy (from Government forests) and by domestic log demand. However, when the Government sold its forests to private interests in the 1990s both the volume and market spread increased.

Total log exports increased from 1.3 million cubic metres in 1980, to 1.9 million cubic metres in 1990 and to 5.9 million cubic metres in 2000.

Now exports are around 10,000,000 cubic metres per annum, of this I have been informed more than 50% is shipped to China.

The log export boom has attracted a growing number of exporting companies. The Industry now has at least 16 companies plying the trade. This compares with only about 5-6 log exporting companies left on North America's West Coast.

Several new-entrant Chinese companies are now in the game. The very high prices bid for some stumpage sales in late- 2009 raised eyebrows, with conjecture that Chinese economic stimulus package money is behind such bids, and with volume more important than price.

In early 2010, some New Zealand sawmills report log shortages as the log export boom continues. But, knowing China, it can stop as fast as it started.

Source: 2010 New Zealand Forest Products Industry Review. DANA Ltd. See www.dana.co.nz or contact jan@dana.co.nz

I put this question to Jan at DANA Ltd: “Approximately how many averaged sized homes would 10 million cubic metres of logs produce?” but at time of submitting this article for publication, I had not received an answer.

Maybe I was barking up the wrong tree, but I don’t think so. It was very much like talking to a cartel. The scary thing is governments appeared to be in the mix.

Not to be out done I put the question to another source and their reply was staggering to say the least.

We export in raw material the equivalent of 333,000 houses a year or if they were solid wood houses around 125,000.

Even if you said only half these logs were suitable saw-log quality then the above numbers (divided by 2) still makes for impressive numbers.

The world is hungering for food and housing, we have the raw material and infrastructure to produce both so why aren’t we cashing in, rather than handing out cash. Why are we selling ourselves short?

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Auckland House Prices Jump by $709 a Day

2010-04-21T07:57:58+12:00

As reported in the New Zealand Herald Saturday Apr 17, 2010 house sales are booming nationally and Auckland leads the way with a $709 a day jump.

Auckland last month had the biggest price rises and the most deals.

As I have reported on a number of occasions, I think it is deplorable creating headlines to gain readership rather than help guide with reliable information so people can make better decisions. Statics are the same, it just takes a little more time to understand and report them in the true context.

For starters it’s little wonder Auckland (the proposed super city) leads with the most deals, however as for having the biggest price increases I thought that prize would have been awarded to Mt Maunganui after Colin Giltrap purchased a ninth floor penthouse apartment for a reported $5.5 million, a record price for a home in the Bay of Plenty. That surely would have fudged the average sale price in that area.

Glenda Whitehead of QV Valuations said;

“While the year-on-year statistics continue to look very positive for the Auckland region, a closer look at recent months indicates values in many areas have hit a plateau. Discussion with our valuers supports this flat-lining theory, but scratching deeper into the local markets reveals that the various suburbs and price brackets are acting differently”. view additional commentary here

The national median price jumped $10,500 from $350,000 to $360,500, a $338 a day rise. Wow! One might say, property investors must be making a fortune I hope the IRD come down on them like a ton of bricks.

I can assure you property investors are doing better than OK but they are not making anywhere near $338 to $709 a day.

Will the Reserve Bank increase interest rates to dampen speculation, only time will tell, but with headlines such as Auckland house prices jump by $709 a day I guess they would be justified in doing so.

I hope that the Reserve Bank will look at the other side of the coin. The number of people who received mortgages in the first quarter of this year was 30 percent down on 2009.

I guess the biggest concern for the Reserve Bank would be the rate war that is about to erupt between the banks now that HSBC have reduced their floating rate to 4.99% and on top of that, some banks have loosened their lending criteria.

Maybe a .25% increase in the wholesale rate later this month could be on the cards before things get out of hand.

Either way, if you are buying, selling or investing, do your homework, do not be lead by people that generalise, sensationalise and have a blatant disregard to reporting the facts in a balanced manner. Read between the lines.

Each area has its own demographics and statistics, which can be dramatically different between neighbouring suburbs. I am not advocating it is the right or wrong to buy, sell, or to invest, as that would be generalising, all I am saying is do your homework.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

60% of People are Paying Too Much for Their Insurance. (True or False?)

2010-04-08T08:32:46+12:00

Are Banking Consultants and Mobile Mortgage Managers being pressured into selling insurance policies to meet sales targets and to qualify for bonuses?

Is this really happing?

Sure if the person [selling] the policy is prepared to spend the time required to understand the client’s needs and has sufficient knowledge of the policy they are selling then I don’t have a problem with them doing so however, first and foremost it should be about client needs, not commission and or sales targets.

Secondly it is my understanding the banks usually only represent one insurance company and as they (insurance companies) and banks for that matter, are not created equal, how can any lender promote a single company as being the best fit for each and every customer?

Having sold insurance in the early 90’s when I owned Citiwide Mortgage and Insurance Brokers I became very familiar with the industry and to this day, I remain sceptical when it comes to insurance, as often it is sold on fear rather than necessity.

Ask yourself this question, three or so years ago when the risk was greater than it is now, why wasn’t mortgage protection given more thought, yet today, it ranks right up there with the must haves.

A little like closing the gate after the horse has bolted don’t you think?

Back then, sales targets were not an issue as the big-ticket item (mortgages) was first and foremost in one’s mind as they were an easy sell.

Don’t get me wrong, not all people are hawking insurance for the wrong reasons and most insurance policies offer value for money. (Note I said most!)

In saying that I have on numerous occasions and unfortunately more often than not, come across people that are either over insured, under insured, or not insured at all. It is as if they have been given a dart and been told to close their eyes and throw, sign here.

Fleeced recently was a young guy that had been paying into his insurance policy for years because that is how retirement plans were sold back then, but now as he intends to purchase an investment property he phoned his advisor to see what he should do.

Simple, increase your policy he was told, feeling a little stupid for asking such a dumb question (the customers words) he went ahead and did just that.

He was not being stupid for asking, and one should never think that way, instead he was taken advantage of as the advice given was weighted to benefit the wrong person.

He was already over insured and could in fact reduce his cover and channel the savings into reducing his debt much sooner resulting in significant savings.

Sure the salesperson missed out on commission and as he gave the wrong advice, the customer took his business elsewhere which was good to hear as the salesperson didn’t deserve the customer’s ongoing business.

Remember a lender cannot condition a loan that requires insurance to be taken out with them, but can however condition it be assigned to them which isn’t a problem.

Don’t get me wrong I am not anti-insurance; in fact I recommend it is reviewed annually. I am simply encouraging people to read the fine print, question the salesperson’s motives, and ask them to show you comparisons from other companies.

This is what Tessa our insurance consultant had to say;

“The key difference between the advice of a trained consultant is choice, analysis, knowledge, experience, service and accountability, the foundation of which her company StrategicAdvice was built."

If 60% of people are in fact paying too much for their insurance, surely a quick phone call is in order.

60% is a shocking figure however having been exposed to the industry, sadly I find it very believable.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Find out more about your own insurances from Tessa and StrategicAdvice

Disturbingly, Rental Properties account for more than half of the P-Labs discovered in the last five years in NZ

2010-04-08T07:27:10+12:00

More than 50% of P-Labs discovered in New Zealand have been in rental properties, how can this be you might ask?

Surely property managers are meant to be doing regular inspections of rental properties?

Yes, and in most cases they are, but by rights, tenants must be given 48 hours notice before any check of the property, which gives them more than enough time to move the lab to another location.

I have read that the gases have a sort of a tangy smell but being faint, I do not expect a property manager would not necessarily notice and am sure such a smell could be temporally masked by another, little wonder ‘P’ manufacture is running rampant in society.

So were do we go from here, and who is ultimately responsible for making sure all that can be done to eliminate the problem is being done?

This really is a serious matter, landlords of the affected properties not only face huge decontamination costs, but the law also requires police to report the property concerned to local councils. In the majority of instances a permanent public record of the ‘P-Lab’ and contamination is then made on the LIM and Property report so it is the landlord’s best interests to do what they can.

A ‘P-Lab’ can seriously devalue a property, not forgetting the costs involved with decontamination, which can run into the tens of thousands of dollars. This is on top of the consequential losses from missed and reduced future rental income.

Some properties can’t be saved and have to be demolished and with ‘P’ being extremely volatile there is also risk of fire which could also result in total loss, the likes of which may not be covered by insurance. This is after all an unlawful activity.

Being potentially disastrous for investors, I started searching for a possible solution and discovered a smart device called the “MethMinder” developed here in New Zealand, a silent alarm system guaranteed to detect the manufacture of methamphetamine at a property.

This clever little device, which communicates wirelessly via our national mobile network, monitors the surrounding atmosphere within which it is placed. Fitted with a number of anti tamper alarms, the device is completely self-sufficient, no cabling required.

The property is continuously monitored back at the MethMinder control room, with regular diagnostic and environment status reports sent and logged irrespective of any occurrence. In the event of the alarm being activated, the monitoring team will notify the landlord’s listed contact and the police if required. This will significantly reduce or even eliminate the contamination of the property.

Tenants are informed from the outset, that the property is monitored by a MethMinder, along with the consequences and charges they will face if they tamper with the device.

In this way a MethMinder protected property is a very effective deterrent to tenants even thinking of cooking ‘P’ in the first place.

When Geoff Dye the business Development Manager was asked if the device had detected anyone cooking P he answered;

“Not yet because it’s such a good deterrent, people would have to be pretty silly to give it a crack,” he said. ”However we have had a few interesting cases and when confronted, the tenants vacated very smartly.”

“When you’re interviewing people you let them know that this property has the alarm and they will be detected and then the bad tenants tend to default at that stage.”

“It also helps deter coercion of otherwise good tenets from having your property used to make ‘P’ by others. This is a growing problem and can happen to the best of families for many reasons.”

As the Auckland Regional Public Health Service advises, no decontamination procedure can guarantee absolute safety; it is up to prospective tenants to satisfy themselves that the property has not been used as a ‘P’ lab.

For Property Investors, I can only recommend you take the time to assess your exposure to this potentially devastating problem and make sure you are doing everything possible to protect your assets.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

More and More Rental Properties used in the Manufacture of Methamphetamine (‘P’)

2010-03-23T10:29:16+13:00

Alarmingly, more than half of the P-Labs discovered in the last five years in NZ have been in rented properties.

How can this be? Aren’t property managers meant to be doing regular checks on rental properties?

In most cases they are, but tenants have rights and must be given 48 hours notice before any house inspections this allows tenants to move the lab to another property.

Apparently, the gases have a sort of a tangy smell but being faint a property manager would not necessarily notice it, which is little wonder ‘P’ is running rampant in society.

So were to from here, and who is ultimately responsible for making sure all that can be done to eradicate the problem is being done?

Landlords of the affected properties not only face huge decontamination costs, but the law also requires police to report the property concerned to local councils. In the majority of instances a permanent public record of the ‘P-Lab’ and contamination is then made on the LIM and Property report so it is the landlord’s best interests to do what they can.

Some properties can’t be saved and have to be demolished and with ‘P’ being highly explosive there is also risk of fire which could also result in total loss, which may not be covered by insurance. This is after all an illegal activity.

Being potentially disastrous for investors, I started digging and unearthed a little device called the “MethMinder” developed here in New Zealand, a silent alarm system guaranteed to detect the manufacture of methamphetamine in a property.

The property is continuously monitored back at the MethMinder control room, with regular diagnostic and environment status reports sent and logged irrespective of any incident. In the event of alarm activation, the monitoring team will then notify the landlord’s nominated contact and the police if required. This will dramatically reduce or even eliminate the contamination of the premises.

Tenants are informed from the outset, that the property is monitored by a MethMinder along with the consequences and charges they will face if they tamper with the device.

In this way a MethMinder protected property is a very effective deterrent to tenants even contemplating cooking ‘P’ in the first place.

When Geoff Dye the business Development Manager was asked if the device had detected anyone cooking P he answered, “Not yet because it’s such a good deterrent, people would have to be pretty silly to give it a crack,” he said. However we have had a few interesting cases and when confronted, the tenants vacated very smartly.

“When you’re interviewing people you let them know that this property has the alarm and they will be detected and then the bad tenants tend to default at that stage.”

‘P’ not only possesses a risk for property owners but also to tenants moving into a house that was contaminated. Children are the most venerable.

As the Auckland Regional Public Health Service advises, no decontamination procedure can guarantee absolute safety; prospective tenants should satisfy themselves the property has not been used as a ‘P’ lab.

Traditionally authorities have issued warning signs for land lords and property managers to look out for. Apart from opportunist cooks, these guides may be of very little value, and are by no means a fail safe guide.

The ‘P’ trade is now over a billion dollar industry in NZ with a life sentence available to manufactures. For this reason cooks have long since devised ways to cover their tracks.

Recommended warning signs to look out for include;

Unusual chemical smells that are not normally present in the area
Numerous chemical containers (labelled solvent, acid, flammable) stored or stock piled
Stained glass equipment and cookware
Plastic or glass containers fitted with glass or rubber tubing
Portable gas tanks or other cylinders not normally seen or used in the area
Chemical stains around household kitchen sink, laundry, toilet or stormwater drains
Yellow/brown staining of interior floor wall ceiling and appliance surfaces
Any unusual activity particularly at night

A quick check online uncovered the following news articles;

Cambridge P lab bust reminder of drugs in small towns

Invercargill Suspect held at gunpoint during P-lab bust

Burswood (Akl) P Lab Bust Worth Millions

Hamilton Explosives found in P house

Hastings Police P lab bust shocks residents

Remuera (Akl) Locality of busted P lab a concern for police

Unfortunately, this is only a short list but sufficient to get this point across, the problem is not defined to any one area. If you suspect a dwelling or property is being used as a ‘P’ lab contact the Police.

If you are a Property Investor, I can only recommend you seriously review your exposure to this potentially devastating problem and make sure you are doing everything possible to protect your assets.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Just as Many Houses Sell over the Winter Months. (True or False)

2010-03-23T08:34:28+13:00

Was that statement just an exaggeration to kick-start a sluggish real estate market?

Watching the interview with Alistair Helm on ASB Business the other day I guess some could have been excused for feeling sceptical as to Alistair’s comments;

“Just as many houses on average sell over the winter months…”

The reason being, that comment was made after agreeing that over the last couple of months, sales volumes had been lower than expected.

I can understand why people would think that way and maybe he was trying to pump up the industry, however I tend to agree with him and would go a little further and say it is advisable to buy/invest in a residential property in the colder damp months of the year.

Think about why house sales peek when the sun is shining.

A big rush of property listings last month raised the possibility that sales volumes might finally rise and house prises could again come under pressure.

Personally I feel in the short term any sharp rise is sales volumes is unlikely, excluding the bottom end of the market which always tracks well. However, towards the end of the year we may see volumes described as steady but for the next few months at least, I think the buzzword will be subdued.

How will this effect pricing? I don’t really think it will.

Well you may see some vendors reduce prices to move on but as they would be buying on the same market they would pick up the reduction on the purchase so in the end will be better off.

With interest rates set to rise later in the year at levels likely to be less drastic than first thought, this could see an increase in building activity which would then flow onto the more established properties.

Although it will be a little hard to get motivated as temperatures drop, I would suggest you don the warm gear and get out there, as great opportunities are to be found in such environments and these days a lot of the groundwork can be done from the comfort of your home.

Just as many houses sell over the winter months true or false? Who really cares?

The most important thing to remember when one thinks about real estate is why we are buying it in the first place.

When one takes time to think about it, the reasons are many and varied, yet generally it is for what it will do for us and that is to house us and our family, or maybe to offer some form of return on investment.

Either way the key to any purchase is affordability and not the time of the year.

I stand by what I said, and that is I personally prefer to make my decisions when a property looks its worst.

I am aware that not all will agree but whether it is now, in a few months, or towards the end of the year and it is change you want, you must put a foot forward for that to happen, and there is never a better time to do that than the present.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker and Real Estate Agent.

Is Kiwibank Going to be The First Home Buyer’s Saviour?

2010-03-16T14:25:02+13:00

A group of Kiwi lenders and Housing New Zealand team up.

Recent government discussions of potential tax changes have halted inquiries from investors who usually bought at the lower end of the price range so is this going to open the door to first home buyers.

Well, not if the so-called mainstream lenders have anything to do with it.

Sure, there is the odd one advertising they will consider applicants with less than 20% deposit but my checks on such promotions have lead me to believe it is little more than a branding exercise.

I said from day one that Kiwibank would be a force to be reckoned with and it looks like my premonition was on the mark. I now think that due to their success, you may see at least one Aussie bank leave our shores within the not too distant future. Watch this space…

The government and Kiwibank are working hand in hand to help Maori build on their land as the mainstream lenders didn’t want to have a bar if it.

Now we see Kiwibank and a few others, CBS Canterbury, Nelson Building Society, Southland Building Society, TSB Bank and Selected Credit Unions teaming up with Housing New Zealand to make it easier for home buyers to purchase their first home through a programme called Welcome Home Loans.

The problem with getting a normal home loan is, for many people, finding the deposit.

Paying rent, supporting a family and trying to save a deposit can be beyond many and can be quite daunting when one is advised 20% is required.

Over the years I have heard from many frustrated people asking, “Our mortgage payments would be less than what we are paying in rent so why won’t the banks give us a mortgage?”

The Welcome Home Loan removes that problem or goes a long way to relieving the pressure of having to front with a substantial deposit.

Applicants will still have to meet the HNZ standard criteria and will need to meet the specific lending criteria of the participating lenders; however that is very different from having to pay rent and save for a 20% deposit.

It is pleasing to finally see a Government backed scheme for the property sector that may actually help those that it sets out to.

You can find more information on the package here: Welcome Home Loans or by getting in contact with me directly.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker and Real Estate Agent.

Take Away the Land and What do you Have? – A Resurgence of Activity in the Building Industry.

2010-03-10T09:29:26+13:00

Each time I bring up LEASEHOLD LAND as an alternative to making housing more affordable those with otherwise little to say come out of the woodwork to assure me such an initiative will not work.

Knowing it has worked in the past, (St John’s) comes to mind, I sent a number of emails to various councils throughout the country for their comment.

All replied (apart from Auckland), which was expected as they have never bothered to in the past, but all of the others not only supported the idea but gave examples of how it has worked in their regions and in some areas it is still to this day working well.

Following is a reply from Helene Ritchie – Wellington City Councillor

“You will be aware I am sure that much of Newlands has been built on leasehold land-Manchester Unity land, and that this has enabled young couples then, some thirty or so years ago and since to have affordable housing.”

“I think leasehold land is a good way to ensure affordable housing-and we do need to find ways.”

If you take the land out of house and land packages and what do you have, AFFORDABLE HOUSING.

It seems we are hell bend on reinventing the wheel when we already have options that work but we still look for a better way.

Sure there is nothing wrong with fine tuning, but to ignore something that has worked for years in favour of trying to find another option just doesn’t make any sense to me.

I am not advocating the government go out and purchase land and turn it into a reservation of low cost housing that is the last thing anyone needs or wants to see and I can’t think of anywhere in the world that concept has benefited anyone but there are alternatives worthy of consideration.

Government Subsidised Leasehold Land

Housing NZ have a large number of properties they are getting little or no return on so why not sell the (houses) to the tenants and lease the land to them for a nominal amount with the tenant having an option to purchase the land (for a set price at a nominated time in the future). This could result in pride of ownership and ease the burden on the costs of HNZ supplying and maintaining subsidised rental accommodation.

It is a futile exercise offering to sell houses to the tenants if the cost of ownership is not affordable.

Sure the government will be still subsidising such a project but when one sits back and has a look at the big picture (and there is a lot to think about) it makes far more sense and not only just in financial terms.

Apartments

Councillors from Wellington and other regions also support apartment (or) high density living as it has less impact on the infrastructure as apartments are generally close to public transport and in many cases central business districts.

Recently The Government in conjunction with Kiwibank and a few other lenders set up a package to help Maori build on their land as lenders in general are not keen on lending on land with multiple ownership entitlement.

As lenders are generally reluctant to loan on apartments (although for different reasons), it would be a huge assistance if the government offered to insure lending for first home buyer (as they have done for Maori) so they could purchase an apartment with a minimal deposit or even no deposit. In many cases, this would result in people paying less to own than they would to rent.

If this is the case (which it is) why are the lenders requiring at least 30% to 50% deposit on apartments.

The quick answer is they were burnt by property investors, developers and others thinking they could make a quick buck.

I had been advising for the past three years or so to keep away from apartments but have recently changed my tune a little and can now see the upside.

Both of the above options shouldn’t necessarily be limited to first home buyers and should be available to any New Zealander that doesn’t meet main stream leader’s criteria.

I am not advocating that this type of living is for everyone and it is not a quick fix but if we are serious about make housing more affordable, and kick starting the building industry we do need to look at alternatives because what is on the table is not working.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Are You Better Off Renting or Paying a Mortgage?

2010-03-05T08:27:25+13:00

As housing affordability is set to get worse many are now being left with no alternative but to rent even though homeownership is their preferred option.

Much like in Shanghai China, where house prices have skyrocketed and it now takes around 70% of the average income to afford a bank loan, New Zealanders are not alone in their struggle.

A government official in China commented he didn’t want house prices to tumble but would instead prefer to limit lending to slow the market down and return to sustainable growth.

Sound familiar?

New Zealanders and the Chinese prefer homeownership over renting all be it for different reasons, but where to from here?

Lets first look at the difference between renting and ownership in dollar terms.

Talking with a young couple recently that had managed to save a $40,000 deposit and want to purchase a property in East Auckland for around $400,000.

John and Jo are currently renting a property that would sit in that price range and they would dearly like to purchase it but the property owner has no intention to sell as the market is flat plus it is a great little rental. Rent is $390 per week.

If the property owner did decide to sell the property to them and they put down the $40,000 deposit and borrowed $360,000 over 25 years @ 6.5% they would be paying around $595 a week including rates and insurance.

That is an extra $205 per week to live in the same house.

At first glance, on paper it would not make sense to enter into an agreement to purchase the property as an owner occupied property, as it is going to cost them $205 more a week to do so.

Jo mentioned that it wasn’t a pretty picture I was painting and it was starting to sound like I was an advocate for renting.

“Not at all” I replied, but in your case I wouldn’t be in any great hurry to go it alone as there is an alternative.

Her partner John has a brother working offshore who wants to invest in property in New Zealand and then cash it up upon his return in a few years.

My advice was for John and Jo stay renting for the time being. The three of them kick in an equal amount John and Jo $40K, Johns brother Tim $40K and borrow $320,000 instead of $360,000. That would cost them around $530 per week.

Mortgage $530 less rent $390 divided by 2 = $70 per week. A lot more affordable and gets them both on the property ladder.

Down the track they could cash up and go their own way.

Many are starting to do just that, co-investing as they are finding it increasingly difficult to go it alone.

Home and Income properties are an ideal vehicle for co-investing, as are properties with two living areas.

Sitting on the fence watching and waiting isn’t recommended; likewise standing in the middle of the road is dangerous as you are likely to get run down by traffic from both sides.

If homeownership is a priority as it is with the majority of New Zealanders, then look at alternatives, as there is no time like the present to invest in real estate.

BUT IT MUST BE AFFORDABLE and it should take no more than 30 to 40% of your income to do so.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Where To From Here? 2010 and Beyond...

2010-03-04T08:00:35+13:00

It’s little wonder people are confused and lacking confidence when you read headlines like,

Property listings surge, sales remain static.
January building consents value falls to seven-year low.
End to Auckland mortgagee sales surge some years off.
Interest rates set to increase later in the year

Then John Stewart, First National general manager, was reported as saying 20 percent reductions were becoming more common.

As reported last year I feel there are far too many people holding on in the belief that if they hold on a little longer they will be able to weather the storm.

I was having a chat with a couple of property investors about this on the weekend. Too many know they are going to sink and don’t look for a way out as they know it is going to cost them.

It generally takes around three months before a bank serves notice and takes legal action to enter into a mortgagee situation and in many cases a forced sale could be avoided if people simply accepted that they had to sell, settle the debit, and start over.

I fear one of those headlines "End to Auckland mortgagee sales surge some years off" could become a reality if people facing hardship don’t face the situation and accept the fact that they must move on.

I really don’t think there is going to be any surge in value within the next year or two that would warrant anyone holding on.

Sales are likely to be subdued rather than static so it isn’t going to be all doom and gloom but it could very well be for those that live in hope of an overnight resurge in values.

The current state of the market has little to do with supply and demand but rather affordability and the only way that is going to change is for incomes to increase and values to remain subdued.

There is activity out there, contrary to the headline, January building consents value falls to seven-year low as residential approvals show 1042 consents issued for new dwellings last month compared with 812 in January 2009.

Read the headline again, it was only a play on words; January building consents value falls to seven-year low.

Interest rates set to increase later in the year now this is a hard one and many if not all are only guessing as the data we must rely on to make a calculated decision is so fickle. At a guess, I would have to say I do not think interest rates are going to increase sharply over the next 12 months or so.

Although New Zealand is only a small country, one should not generalise when it comes to property, as there are so many variances to take into account and figures can become distorted.

I am not sure if John Stewart’s comment of a 20% reduction in values is something that should be relied upon. In some regions and certain price brackets maybe, but in general I don’t think property values will fall by much.

People must remember if they are buying and selling on the same market the person trading up is generally better off taking a small hit, as they will make it up at the other end.

It is the people trading down that will likely be a little worse off but as I have already mentioned it is better to be left with something than nothing at all.

Due to demand, we have spent a considerable amount of time redesigning our website to better report regional market trends rather than generalising as it is was becoming increasing difficult to convince people to look at what is going on in their own regions. Sure National trends do have some impact on various regions but not all.

In fact, it is common for regions to buck national trends. For example, when a large employer sets up shop like Fonterra did in Hamilton.

Summary

2010 and beyond – a subdued market through 2010 and into 2011 then increasing in line with affordability.
If you are facing hardship, face the situation and accept the fact that you must move on, as there is not a quick fix on the horizon.
When considering interest rates think how an increase of 1% would affect you.

Yes, I know some have been popping the champagne corks and saying the recession has ended and we are on the road to recovery and I think that we are, however there are still a few bridges to mend.

We all see things differently, and any decision you make should be based on what works best for you.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

What are the Tax Loopholes?

2010-02-24T08:13:06+13:00

With book titles such as The Insider's Guide to Real Estate Investing Loopholes, and the governments online brochure IR 435 laying out how to take advantage of Investing in Residential Real Estate, it’s little wonder Mum and Dad investors are taking advantage of what is on offer.

From memory it was approximately 1992 when the Government introduced the concept of “loss attributing qualifying companies”, commonly referred to as an (LAQC) which have been a favoured vehicle of property investors and their advisors ever since.

I remember at the time being a little taken back at the government’s generosity allowing investors to offset losses against personal tax whilst at the same time building tax-free equity.

It’s now 2010, 18 years later and all of a sudden it’s no longer acceptable and the loopholes need to be plugged. A little absurd one might think as they were there from day one.

To those that are running around pointing the gun at property investors I would suggest if you haven’t already done so, put the gun down and read the brochure that was put together by the government to aid investors. IR 435

There really aren’t that many Property Investment Loopholes under the spotlight, (well not that we know of) however the few we do know they are looking at, could be crippling for the ill prepared if implemented in or around May this year (2010)

Deprecation
Tax offset against personal income
Negative Gearing (interest only loans)

Deprecation

Yes I have heard of many examples of people pushing the envelope and fudging the line between depreciation, maintenance and capital gain. This at times can become a very fine line so it is understandable that more work is required, but not certain if it is going to be an end all for property investors.

Sure, some Accountants are outraged as they say their clients made investment decisions based on depreciation, tax right offs, and if they lose those benefits, they could go to the wall. Maybe those Accountant’s are simply putting up a shield in case they are pelted with rocks from disgruntled investors after all, they were the ones that gave the advice.

Tax offset against personal income

I don’t really see how the government could justify axing this benefit as in its current form “isn’t a loophole” as such, however there is a loophole that they are likely to look at.

Most loans for property are set up as an interest only whereas people use equity in their own homes to purchase another borrowing 100% of the purchase price with losses attributed against their personal income.

They don’t pay down the debt and instead rely on capital gain. This is where I believe change is needed. All investment housing loans unless they are speculative should be on principle and interest not interest only.

If this simple change was made less people would get into trouble with over capitalising and the tax system would be fair. Investors would be paying down debt so would be cash flow positive a lot sooner therefore paying tax and personally I don’t see that as a bad thing.

From day one, yes I was in the game when “loss attributing qualifying companies” were floated, but even back then I would tell my clients, “do not make your decision based on the tax benefits treat depreciation and taxes as icing on the cake and use any payout to reduce your personal mortgage”.

You may think some of what I have just said hypercritical, as I have never been an advocate of negative gearing (interest only loans) apart from as a short-term solution.

Not true, as what I would tell clients is this; work out what the difference between interest only, and principle and interest is, and pay the difference off your personal loan which will reduce the amount of interest you pay yet still maximising the tax benefits. Holes like that are likely to be plugged.

For example;

Investment Loan $350,000 @ 6.5% interest only = $1895

$350,000 over 25 years @ 6.5% principal and interest = $2363

So the difference you add to your personal loan $468

Personal Loan $200,000 over 15 years @ 6.6% = $1762 plus $468

This would result in you paying your personal loan off in 10 years and five months and saving something like $38,000 in interest whist maintaining the maximum tax benefits and building untaxed gain at the same time. In addition, if you also used the tax benefits to pay down your personal debt you would be even better off.

Do not be afraid to pay down debt and become cash flow positive. Leave negative gearing to the “speculators”.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Property Sales Screech to a Holt… (18 year low)

2010-02-24T07:51:39+13:00

Inaction by property investors, (who account for approximately 5% of total sales) cause the market to stall.

I find it extraordinary that such a small percentage of people could have such devastating effects.

“SALES PLUMMET TO THEIR LOWEST LEVEL IN ALMOST TWO DECADES” says the Real Estate Institute of New Zealand (REINZ). The number of sales has fallen to its lowest level since electronic records have been kept.

On the upside, based on the above reports it is now unlikely the OCR (official cash rate) will be raised next month as I previously anticipated.

But let’s step back for a moment and take a look at what we are presented with instead of banging away at our own tom-toms.

As the system that monitors and controls cycles was tampered with five or six years ago it is going to take us some time to weather the storms and further turbulence is yet to hit. (Hence the current blip on the radar)

Five to six years ago a cycle had come to an end, it was time to take a break from soaring property prices to allow incomes to increase so further growth would be affordable.
It was time for the market to take a breather but it didn’t, and this is where it got all pear shaped and came unstuck. The system was tampered with and then became prone to failure.

Lenders changed their lending criteria to keep loaning money, borrowers kept borrowing, and no one wanted the party to end.

Humans are like that, unpredictable, speculative and inquisitive we generally are out to better ourselves and in doing so often forget there is cost associated with growth.

My point is cycles have been about peaks and troughs, where what we should be looking at is sustainable growth, not the crash burn and rebuild cycles.

Seriously, we really do need to start learning from the past as this isn’t the first time we have been rocked by a financial disaster. Although, the last was initiated in a different industry, (.com) but the fundamentals are the same.

All of the above makes perfect sense but is does little to explain the spike prior to Christmas (2009) and then screeching to a hold soon after.

The Spike - that is an easy question to answer; nervous and or over capitalized investors bailing out coupled with mortgagee sales and the normal November surge – no other reason really.

Subdued Market - affordability, the reason the market took a hit in the first place and still remains the key factor, (nothing to do with investors).

Yes there are investors that could be brought to their knees should changes to depreciation and tax write-offs against personal income come into play but is that having a negative effect on today’s market?

I don’t think so.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Property Screeches to a Holt as Investors are Brought to Their Knees

2010-02-16T11:02:54+13:00

As John Key launches an all out attack on property investors, (who account for approximately 5% of total sales) the real estate market losers traction.

I find it extraordinary that such a small percentage of people could have such devastating effects.

“SALES PLUMMET TO THEIR LOWEST LEVEL IN ALMOST TWO DECADES” says the Real Estate Institute of New Zealand (REINZ). The number of sales has fallen to its lowest level since electronic records have been kept.

On the upside, based on the above reports it is now unlikely the OCR (official cash rate) will be raised next month as I previously anticipated.

But let’s step back for a moment and take a look at what we are presented with instead of banging away at our own tom-toms.

Below is a blog I put together in Oct 2009

Nothing short of a World War or Great Depression will change things

Nothing short of a World War, Great Depression, total or near destruction will see real estate cycles track as they have over the past years and heaven forbid either happening any time soon.

Recently that statement was challenged by a University student, mind still full of textbook ideologies determined to prove the theories she had learnt correct.

As the system that monitors and controls cycles was tampered with five or six years ago it is going to take us some time to weather the storms and further turbulence is yet to hit. (Hence the current blip on the radar)

Five to six years ago a cycle had come to an end, it was time to take a break from soaring property prices to allow incomes to increase so further growth would be affordable.

It was time for the market to take a breather but it didn’t, and this is where it got all pear shaped and came unstuck. The system was tampered with and then became prone to failure. Lenders changed their lending criteria to keep loaning money, borrowers kept borrowing, and no one wanted the party to end.

Humans are like that, unpredictable, speculative and inquisitive we generally are out to better ourselves and in doing so often forget there is cost associated with growth.

My point to Fay, cycles have been about peaks and troughs, where what we should be looking at is sustainable growth, not the crash burn and rebuild cycles. And thankfully no, a world war or a great depression isn’t required if we take heed of what has recently rocked the world but if we don’t; they could very well become a reality.

Seriously, we really do need to start learning from the past as this isn’t the first time we have been rocked by a financial disaster. Although the last was initiated in a different industry (.com) the fundamentals where the same.

I think the old system that monitored and controlled real estate that inherently was based on a seven-year cycle worked fine and should be used as the model moving forward.

First we need to start with little if any growth (price increases) then in two or three years ease back into growth mode.

This is a better option than the alternative – the War the Depression, wipe everything out and start to rebuild from the ground up. Sounds a little dramatic, but some are doing just that and if we don’t make changes (now) I am afraid it will become a reality for many more.

In the past when I questioned people on how much they wanted to borrow 90 percent would reply, “That is why we got you here, to find out what the bank will lend us.”

As I would point out there is another side to the coin, how much do (you) think you can afford.

Yes it’s not only the Reserve Bank and the lenders that must take responsibility for righting the wrong but the borrowers must also take on some of the responsibility.

Back to my present opinions…

All of the above makes perfect sense but is does little to explain the spike prior to Christmas (2009)

That’s an easy question to answer, nervous and or over capitalized investors bailing out coupled with mortgagee sales and the normal November surge – no other reason really.

It’s simple really and this is what the government should be concentrating on rather than property investors (the 5% of the market). Focus on making housing more affordable at the bottom end, which will create a flow on effect.

LEASEHOLD LAND IS THE KEY and there is plenty of it. In doing so it will create employment and taxes far in excess of what they could hope to get out of the already over taxed.

Sure there are loop holes that need to be plugged and I am sure they will be but, I am afraid when one comes to the table with a closed mind it is very hard to see the big picture.

So then, is now a good time to invest in real estate, prices are low, interest rates are reasonable and values are in line with building costs?

Yes, if you can afford to, there will probably not ever be a better time.

Just remember, interest rates will increase so pay down as much debt as possible whilst rates are low. Capital gain will happen over time but at a much slower pace so don’t rely on that as a get out of jail card, DONT RELY ON TAX BENEFITS and all should turn out fine.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

No Deposit Home Loans Back on the Table Again

2010-02-16T10:44:34+13:00

Maori have been offered no deposit home loans to help them get into housing but will they benefit in the long run?

Housing spokesperson and Māori Party co-leader, Tariana Turia, is proud that another key milestone in the Māori Party's policy manifesto has been achieved with the Housing Minister's announcement of a new home ownership product called Kāinga Whenua.

"Our policy priority was to resource iwi and Māori organisations to develop sustainable housing initiatives" said Mrs Turia. "This came from our recognition that Māori often have the land but not the income to service borrowing" said Mrs Turia. "We were particularly keen to encourage investment in multiply owned land, so that Māori would be able to experience home ownership on their own papakāinga".

With this new initiative, it was reported that 180 loans are expected to be offered under the scheme in its first year however, it was also reported that there are 10,000 people on Housing New Zealand’s waiting list.

Fundamentally flawed? Looks that way doesn’t it.

It has been well documented that I am an advocate for leasehold land to make housing more affordable and although this is a similar approach, I feel the government could have done more, a lot more simply by leaving it to The Ministry of Maori Development (Te Puni Kokiri).

As Mrs Turia said, Maori often have the land but not the income to service borrowing. Based on that statement a feel a loan with a low interest rate funded by Te Puni Kokiri or another Maori body would have been a more practical solution.

Housing would be more affordable, for a lot more than 180, if the government and or councils worked in tandem with developers to make land available for a nominal lease to all standing in line waiting for affordable housing. As potential homeowners wouldn’t be paying over inflated land costs only the building cost, the actual cost of ownership would in many cases be halved.

I urge those that think the offer tabled is a workable solution to take a closer look as it is fundamentally flawed and in my opinion no more than brownie point gathering.

If the government truly see this option as the way forward for Maori, I have some serious doubts about their ability to lead us into greener pastures.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Buy a One-Way Ticket and Leave the Country Now!

2010-02-10T19:40:51+13:00

Little wonder I rarely see eye to eye with Bernard Hickey, the person that lead with that rant soon after John Key addressed parliament.

And to rub salt into the wound Air New Zealand, a company that was propped up by government funds (taxpayer funds) places an advertisement within the article.

Very patriotic.

Interesting how those that say we would all be better off across the ditch are making the statements from within New Zealand. A little hypercritical don’t you think.

Then out comes the Goff “No bold plan at all” guess neither he nor Hickey actually listened to what was being said and simply faxed already prepared statements to the media. Then in fairness we don’t all see eye to eye do we. It’s such a pity we don’t all push from the same side as I am sure we would all benefit in the end rather than pushing against each other and getting nowhere.

Negotiation 101, Herb Cohen believes the world is a giant negotiating table and, like it or not, you're a negotiator.

Whether you're dealing with your spouse, boss, department store, bank manager, children, solicitor, or best friend - in every encounter with other people, negotiating is always taking place. And how well you handle those encounters determines whether you prosper happily or suffer frustration and loss.

With his helpful and sensible approach, Cohen shows that negotiating is a process you can understand and predict - and most importantly, that it is a practical skill you can learn and improve upon. Maybe a little investment in modern day education wouldn’t go astray.

It was reported by the NZ Herald that Mr Goff went on to say the winners of National’s tax package will be the Prime Ministers best mates on their high income and the losers will be average New Zealanders.

Why is it we scold those that work hard to get ahead in life, those that in realty are the very people that contribute towards things such as public health, which they rarely use, public transport, the welfare system, I could go on but won’t. If Mr Goff can’t see that, I am sure his supporter’s wont.

As everyone knows I am an advocate for property investors and yes I can be a little one eyed at times but today Martin Evans, The President of the Property Investment Federation is in my sights.

This I feel, was the rant of the day and there were a number.

He is going to recommend to “his” organisation that investors stop maintaining their properties and put rents up as much as they can in retaliation to the government's intention to abolish depreciation.

I am serious, he was apparently quoted as saying that, as reported by the NZ Herald.

There are already far too many investors that don’t maintain their investment properties to expectable standards so I suppose a few more won’t make much of a difference. It will however benefit those that do look after their investment properties and in doing so those that are paying the mortgage.

Mum and Dad Investors, take no notice of this ranting, maintain your properties, look after your tenants and DO NOT ENTER INTO PROPERTY INVESTMENT solely for the deductions such as depreciation and tax right offs and all should go to plan.

Investors are now saying, as they based everything on what they could skim off the top, they can no longer afford their investments because they have to make money, (just like any other business) as the cream is about to evaporate.

I have been telling investors for years, base your figures on income and expenditure and treat deprecation and the tax breaks as icing on the cake as one day the government will wake up and you will be left with only the cake. Guess that day has finally arrived.

I must say I do find it a little hard to understand how a building doesn’t depreciate in value and would have thought the tax right off against personal income would be at the forefront. Hold that thought, it’s not over yet. As an investor, I don’t really have a problem with that so long as the business can be run on the same lines as a limited liability company. Really, it is just back to square one.

Personally I thought that we property investors were in for a thrashing, but if things go ahead as I think they will, it will tip over a few speculative investors that opted for capital gain rather than debt reduction and lived off the cream, but for those that took my advice, it will be business as usual.

Now that the cards are on the table keep at it. Invest in a property and lease it back to the government with a guaranteed rental for ten years.

Did you really think they were going to behead those that are currently buying new housing to lease to the government and remember; in this way it is win, win.

By investing in purpose built property for Housing New Zealand it doesn’t affect the property market in any way, creates employment, and houses those that would otherwise be living in substandard accommodation.

Before gritting your teeth and aiming your spear, read John Key's speech (with and open mind) and think for a while. You may just decide to put the spear away. Don’t just get on the band wagon with others that have their own axe to grind.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Are Property Investors in for another Flogging?

2010-02-05T15:24:00+13:00

A meeting was called to look at ways of creating a level playing field resulting in a tax reform bill tabled. [ Tax Working Group Report ]

Why it was decided to exclude any representation from property investors, the very people the finger is pointed at, is beyond me. Are they being set up to take the fall for the real culprits of the Real Estate market turmoil?

The less privileged, as they are commonly referred to, may be rejoicing but before they start sniggering should the government implement the “proposed changes” in its current form, they should hold off from throwing a party as they could be the ones taking to the streets in protest.

The tax reform has very little to do with creating a level playing field. It is about revenue gathering.

As to finger pointing, yes property investors that keep buying houses to help with the housing shortage, shame on you.

Sure it has been reported as of 30 November 2009 there are 10,423 people on Housing New Zealand’s waiting list but just because the government have opted to lease from private investors as they simply cannot afford to house that number themselves, you shouldn’t benefit from doing so.

Am I pro property investors? Sure and why wouldn’t I be, but are they responsible for the world recession or the New Zealand property market spiralling out of control?

Not at all and I might add this is not the first time it has happened and listen to this. The same players were responsible on both occasions and to date have never been held accountable, well not in this country.

The first time was back in the 90’s not long after the “share market crash” which brought many to their knees. Mum and Dad investors looked for a safer alternative as a retirement plan and what could be safer than bricks and mortar.

As this caught on, supply and demand kicked in thus fuelling an increase in property values.

Put the finger away, I haven’t finished yet.

At the time lending was capped at 80% and as property values had taken a hit due to the crash many simply didn’t have the equity in their properties they once had.

Credit Analysts could see that it was only a matter of time before properties would be back to at least post crash values so there would be little risk in relaxing lending policy to boost lending/sales so Countrywide Bank took the lead and offered 90% lending.

Most other lenders sat on the fence but after time they couldn’t bare the thought of all the money they were losing so they picked up the ball and were back in the game.

Countrywide then took it a step further. Well it was Citibank actually but theirs was a Clayton’s policy, more of a marketing stunt than a genuine offer but Countrywide’s was the real deal. Punters now only needed a 5% deposit to purchase a home.

This really had a snowball effect and was starting to worry the reserve bank. Out came the big stick as again is their intention, they started flogging the wrong people increasing interest rates, which had little or no effect on the lenders that started the snow ball rolling [ not property investors ] or Joe public.

2004 saw what was described as the beginning of the “Bank Wars”.

BNZ weren’t getting their share of the action from mortgage brokers so decided to take an axe to them and take on the industry single handed. All hell broke loose with all other lenders matching whatever was thrown at them.

Again, the reserve bank became nervous hitting the lenders with a wet bus ticket, which saw all but Kiwibank taking time out. Kiwibank donning a DC3 starting its own battle attacking those from across the ditch.

The Aussies not to be out done still had other weapons of destruction at their disposal. First came a policy change. Rather than using 30/35% of income as a formula to assess servicing criteria they changed to a budget surplus format.

I remember having a loan declined one day and resubmitting it the following day for $150,000 more using the new servicing formula and it was approved.

They did not stop there. Then came 100% lending, no deposit at all required and if you were self- employed you didn’t need to confirm income. Simply put a figure on a piece of paper and wolla, you were in business.

2008 the writing was on the wall, property prices were finally out of control and sales volumes had started to fall dramatically. It was then evident that the weapons of destruction [overzealous lending policies] were taking affect. House prices were simply no longer affordable, so it was time to retrench to the bunkers, back to 80% lending until the dust settles.

As we are about to repeat the cycle this time let’s get it right, change the tax rules and create a level playing field but first, we need a smoke screen , we start by flogging the property investors – sound familiar.

Summary: Banks get off scott free, property investors get flogged and Joe Public think it's great until they can’t find a decent place to rent.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

How do I know if I can get a mortgage?

2010-02-02T16:32:04+13:00

A friend called me to ask for some Mortgage Advice...

...A colleague of his, after calling her bank, was feeling a little down.

Although she had been saving for some time and knew of others in a similar position that had got mortgages, her bank said that for various reasons she would have to wait.

As I pointed out to my friend, this was something that is far too common, as I have had similar conversations with people I meet at open homes.

Often that is the case, they need to sort something before their bank will advance them the money required to purchase a property but they should remember that not all lenders have the same credit policy, in fact I would be hard pushed to name any two alike.

Would it then be advisable to contact a mortgage broker if your bank turns you down? Defiantly, it is always advisable to get a second option however; I would recommend you contact a mortgage broker in the first instance.

Sure not all banks deal with mortgage brokers so if yours doesn’t there is no harm in contacting your bank then going to a mortgage broker as a second option.

However, the risk in that is there is only one credit reporting agency that all lenders use and every time you make an application for credit it is recorded on your file for all to see.

So should your bank decline your application and you go to a mortgage broker and the broker lodges your application with another lender the first thing they are going to think is, if the application was turned down by their own bank do we really want to be looking at it.

Yes I realise that is a strange comment to make as all lenders have different credit policies but when I was working for a bank I heard that comment more often than not and the most frustrating thing was if you didn’t get it right first time, it was hard to turn them around.

It comes down to presentation as the people within credit departments are faceless and it is all down to what they can derive from the application opposed to getting a feel for the person sitting across the table making the application.

Also there is a large turnover of staff within the banking industry so it is probable that you may have someone handling your application that doesn’t have the experience required to read people.

For example, nowhere on an application form will you see the question; “How much if anything do you intend to increase your mortgage payments by?” Yet when I was working as a broker I would ask that very question every time, as so much can be derived from the answer which could make or break the application.

Another example, I would ask a client what loan term they would prefer.

If they said less than 25 years, say 15 years I would suggest we apply for a 25-year term which would make the credit people feel more comfortable as the budget surplus would be healthier, then after it is approved we increase the payment to the equivalent of a 15-year term.

Not only will that result in a better chance of approval it also means that down the track should something unforeseen happen you have the “right” to reduce payments in line with a 25 year term. Should you lock into a 15-year term you would need to “apply” to extend your mortgage and reduce payments, “big difference”.

I guess I should qualify my comments by saying I am not suggesting that banks turn down every independent application – far from it, and many people see value in dealing directly with them.

But if you are new to the property market, I am suggesting that, as with any other sector, you get independent advice before taking the plunge. It is common sense that you do and depending on the advice, you should start off in a better position.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Update: Since writing this post, I decided to write a quick report with a bit more information.

Click here to go to the download page to get this Free '2-minute' report.

No Surprise as the OCR Remains at 2.50% - But...!

2010-01-28T15:42:05+13:00

How will that affect the residential housing market?

For the first time all economists/commentators seem to be on the same page, all but one.

Yes you guessed it, I have differing views.

Sure I was with the rest when it came to this announcement as the writing was on the wall just as it was for an increase in the GST to 15%. What I disagree with is when the Reserve Bank Governor Alan Bollard will increase the rate – and he will.

Personally I think April 29 is a given [ not June or later as others are predicting ] yet it may only be a small increase but even a small increase can have a snow ball effect as those on a fixed or floating rate rush to fix which then drives the rates even higher.

In saying that, I wouldn’t rule out a small increase as early as March 11, but it’s a little early to say with any certainty.

The longer Bollard puts off increases to the OCR, yes plural, there will likely be at least 3 increases this year, the more carnage there could be.

We must remember most people base their discussions on emotion rather than what is practical.

This is the first thing sales people are taught and what I am hearing on the street is confirming that theory.

Daily I am questioned as to how much a certain amount will cost and as I tend to use an average rate, not the highest or lowest 99% of the time I am challenged.

“What rate was that based on”.

When I tell them their response is, “But the floating rate is much lower than that and the 6 month rate is even lower. What would the payments be when based on the lower rates?”

Sure we all want the best deal and I would like to emphasise what I am about to say next,

“THE LOWEST RATE IS NOT ALWAYS THE BEST RATE”.

How do I think the residential housing market will track throughout twenty 10 based on the above assumptions?

There will be a few that get burnt trying to keep up with the Joneses, as did the company with the same name. There will always be winners, losers and those that sit on the fence. So remember what we were taught at school.

Stop, look, listen, before you move your feet – don’t forget the basics.

People will hold onto their homes longer which will result in a resurge of activity in the building industry.

Lenders will [be forced to] change their view on apartment lending as this is going to be the way forward for many. Although this has been evident for some time the wheels within corporate organisations can at times turn very slowly.

As to an increase in value across the board, I feel a substantial increase is unlikely however; there are still many unanswered questions before anyone could reliably say whether there will be a swing either way. All I am prepared to say at this stage is to look at your budget. If you can afford to do what you want to after [looking at the big picture] go for it.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Who is going to benefit from the proposed changes to Real Estate?

2010-01-14T17:02:49+13:00

Bank economists, real estate agents, valuers, investors, the media ... they all have differing views as to what side the coin will land on.

I tend to think the coin will land on neither until the government comes clean as to what changes they intend to implement.

Now this is where it gets a little hard to fathom. What does the government want to achieve?

Discourage property investors?

Fix the flaws in the tax system?

Reduce house prices?

Encourage investment in local business/infrastructure?

From what I have been reading they want to achieve it all and it seems they want to achieve by making changes to only one industry, Real Estate. Surely that would be like saying, it’s time to rejoice, we now have a magic pill, take this pill and you will be cured of all sickness.

Making adjustments to one sector will result in a flow on effect to others. But will they be beneficial or catastrophic? Yes that negative extreme could come into play if they screw it up, which is quite on the cards from what I have been reading.

There seems to be a general conception out there that we have bounced back from the recession and many are already donning the rose tinted glasses.

BEWARE the after-shocks can sometimes be more devastating than the original quake. The infrastructure has been weakened and if the government push too hard for changes to the real estate industry things could start to worsen. Yes, the perceived effect could be opposite to what some are predicting and I am not alone in that thinking.

Will the perceived changes result in house prices plummeting by 30% in 2010 as they were predicted to do in 2009, thus making housing that much more affordable? I very much doubt it.

Will people walk away in droves from investing in property if the tax benefits are reduced? I very much doubt that and I sincerely hope I am right, for if I am wrong rents will skyrocket and I ask you, what will Housing New Zealand do as they have opted to lease from private investors rather than build?

I think for starters all industry commentators should stop using statistics to feather their own nests as this is where the problem lies and not with the property investors.

Statistics are much like a traffic accident. At an accident scene it is likely all the witness will have a different take on what they perceived took place. Much like commentators do with statistics. Which ironically is what drives the highs and lows: not the statistics but the commentators’ perception.

This year we have made it easier for all by changing our website to include regional blogs so people can better understand what is having an impact on their region, or region of interest.

Sure what is happening nationally will have an impact on the county as a whole and I will continue to comment on that, but one shouldn’t lose sight of what is happening, and what could happen, in their own backyards.

As to if should you wait to invest/buy or sell. Wait for what? If is affordable to do what you want to do, just get on with it. It is much more fun being in the game than being a bench warmer.

But I suggest that if you are thinking of investing in residential property for nothing other than the tax benefits, wait.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Become a Millionaire Property Investor this Christmas

2009-12-18T11:41:53+13:00

Often I am accused of being bias when it comes to property investment and I can live with that.

We are all different and that I am thankful for, it would be boring if we all had the same views however, this week I am going to warn potential property investors to proceed with caution over the holiday season as some [not all] prepare to feast on the ill prepared.

Some of the projects I have investigated recently have over stated benefits but as they are [ only an opinion ] they get away with it. Just because someone tells you, they have made millions buying and selling property it does not mean investing in property will take you down the same path.

If you are not familiar with an area [ DO YOUR HOMEWORK ] even if you are familiar with the area, do you have a business plan?

Just last week I meet with a person that had been talked into, or should say, hoodwinked into signing up for not one, but two serviced apartments in an average area of Auckland.

It was very clear after a quick chat that emotions had taken over as he kept referring back to how nice the property looked [ it is new ] the furniture package [ the bling ] and the rental guarantee [ two years ] looked almost too good to be true.

He started to challenge me when I smiled at his reasoning. To top it off he tried to justify his decision by saying he was lucky, as there were only six left.

Rarely is a sale made without emotion being an influencing factor and as I point out in my book, when investing in residential property you are in fact setting up a business, so leave the shiny things to the magpies and instead focus on the business aspect.

It was soon evident that the best thing this person could do was walk away. He was heavily reliant on the rental guarantee and the [ prospect ] of capital gain of which there was no supporting evidence.

One must remember that property does not always increase in value. Sure, over time it does, that is basic economics 101 however, there are times when values slide below the bar.

This is where many people wanting to become property investors go wrong, they get so hung up on returns and the bling, they forget it is a business and a raft of other factors get overlooked. They only see what they want to see much like the opponents to residential property investment only see the down side.

Sure, look around and see what is available but remember you are in holiday mode and life tends to take on a new look when on holiday. At the very least, insert a due diligence clause.

So back to the caption [ Become a Millionaire Property Investor this Christmas ] Kick back, relax and give it some thought, for if you play by the rules you may very well become just that.

Soon we will be doing a piece on investing in holiday homes with family and friends. Many choose this option so they can enjoy their investment along the way, interesting thought don’t you think.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Invest in a rental property, form an LAQC and reduce your personal tax

2009-12-11T11:37:00+13:00

Not hard to understand why so many are doing it and why so many are opposed to it.

The opposing sides will both have their time in the sun as seasons change but they will never agree, as when one is in the sun the other sits in their shade.

Let us first deal with an LAQC as that may very well be the direction in which the axe swings, and this time it will.

What is an LAQC - it is a [ Loss Attributing Qualifying Company ] basically the same as a Limited Liability Company except for one aspect which is the very reason for so much controversy. [A business loss can be offset against personal tax]

Even when the investment property increases in value, if there is a paper loss, that loss can be offset against your personal income.

For example you may have an investment property that has increased in value by say $30,000 but you made a loss on paper of $20,000 [ interest, depreciation, maintenance etc ] you can still claim the loss against your personal tax.

John the owner of the investment property earns $100,000 but after deducting the paper loss of $20,000 only pays tax of $19,950.

Peter earns the same amount $100,000 and is taxed $27,550.

The person with $500,000 on term deposit pays tax on the interest they earn. Their money essentially funds the investors.

I guess everyone just wants a level playing field. Well except for property investors, they are happy with the status quo and in all fairness, why wouldn’t they be, they didn’t make the rules. Property Investors are not the bad guys here.

Why Bill English has not simply pulled the plug and said “NO MORE” is beyond me. To encourage and [reward] anyone to set up a company to make a loss is probably not advisable and, who is funding the [reward].

I think a better idea would be to go back to running property investment companies under the same rules as before, a limited liability company whereas the company can still write off legitimate expenses [ but not against personal income ] and is encouraged to make a profit and pay taxes.

At least, stop allowing people to mark time with interest only loans. Instead, insist lending be ‘principle and interest’ so the debt is reducing.

With one very simple rule change and we could start reducing our national debt within days. [VERY IMPORTANT – PLEASE READ AGAIN] intended for politicians.

An investment client questioned me yesterday as to why I do not highlight tax benefits as part of my presentation. I never do I replied, tax benefits should be treated as icing on the cake. Primarily it should be about affordability, then a raft of other factors but essentially, let’s be realistic, it’s about making money.

Will residential property investment still be on top of my list if the axe falls on the tax benefits of an LAQC? The answer is a resounding yes!

If implemented what impact would such a change have on tax revenue? – It certainly will not be the magic pill but it will ease the headache a little.

What impact will it have on the real estate markets? – Very little, but I imagine some of the big players may look at downsizing.

Unfortunately such a change will not silence everyone but should clear the air a little as even many of those that cry foal when it comes to tax, agree residential property can and has proven to be, an investment worthy of consideration.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker and Real Estate Agent.

Why are Aucklanders obsessed with real estate?

2009-12-08T07:41:29+13:00

Why are Aucklanders seemingly tripping over each other to invest in real estate? An interesting analogy but one I am not buying into.

I am seeing a different picture emerging and one that I hope becomes apparent to Dr Brash, as an unwarranted increase in interest rates would not be helpful just now.

After the real estate market self adjusted during the rescission, the quick rebound in property sales and prices caught some off guard. Many were not expecting a spike of that magnitude however, when one-steps back and looks at facts rather than just the statistics it is easy to see and understand what drove the spike.

For the first time in about three maybe five years properties in Auckland had become affordable for the first homebuyer. Over capitalised property investors quit stock to pay down debt and suddenly all the ingredients for success were on the table [low property prices, low interest rates, affordability].

I remember reporting at the time that it was one of the better if not best times to invest yet everyone just sat around waiting to see who was going to go first. I guess heading out of a rescission one would expect caution. All the same, it was weird, a little like watching runners line up, the start gun goes off and no one moves.

When people finally realised it wasn’t a false start it was game on [ there was a ton of affordable stock on the market ] they left the starting blocks at speed in an attempt to cash in while they could, this creating a flow on effect which resulted in the spike I spoke of earlier.

But at some stage [and this applies to the country as a whole] there will be a lull as the market noses ahead of affordability. The festive session could well be the beginning of that lull as retailers fight for survival and tempt people to indulge themselves a little.

Will the rest of the country follow suit? To a certain degree but it is dangerous to generalise so a property blog in each region is being set up to monitor movements to which we believe will be many and varied over the next 12 to 18 months

Would it not be wise then to wait until next year before buying/selling?

I see very little to be gained from waiting unless you believe prices are going to fall even further. If you believe that, you are one of the minorities.

Regions south of the Bombay could very well experience a similar spike in sales as Aucklanders head south in search of affordable stock and not only just Aucklanders. We get enquires from around the world.

Will the proposed implementation of property taxes put and end to that?

Not going to happen, it may slow down those in it only for the tax benefits but for those that what income producing assets it will have little or no impact.

I wouldn’t say Aucklanders are obsessed with real estate anymore than other New Zealanders are. Hamilton and Tauranga have already stepped up to the plate so watch this space.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent

Is Revolving Credit Beneficial or Is The “Instant Credit” Just a Carrot?

2009-11-25T23:13:19+13:00

From “The Little Black Book” Series.

Revolving credit facilities are more than just a low cost overdraught facility.

They can be and are the most basic of financial tools. However as a certain level of budgeting and self-control is involved to capitalise on the principle [saving money] many first get tempted by the carrot - spending money.

A revolving loan can save thousands of dollars in interest and help you be mortgage free years quicker, as long as you manage it carefully.

Sitting down with a young couple recently discussing their second purchase, a number of misconceptions surfaced. The meeting went for over two hours, my words here are limited so I will be brief and summarise

This was Scott and Karen’s wish list;

They would like to hold back $15,000 for emergencies; Scott’s Mum isn’t getting any younger and is living in London.
They also wanted to save and make lump sum payments at will,
In saying that, would also like to feel protected against possible rate hikes by fixing a proportion of the loan.

After discussing day-to-day budgets, term goals and lifestyle, we decided split the loan into three parts and the following structure was put in place with a recommendation that it be reviewed in twelve months.

The First Part

$30,000 on a revolving credit facility

$15,000 of the $30,000 would be immediate credit, yes essentially they were going to create a loan for $30,000 and repay $15,000. However at any stage they would have access to the $15,000 but would only start paying interest on it when drawn on. [Interest rate 5.65%]

The alternative would be to leave the $15,000 in the bank - [Kiwibank online call 3.25%].

What in fact you would be doing then is investing the money with the bank in return for 3.25% interest, less tax and in return they would loan it back to you at 5.65% as your mortgage would be $15,000 more if you had the $15,000 in savings rather than reducing your mortgage. Unbelievably it does happen.

The second $15,000 was the amount Scott and Karen were sure they could save each year and make a lump sum payment. They did not want to increase the payments as it was only a few months and Karen would be on maternity leave and again wanted to err on the side of caution. In this way they can make loan payments in line with their lifestyle and without the pressure of an increase being a condition.

The Second Part

The second loan we fixed for a period of 12 months

Which if all goes to plan, on expiry, they will transfer part of the loan balance to the revolving credit facility as the first $15,000 should have been repaid by then and keep chipping away at the mortgage.

In essence they were creating a safety net, [insurance] chipping away at the mortgage, reducing debt and if things went wrong they could extend the remaining mortgage over the loan term, which would reduce the payments required to service the mortgage.

Many are afraid to commit extra to a mortgage as recently it has been reported that some lenders are reluctant to allow the borrowers to re-draw on the buffer. In reality, that generally relates to lump sum payments.

The Third Part

The third part we fixed for a period of three years.

This decision was based largely on market predications over the medium term.

Although a revolving credit facility is the most affordable instant credit facility, on the market, it should be viewed in the same light as credit cards and overdraughts, short-term solutions that should be repaid at the earliest opportunity.

If you already have a revolving credit facility and you are not managing to reduce the loan amount, it may pay to take a closer look at what is going on.

For now you should be OK as it is one of the lower rates but as they increase you may find yourself loosing money quickly.

Did you know you could split your mortgage in a number of ways?

Subscribe to PropertyProfit or keep an eye out for further posts from “The Little Black Book” series…

Brian Dalley is a leading NZ Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

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We cannot survive on an economy based on property.

2009-11-18T00:53:27+13:00

I would like to challenge Dr Ganesh Nana [ the BERL Chief Economist ] on that statement, “We cannot survive on a property bubble. We cannot survive on an economy based on property.”

We are only a small island nation located in the middle of nowhere with dairy, produce and technology our main export earners. Manufacturing is not really an industry that is going to save us. Therefore, what is he, Dr Bollard and all those others chasing their tails like demented cats proposing?

Frankly, I am growing tired of the people steering the good ship [ SS New Zealand Economy ] throwing anything to do with property overboard thinking that will save the ship from sinking.

I cannot see the point if all we are left with is a scuttled ship.

We cannot invest in one of our main export earners [ Fonterra ] only the farmers have that privilege.

Bryan Gaynor points out the banks are more willing to lend people money to buy property, rather than buy gold or shares.

OK I guess that rules out gold and shares. Shares, you would be a brave person to leap into the arena within the next 12 months. Gold, who is going to help you pay for your investment whilst you wait for it to grow in value and can you really blame lenders for wanting to invest in a sure thing?

Gareth Morgan gets a little savvier saying property is undoubtedly a good investment, “but” that is helped by tax breaks that favour property over other investments.

Unfortunately he doesn’t go on to say - “but” it is the only investment that I can think of where you can borrow 100% of the purchase price and someone else [ tenants ] will help you pay down the debt whist you wait for your investment to increase in value which over time it surely will as basic economics support that theory.

Then comes the comment from those scuttling the ship, if you keep investing in property we will take away your tax benefits.

Sorry I snigger at that comment.

The Government have opted to lease property from private investors, as they cannot afford to build the number of houses required to house those already on their waiting list. (See an example of such opportunities here.)

Surely if one puts their hand up to help why not offer a sweetener, after all there are other offshore options. My advice to those steering the ship, stop and turn the ship around and rethink what you are doing as the property bubble will not burst any time soon.

Even if tax benefits are reduced, I do not believe it will have a great impact, as the people in for the long term are there to establish income-generating assets rather than rely on the Government when it comes time to retire.

The simple fact is the property bubble is very unlikely to get much bigger due to constraints on affordability.

What we do need, and sooner than later, is the work force returning to the building industry, which indirectly is the largest employer in the country.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Standing in the middle of the road is dangerous. Five year fixed rate 9%

2009-11-09T22:47:55+13:00

Standing in the middle of the road is very dangerous as you could get knocked down by traffic from both sides.

QV figures show property values higher than one year ago - banks start increasing interest rates - housing is set to become less affordable.

Should we stand firm and brace for the impact?

As I am writing I notice two email messages arrive the first from ASB and the second from Westpac both advising they have increased their mortgage interest rates. Looking at the five-year rate 8.75% it is now believable when I say I can see 9% on the cards by March.

Many thought I was wrong in that predication six months ago and I wish they had been right.

This is what Westpac had to say this morning and I tend to go along with their thinking. Six-month fixed mortgage rates have now risen – until now this was the only fixed term that had been left unscathed by rate increases. Now that it appears no point on the mortgage curve is ‘safe’, we could see borrowers rush to fix at whatever favourable rates are still on offer. With floating and one-year fixed rates around similar levels, there may not seem to be much advantage in fixing right now, but those who wait until they see the whites of the RBNZ’s eyes before fixing are likely to face much less attractive options. Repaying more than the minimum amount and spreading the loan over a mix of terms can help to reduce overall risk regarding uncertain future interest rate changes and that is just what we have been advising clients to do.

For example a loan just finalised was set up as follows;

$20,000 on a revolving credit facility
$75,000 fixed for 18 months
$260,000 fixed for 36 months

Don’t use the above structure as a formula to base your decision on as it was a package tailored to suit that clients individual requirements.

A major point of consideration should be the impact any rate change could have on your lifestyle. Do not run your finger down the list and pick the lowest rate. Those days are gone.

Many would still have you believe that the recession is all but over and things are getting back to normal but I tend to think otherwise. Have I become a pessimist over night, not at all. Still an optimist, but things are what they are.

So back to standing in the middle of the road, what should you do?

Simple, move to one side or the other, make a decision. Do the figures and if you can afford to buy now do so and do it sooner than later.

If you are thinking of investing in a rental or two there has never been a better time.

Apparently, so I read somewhere there are 10,000 people on Housing New Zealand’s waiting list and they offer a ten-year rent guarantee.

There are always going to be risks no matter what we chose to do and sometimes it is hard to make decisions when we are not really qualified to do so but remember what Henry Ford the car maker once said, you don’t have to know everything yourself just surround yourself with people that do.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Why are Commentators Having an On/Off Affair with Real Estate?

2009-11-03T22:22:50+13:00

Just what is going on in the real estate market? Is the recession over or not?

One minute the reports come out that there is a surge in house sales, prices are increasing, houses are selling much faster, then the amber light starts flashing on the message board;

“Spring did not bring the surge people we were hoping for”.

Well to save the traffic building up I will give you my take on the matter which is in line with previous blogs.

What we are seeing now was expected. Good quality homes in the bottom end of markets [yes there are several markets throughout New Zealand] sold quickly as property prices and interest rates fell to affordable levels.

As the cost of land in many areas [note I said the cost of land not the cost of building] makes it near impossible to replenish stock levels, the markets started to slow when stock became scarce.

Until the people that have recently purchased decide to upgrade, it doesn’t matter what season it is as the market always moves faster at the beginning of the cycle then slows down. Seasonal fluctuations are to a large degree outdated anyway.

Added to this, the government decided to lease houses from the private investor rather than tie up millions in property development, which makes a lot of sense and with a 10 to 15 year rent guarantee the line of people waiting to invest is growing.

As all want a good return on investment that puts even more pressure on the bottom end of the market.

Just yesterday, I was in Hamilton talking with a property developer looking for affordable stock for the Mum and Dad investors that are forming a line outside my office.

Why Hamilton? It has potential for good natural growth, - one of the basic underlying fundamentals of property investing.

So where to from here for the first home buyer?

Frankly, unless someone takes heed of what I have been preaching for over a decade and reintroduces leasehold land or takes land out of the equation the market will resemble a person learning to drive a stick shift, bunny hopping along as the lower end of the market, the ‘driving force’ keeps running low on stock.

Which, I might add is starting to happen already.

We need steady sustainable growth and the only way that can be achieved is as mentioned above - Leasehold land or high decency housing AFFORABLE HOUSING.

Yes I am talking about apartments and terraced homes that the banks have in the past frowned upon.

Many Developers have learnt from their mistakes and so have lenders. Although many lenders have still yet to put the past behind them when it comes to apartment lending, it is only a matter of time before they will be forced to rethink.

We are already seeing a shift away from budget apartments resembling shoe boxes to some very nice and affordable good-sized apartments in blocks that more reassemble luxury hotels.

Five years ago, I moved into an apartment and now I wouldn’t have it any other way. Sure they aren’t for everyone but for many our way of thinking must change if owning a home is to become a reality for current and future generations.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Banks are Merely Money Lending Brothels.

2009-10-27T15:29:45+13:00

A comment posted on one of Bernard Hickeys Blogs in the New Zealand Herald on the weekend lead me to change what I was going to write about this week as it so far from the truth.

It read like this;

“The difficulty for the NZ customer now is that a true competitive market doesn’t really exist; it’s a four corner cartel of shops selling the same product at the same price. Have you tried changing banks lately? The hassle and cost of having to update valuations provides a significant barrier for most people and the banks know it. Even an unblemished history with a bank gives you no greater right of passage than anyone else. Banks adverts are a fraudulent disgrace too; banks are merely money lending brothels.”

First, I think the person that posted this comment should remember that banks are no different from any other business; they are there to make a profit for their investors.

Below is the result one of our Mortgage Brokers achieved by sending the identical application to three of those ‘four corner cartel of shops selling the same product at the same price’.

As the property being financed is a mix of residential and commercial the forth ‘cartel’ wasn’t contacted as they had already told their client they would not look at offering residential rates, although two thirds of the value was made up of the residential proportion of the building

The other results are as follows;

Bank A : the clients current bank – didn’t want to know – not contacted.
Bank B : offered residential rates and kindly reduced their upfront fee from $3930 to $2500
Bank C : offered residential rates and their upfront fee was only $400
Bank D : offered residential rates, no upfront fee, and offered to contribute $500 towards legal fees.

Yes, they all required a registered valuation on the proposed purchase, but I, and the client, didn’t have a problem with that. In fact even if the Bank didn’t require one she was going to get it done anyway after all, she was about to spend $400,000.

This example highlights a few things, the person that posted the scalding attack on Banks should have simply moved on from his bad day, as they are not all the same.

I resigned from one of them for that very reason. I could not look someone in the eye and say we can offer you the best available package when in many cases we could not.

Like any business, each has their own target market as is evident above. Each received the identical application yet four very different results.

Added to this a good percentage of Mortgage Brokers have worked for one bank or another at some stage and have a much greater understanding of the banker mindset. (Follow this link for further discussion on why Mortgage Brokers secure more loans.)

Sure I was waving a finger at a Bank in last week’s blog post, that loan was also approved by another, and I will always speak my mind, but ranting for the sake of it is something I haven’t a great deal of time for.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Questionable Decisions as Interest Rates Rise.

2009-10-21T14:25:53+13:00

NO [Declined], we will not loan you more money.

Every day starts anew and mid week was no exception; a loan application had been declined.

Sure it happens from time to time but usually only when one pushes the envelope. Not this time, what I thought was going to be a tick box deal resulted in a [questionable decision]; things really have changed. It was like common sense had suddenly been ruled obsolete.

A question, if you sold somebody something, then found out they were having trouble using it would you

a) Stop and help them or,
b) Leave them to their own devises?

Clients topped their mortgage up some time ago to purchase another race car with the intention of repaying the loan when the first race car sold. Well things did not go as planned. No a real problem as they had a revolving credit facility.

So long as they paid, the interest all would be fine. So they thought...

Each month they would be late making payment by a few days and short by a few hundred dollars which they would make up well before the next payment was due.

This went on month after month without any contact from the bank, so there was no reason for them to think the bank were overly concerned as not only did the bank not contact them, no fees had ever been charged for late payment.

It wasn’t until the clients applied to top their mortgage up by another $30,000 to purchase another house they were told, “due to accountant conduct we will not lend you any more money”.

What would have been your response? Naturally, as soon as I heard about this I appealed the decision however it fell on deaf eyes. Twice I appealed and twice I was turned down.

Maybe the bank is technically correct, as I am sure the rules were explained to the borrower at the time they first took out the loan but I still have an issue with the decision for the following reason.

The bank has a monitoring system for everything. When a banking consultant is alerted by the system that an account is not being managed as well as it could be, and they do get notified, why isn’t a good old fashioned phone call made? A courtesy call; I think it was once called.

Sure, in this case the bank wasn’t charging penalty fees. Maybe it was simply poor customer service yet ironically, the customer is the one that goes without.

Bank bashing? No not at all. Drawing attention to this application was simply intended to be a reminder, not to take things for granted.

With interest rates now on the move, there will be more decisions over the coming months that will leave some wanting. The easiest way to avoid disappointment is to get a financial check up each year, work within defined limits and to read and question your bank statements.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Is an LAQC the all time great scam of the century?

2009-10-15T20:32:02+13:00

Invest in a rental property, form an LAQC and reduce your personal tax. Little wonder so many are doing it.

In addition, it does not end there, the door is wide open if one is switched on as they can ring even more benefits out of the system by moving figures from one column to another and it is legal.

In fact, I encourage it and why not. My job as a Property Consultant is to advise and recommend what I believe is in the best interest of my clients. I don’t make the rules.

For example, say you had a personal loan of $150,000 with 15 years to run at 7% and you purchased an investment property for $350,000.

You should not investment in property solely for the tax benefits hoping one day the property will increase in value and there will be some capital gain down the track. Your intention from day one should be to pay down the debt.

But that will lessen the tax benefits I here you say.

Not necessarily.

$350,000 over 20 years @ 7% = $2,714 monthly

$350,000 interest only @ 7% = $2,042 monthly

The difference being $672.

Rather than lessen your tax benefits you could leave the investment loan on interest only and increase the payments on your personal loan by the difference.

This would not affect your tax benefits but would save you $45,535 on interest payments on your personal loan as by doing so you would reduce your loan term from 15 years, to eight years and two months. Then, you could start chipping away at your investment loan.

Where things go wrong and get a little pear shaped is when the lotto mentality kicks in. If we keep buying, one day we will win.

Although property values do over time increase, they like any industry, sometimes fall on hard times. And should you need to down size then, well it’s most likely to be at a loss.

And that is my point, if people paid down debt rather than creating more and more debt, buying more and more property without paying it off I wouldn’t be writing this.

However, as many if not most people running property investment seminars promote negative gearing [interest only loans] I feel it would be in everyone’s best interest to at least make some adjustments to the system.

Why Bill English has not simply pulled the plug and said “NO MORE” is beyond me. To encourage and reward anyone to set up a company to make a loss is probably not advisable and, who is funding the reward.

I think a better idea would be to go back to running property investment companies under the same rules as before, a limited liability company whereas the company can still write expenses off but is encouraged to make a profit and pay taxes.

At least, stop allowing people to mark time with interest only loans and/or negative gearing and instead insist the lending be principle and interest so as the debt is reducing.

I would like to hear your views on this one.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

More Buyers than Property creates a Resurgence in Property Values.

2009-10-13T07:35:27+13:00

Is it nationwide or is it simply a case of big spending Aucklanders throwing their money around?

A headline [More Buyers than Property] came to my attention on the weekend but really did not go on to explain how this came about.

I was pleased however to read that the writer was not generalising and went on to point out it is happing only in areas ‘in demand’. However, as those areas increase in value, some of which already have, the areas less favoured will experience similar moves as investors look elsewhere for better returns.

Christchurch for example, and don’t get me wrong it isn’t a less favoured area by any means, in fact I am assuming they are experiencing the same uplift in sale volumes and property values as the better parts of Auckland.

Just last week, I contacted a number of real estate companies in Christchurch to advise I have several cashed up investors interested in the area and to date, still not one reply.

Is it simply a case of cashed up investors feeding off the demise of others? Not at all.

Well in some cases possibly and that is expected, as there will always be winners and people learning from mistakes.

OK then, so why the sudden surge of interest in property when it is evident that we are still not out of the woods.

Well we New Zealanders are quite a resilient lot really. Often we hear of reports that being on the other side of the world limits opportunity, whereas many of us take very little notice of what is being said about us and spend more time concentrating on what happening in our own back yards, something I feel a number of countries could learn from.

Sure recently New Zealand had to take time out as the world recession took hold, watching from the sidelines as other markets started taking Tua-like hits. It was a time to bide time for a little while, a time to take heed of the direction we were heading in and to make a few changes before moving forward.

I think all and all we as New Zealanders faired reasonably well. Property prices [self adjusted] in line with affordability, we have gone from an oversupply of housing to a more balance approached from developers, builders and the like.

Many are now finding the grass wasn’t greener in other countries and are returning home. Companies have also learnt some valuable lessons and are now a lot more confident than they were twelve months, or even six months also.

So is this simply a flag waving exercise for property investors? Not at all, but it could be a very good opportunity to make some serious money in the foreseeable future, if investors do their homework and take action now.

I do believe when one takes a step back to look at the big picture, the average Kiwi could also benefit from buying property now rather than sitting on the sidelines, viewing opportunities like items on a conveyor belt that may never be seen again.

Just like investors, we all need to do our homework; factor in a margin for an increase in interest rates, take action, and in doing so could reasonably expect sustainable growth in net worth over a period of time.

Just remember, although all the answers are there, some will learn from the mistakes of others whilst the rest will be the others.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

You can read more of his views and opinions on his website www.propertyprofit.co.nz

The [Dirty Little Secrets] about Mortgage Protection Insurance…

2009-10-08T13:42:58+13:00

Are Banking Consultants and Mobile Mortgage Managers being encouraged to sell life insurance to meet sales targets and to qualify for bonuses?

Is this really happing?

Sure if the person [ selling ] the policy is prepared to spend the time required to understand the client’s needs and has sufficient knowledge of the policy they are selling then I don’t have a problem with them doing so however, first and foremost it should be about client needs, NOT commission and or sales targets.

Having sold insurance in the early 90’s when I owned Citiwide Mortgage and Insurance Brokers I became very familiar with the industry and to this day, I remain sceptical when it comes to insurance as often it is sold on [ FEAR ] rather than necessity.

That is why I feel the process should be less confrontational such as online applications whereas people can simply tick boxes rather than be questioned by a stranger, which could leave the applicant feeling vulnerable?

Ask yourself these questions, three or so years ago when the risk was greater than it is now, why wasn’t mortgage protection given much thought, yet today it ranks right up there with the must haves.

Don’t get me wrong, not all people are hawking insurance for the wrong reasons and most insurance policies offer value for money. [Note the word most!].

However, I have on numerous occasions and unfortunately more often than not, come across people that are either over insured, under insured, or not insured at all. It is as if they have been given a dart and been told to close their eyes and throw, triple 20 well done, sign here.

Fleeced recently was a young guy that had been paying into his insurance policy for years because that is how retirement plans were sold back then, but now as he intends to purchase an investment property he phoned is advisor to see what he should do.

Simple, increase your policy he was told, feeling a little stupid for asking such a dumb question he went ahead and did just that.

Firstly, he was not being stupid for asking, and one should never think that way, instead he was taken advantage of as the advice given was weighted to benefit the wrong person. He was already over insured and could in fact reduce his cover and channel the savings into reducing his debt much sooner resulting in significant savings.

As a result of the many examples I come across, far too many to list here; we are starting to partner up with insurance companies like Pinnacle Life that offer online systems so you can see for yourself, without the added pressure of a salesperson, what is on offer.

Sure, we get a commission from Pinnacle Life but as they are at the lower end of the commission scale, its peanuts compared to what some are paid.

Soar grapes? not at all, we could choose to do what others are doing, but choose not to.

Bottom line - even if Insurance is a condition of your loan, that doesn’t stop you from shopping around for the best deal.

A leader cannot condition a loan that requires insurance to be taken out with them, but can condition it be assigned to them.

I am not anti-insurance, in fact I recommend it is reviewed annually. I am simply encouraging people to read the fine print and question the salesperson’s motives.

Wondering about Pinnacle Life?

Visit their website via this link...

Current Interest Rates 6th Oct. 2009

2009-10-06T07:51:08+13:00

Market Average Carded Interest Rates

Fixed Rate 6 months: 5.50%

Fixed Rate 1 year: 5.80%

Fixed Rate 2 years: 6.95%

Fixed Rate 3 years: 7.75%

Fixed Rate 4 years: 8.25%

Fixed Rate 5 years: 8.60%

Floating Rate: 5.75%

As I have said for the past few months, in these uncertain times with very little reliable information to go by it is becoming increasingly difficult to read the market and predict what interest rates will do. For the past few months most encomiasts have been leaning towards the floating rate but recently the pendulum has swung back in favour of the two year rate, for more information on interest rates subscribe to this site or check periodically on my Blog section.

Please note that these rates are the average carded rates (the advertised rates) and should only be used as a guide as rates can differ between lenders and often discounted rates are available. Yet another reason to seek advice from a trusted source – why not email me now?

Click here to open another window with further details on the current interest rates available.

Nothing Short of a World War or Great Depression will Change Things.

2009-10-05T15:56:14+13:00

Nothing short of a World War, Great Depression, total or near destruction will see real estate cycles track as they have over the past years and heaven forbid either happening any time soon.

Recently that statement was challenged by a University student, mind still full of textbook ideologies determined to prove the theories she had learnt right.

As the system that monitors and controls cycles was tampered with five or six years ago it is going to take us some time to weather the storm and further turbulence yet to hit.

Five to six years ago a cycle had come to an end, it was time to take a break from soaring property prices to allow incomes to increase so further growth would be affordable.

It was time for the market to take a breather but it didn’t, and this is where it got all pear shaped and came unstuck. The system was tampered with and then became prone to failure. Lenders changed their lending criteria to keep loaning money, borrowers kept borrowing, and no one wanted the party to end.

Humans are like that, unpredictable, speculative and inquisitive we generally are out to better ourselves and in doing so often forget there is cost associated with growth.

Property prices kept on increasing, and increasing, and increasing, times were that good you didn’t even need a deposit to purchase a ½ million dollar house. If you were self employed you didn’t even need to prove your income, simply tell the lender you could afford it and a million dollar house was all yours.

My point to Fay, cycles have been about peeks and troughs, where what we should be looking at is sustainable growth, not the crash burn and rebuild cycles. And thankfully no, a world war or a great depression isn’t required if we take heed of what has recently rocked the world but if we don’t; they could very well become a reality.

Seriously, we really do need to start learning from the past as this isn’t the first time we have been rocked by a financial disaster. Although the last was initiated in a different industry, [.com] the fundamentals where the same.

I think the old system that monitored and controlled real estate that inherently was based on a seven-year cycle worked fine and should be used as the model moving forward. First we need to start with little if any growth then in two or three years ease back into growth mode.

This is a better option than the alternative – the War the Depression, wipe everything out and start to rebuild from the ground up. Sounds a little dramatic, but some are doing just that and if we don’t make changes [now] I am afraid it will become a reality for many more.

When I question people how much they want to borrow 80 to 90% reply with,

“That is why we got you here, to find out what the bank will lend us.”

I can do that for them, however I point out there is another side to the coin, how much do [you] think you can afford to borrow.

Yes it’s not only the Reserve Bank and the Lenders that must take responsible for righting the wrong the Borrower must also take on some of the responsibility.

So then, is now a good time to invest in real estate, prices are low, interest rates are responsible and values are in line with building costs?

Yes, if you can afford too, there will probably not ever be a better time. Just remember, interest rates will increase so pay down as much debt as possible whilst rates are low. Capital gain will happen over time but at a much slower pace so don’t rely on that as a get out of jail card and all should turn out fine.

Current Interest Rates 25th Sept. 2009

2009-09-29T08:42:38+13:00

Market Average Carded Interest Rates

Click here to open another window with further details on the current interest rates available.

Bill English Talks About Making Changes to KiwiSaver...

2009-09-29T08:21:17+13:00

Less talk and more action Bill as the current [restrictive policy] is putting many off investing in the scheme.

I questioned a client the other day as to why he, his wife and their son weren’t signed up to KiwiSaver. His reply was typical of what many others are saying, [I’m not going to throw money at a scheme that I can’t touch until I am 65].

On paper it looks like [the investment opportunity of a life time] and it could be. From the age of 18 the government will back you dollar for dollar each and every year up to a $1040, and if you are working your employer will kick in [BUT] Hayden would have to wait for 35 years before he could crack open the piggy bank, his Wife June 40 years and little Sam, 60 years.

But Brian over one million people have joined.

Wow!

Come on, less than ½ of those eligible have signed up to an investment that offers a 100% + return, I don’t think that is something to get excited about.

Don’t get me wrong I think it is a great idea and wanted to produce a monthly Newsletter on the subject but the IRD gagged that by shrouding it in red tape.

Shame really as there are many good things to be said about the scheme and it is a real shame it only makes the headlines when dodgy salespeople make the headlines. It will be interesting to see what happens about that.

Back to my point [I feel the scheme is too restrictive] and offer the following suggestion as a solution. Yes I have copied this Blog to Bills office.

We live in an instant society and that isn’t going to change. Telling an 18 year old they have to wait 47 years before they can crack open the piggy bank [sure there a few exceptions] but I am talking generally, isn’t really a deal breaker.

The simple aspect, be a little more realistic about the term, age 65, why not 20 years or age 65? That way an 18 year old could pull the funds at age 38, pay off their mortgage/student loan. In other words become debt free much sooner. Wouldn’t that be of more benefit to both the person saving and the country as a whole.

At the end of the day it is just a thought and would welcome your views. What do you think the time frame should be?

Warning: Interest Rates are On The Move.

2009-09-29T07:57:40+13:00

ASB have increased their 12month, 18 month and two year rates however their six month and floating rate are still at an all time low.

Have the economists got it wrong? Are we going to be left stranded in the middle of the road like possums blinded by car headlights not knowing which way to run?

Is it now time to fix short term or, should we fix for the long term or, just stay where we are, on floating.

Yes for the next few years it is going to be back to making decisions based on what we see out the window rather than speculate on long range forecasts with no guarantees. If it looks like rain take an umbrella, sun, maybe a hat. A 50/50 [split the lending] call is likely to be a popular option as for the next few years it is likely to be cloudy most days.

Long term rates although now looking high compared to the floating rate are in fact about average based on historical data but for many, should they increase by another 1 to 1.5% over the next 2 to 3 years, it may have a detrimental effect on people’s ability to comfortably service sizable mortgages so where to from here.

The general consensus is that the easing cycle is over and the Reserved Bank will start hiking rates as early as March 2010 whilst ASB economist Jane Turner expects by June 2010. Either way it is a lot earlier than previously thought and as I have already warned, when borrowers start moving from floating to fixed, interest rates will start to increase.

Is an upward movement expected in the statements accompanying the upcoming October and December OCR announcements, I wouldn’t think so but in saying that, the RBNZ can be quick to change its policy stance.

Due to the uncertainty, we will now be inserting a short interest rate update in the weekly Market Blog we send out to our database so if you haven’t already signed up do so.

Standing in the middle of the road is very dangerous and could result in being knocked down by traffic from both sides, which has lead to comments such as, [it may pay to flick the coin and make a run for it, as what is the alternative].

The alternative [and a much better one] is to ask questions. OK, so what questions should I ask you say?

No, it’s not you that should be asking the questions, it should be your advisor asking you the questions. For example if you ring a bank and ask what the interest rates are they will tell you, you can read that in the paper. Ask them what they think rates will do and it is likely their answer will be of no help.

Regardless of who you phone, if you ask them, “What can you do for us?” and they start straight in by quoting their best rate followed by bla bla bla, quickly end the conversation.

After chatting to someone on the internet last week I closed with this comment “Under 7% for two years looks reasonably attractive,” but remember, I was talking with her not you.

Shockwaves Are Set to Hit the New Zealand Real Estate Market.

2009-09-21T18:08:38+12:00

Dinning with a group of property investors a few days ago I made that statement which froze their knives and forks in mid air.

It was if the building had started to violently shake and the ground below was about to open up and swallow them whole.

An airy silence followed which I capitalised on by saying nothing for a few seconds... then the tsunami;

“If you continue to build paper houses it is going to be disastrous.”

One poor guy, Jason, almost chocked on a mouthful of food.

Why such a reaction? Well I had just concluded a meeting by stating there has never been a better time to start investing and now I drop this bomb shell.

Many here in NZ have already started rebuilding after the carnage the world recession caused but sadly it has become apparent [to cut costs] paper houses [properties funded by interest only loans] are being replaced again with paper houses. And just like an origami boat will eventually get saturated and sink, so will house prices when the Shockwaves [increased interest rates] place added pressure on balance sheets.

New Zealanders have been brain washed by idealistic theories over the years that real estate will always increase in value and to date we have weathered the storms reasonably well thanks largely to the intervention from those we often point the stick at [lenders and the Reserved Bank].

However, even they will not save us from an inevitable Shockwave unless we prepare for it and yes, it is coming. Unfortunately like others, I cannot to the day predict when it will hit our shores but it is expected to be in the next two to five years and will come in the form of increased interest rates.

As Real Estate is only worth what someone will pay for it, irrespective of what a valuer / real estate agent or anyone for that matter puts on paper, I wouldn’t be opposed to lenders tightening up on speculative investing [interest only loans] that rely on capital gain and instead encourage borrowers to look at some form of debt reduction, even if it was simply to increase payments on a personal mortgage as a trade off.

Just what would be the implications if you were forced to sell a property in two years time should the Shockwave hit then and you realise NO capital gain? Example;

$450,000 interest only @ 6% = $520 per week | less rent $450 = $70 x 104 = [ - $7280 ] less selling costs $19,000 [ - $26,280 ]

Imagine what the figures would be like if the sale is made when the Shockwave hits and the property is sold for less than its paper value.

Don’t let this put you off investing as I stand by what I said, [the timing has never been better] simply spend more time laying stronger foundations from which to build on.

Predictably I was confronted with;

“But Brian you haven’t factored in the tax benefits.”

A thought flashed through my mind, you can lead a horse to water but you can’t make it drink, but I didn’t say that out loud, instead I replied with;

“Jason, it should be about the cake, not the icing.”

Builders Slash Profit Margins.

2009-09-15T10:28:33+12:00

Builders Slash Profit Margins to help kick start the real estate industry, YEAH RIGHT!

It was only last week that I was giving Bernard Hickey stick for rolling his eyes at the resurge of interest shown by some property investors. After reading the Herald on Sunday and receiving several email messages on Monday, I can now to a certain degree understand why he made the comment “here we go again”. But really are people that naive, is their memory that short term.

It was only yesterday that we were in a recession and today it’s all over. I don’t think so.

Sure the [R Word] has two meanings [R for Recession] and [R for Recovery] nothing new there as there will always be winners and losers so it is expected there will be conflicting views depending on what barrow you are pushing.

This week I would like to turn the spotlight on the recent resurgence of property investment promotions.

Sure there are some great opportunities out there and I am still a strong advocate for investing in residential property but recently have been appalled at what can only be described as misleading advertising in my opinion – or is it, you tell me.

It appears that overnight and on a flat market some builders have been able to increase their profit margins and then through what appears to be generosity beyond belief, are prepared to give away thousands of dollars.

Some would call that statement very pessimistic but when looking at the facts I feel it is a very realistic observation and as investing is a business, facts not emotions should be the basis of any decision.

A full page ad read, Buy Direct from Builder/Developer $395.000 “You make the profit!!” FREE Financial Assessment. [A Rental Guarantee Programme Available] There is apparently $25,000 profit in this one from day one.

If you think that is good check this out, HUGE discount pre-construction purchasers. Valuation as of 24th April 2009 $575,000 less discount $85,000 = purchase price $490,000. $85,000 up for grabs here.

The first example I question the authenticity for the following reasons: there is a shortage of property in the Auckland region in that price bracket which has resulted in properties attracting multiple offers / everything is handled in-house.

The second example [this one should be investigated] so it is my intention to copy this Blog and the ad to the Commerce Commission. For this reason I feel it would be inappropriate to comment on this particular package until I have heard back from the Commerce Commission.

Please don’t put your cheque books away as there are some great opportunities out there. All I am saying is proceed with caution and don’t be afraid to question. In fact I find myself making this statement daily;

“There really hasn’t been a better time to invest in residential property but you must invest in something that works for you.”

Wondering if an offer is too good to be true? I would be happy to talk to you about your particular situation and discuss the pro's and con's of any investment property you are interested in.

Simply email me: brian@propertyprofit.co.nz with your details or call me direct on 027 2511 336 or 09 278 9237.

Has Bollard Lost the Plot?

2009-09-11T13:50:06+12:00

Watching a late night News Broadcast I wasn’t sure if I was hearing things as it had been a long day.

But when Bernard Hickey made a statement something like “here we go again” as he was looking at the ground in horror, I thought out loud, what are these so called experts going on about?

He was referring to the sudden surge in property sales.

Bollard was reported as saying New Zealanders have an unhealthy fixation with home ownership and property investment.

Was he saying we should only purchase one house in a life time and not upgrade if we want something nicer or bigger? If so then why not come out and say keep the same TV, mobile phones, cars and boats.

The report went on to say that it was businesses that needed cash injections not the housing industry as job creation was needed which in turn would generate more revenue and in turn would stimulate the economy.

Little wonder the R word is still being bandied about. Interesting I thought, now it has two meanings [ Recession ] and [ Recovery ] I did see the funny side of that as some are still unsure which one they should apply to what.

I would like to put this to Dr Bollard; housing is the largest employer in New Zealand by far. Sure not the biggest export earner but employer yes, however one must think outside the square to fully understand the magnitude of what I just said.

Most people when they think housing think builders so let’s start there, the builder arrives at work in a vehicle which someone sold to them, runs on tyres and needs maintaining, inside will be a radio, a phone, something to drink, something to eat, a dog on the back, that also eats, he has tools, wears clothes and of course has a hammer.

All of these things don’t mystically appear. Much the same as a plumber, drain layer, carpet layer, painter. Then when completed a family moves in and yes more people are employed to do things for them, I think you get the picture. So why then are shots always fired at the housing industry? The singe largest employer in the country.

Is it because the building industry isn’t export focussed? Maybe we should be exporting re-fabricated houses rather than timber, maybe we are.

As for trying to warn people off from investing in rental property, come on. Some politicians are doing just that at our expense and also, Housing New Zealand has pulled back on building in favour of leasing from private investors. Also, market prices are low, interest rates are low, and more people are looking for rental accommodation so now is a good time.

Sure a more rational approach is needed towards debt reduction but that is not to say that both can’t go hand in hand.

On the other side of the coin, should you invest in the share market, how long would it be before you could expect a reasonable return? Don’t ask me as I already have too much worthless paper.

As to Bernard Hickey’s statement based on statistical information rather than grass roots knowledge, there was always going to come a time when a sudden surge would take place and the reason for that is quite simple.

The Reserve Bank set out to achieve just that by lowering, and lowering, and lowering the OCR. So the resurge was inevitable and is this time, being better managed by more stringent credit lending policies although there is still work to be done in this area. A leaf needs to be taken from Bollards book as it’s time for criteria to be relaxed a little.

So should we be concerned about the [recession] or celebrating what looks to be the start of a [recovery].

My advice | same as it has been for the past seventeen years, If you can afford to do it, DO IT!

Are New Zealand Lenders Getting the Jitters?

2009-09-07T13:57:49+12:00

Many are under the misconception that lenders are getting a little more liberal when it comes to assessing loan applications.

And understandably when one in particular is spending a fair amount of money to get that message across, but from my experience with that particular lender, it is more a branding exercise than a genuine softening of credit policy.

Another lender only just this week made a change to their policy that requires a 1% margin to be factored into the lending rate when accessing the application. Not only are they already factoring in a healthy budget surplus now they are going to be even more stringent.

Yes in this week’s Blog there is an element of venting however I do feel it is justified as I don’t like seeing anyone toying with people’s emotions and as we all know, people buy with their hearts.

Have I crossed to the other side to join the doom and gloom merchants, not likely?

Isn’t it fair that the lenders tighten their lending criteria so as to avoid fall out. My reply to that isn’t fraught with sarcasm but rather fact. They should have done so three years ago when massive price increases swept through New Zealand like a bush fire rather than fanning the blaze by relaxing credit policies which in turn saw many fall victim to the fires.

Sometimes I struggle to understand the minds of some. Sure I realise the brain doesn’t give instant feedback. For some it may take a split second, for others a second or two, and for others they may ponder for a day or so. But three years, that really is delayed reaction.

So, were to from here? Simple really, for many it will be business as usual but for some maybe a tightening of the belt before moving forward and really we have no other alternative, the sooner everyone realises fantasies should remain fantasies and deal with it and start living in the here and now all will be better off.

A survey was done across the ditch that showed 20% of the population in Australia would not be able to afford a mortgage should interest rates increase. A very pessimistic statement I thought. Guess it’s because good news doesn’t sell. I would have thought 80% which is the majority rather than the minority would be good news. But hey, what do we call traffic lights, three colours to choose from and we pick the red and call them stop lights, why not go lights.

As I write this Blog I received an email that reads;

“ASB cuts floating rate to historical low...”

Then five minutes later another from ASB saying all fixed rates have increased! More on that later in the week after the OCR review.

Lenders have an abundance of money to lend to those that don’t require it but if you are hoping to purchase a property with less than 20% deposit, it is possible [ BUT ] you will need to cross the t’s and dot the i’s and prove beyond doubt why you are worthy.

Brian Dalley is highly experienced in dealing with banks as well as independent home loan lenders. He can cut out the stress and get the best deal for his client. Would you like that to be you? Email brian@propertyprofit.co.nz for free advice on your particular situation then sit back and relax.

Housing Affordability - Alarm Bells are Ringing

2009-09-03T12:00:37+12:00

For those that haven’t yet heard the racket, housing affordability alarm bells are ringing.

Take haste as the fire-fighters do - this isn’t a drill, it is the real thing.

I am not going to generalise, but rather leave it up to you to confirm for yourself if I am right or wrong as prices in your area may still be falling, but from what I have seen, whoever activated the alarm bell rightly did so.

If you are thinking of purchasing / investing in Residential Real Estate, now is the time to take action as many may not get another chance to do so.

Am I predicting another property boom, NO!

What I am predicting is this;

“It is unlikely housing will ever be this affordable again.”

Governments the world over and ours is no exception, require huge cash injections to weather the storms so I would think one could reliably assume that the hand will [ take ] rather than [ give ] so I find it very hard to understand why anyone is still pondering the [ should we ] or [ shouldn’t we ].

Recently there has been a growing trend to shift the risk and responsibility to parents to act as guarantors of which I am not in favour of. Don’t get me wrong, I think parents within reason should support their kids but just not as guarantors.

I prefer parents purchase the property as an [investment property] then rent the property to the family member to cover the costs. At a later stage when the kids meet bank lending criteria the property can then be sold back to them for the balance owed on the property. There are several advances to financing in this manner.

Another popular method of getting on the property ladder is joint ownership. Three people for example purchase a rental property and together with the forth [ the tenant ] and the fifth contributor [ the IRD ] they quickly reduce the debt and use the property as leverage to purchase more. Then at a later stage, cash up and go their own way...

Can you hear the ringing in your ears yet? Tenants stay where you are, all will be OK. Those in the middle of the road, please either move to the owner’s side or the landlord’s side.

For those still struggling to make a decision I would suggest they take heed of this little gem [standing in the middle of the road is very dangerous as you will get knocked down by traffic from both sides] and I am picking that over the next few months there is going to be a frantic rush to invest in affordable property before it is all snapped up.

Remember, there is only limited stock available and the bells are already ringing.

Will the Government add GST to rents and mortgages?

2009-08-28T13:35:33+12:00

Will the Government add GST to rents and mortgages to help reduce the current deficit?

A real possibility I believe. After all debt reduction isn’t taxed.

When saving you are taxed on the return of your investment but on the other side of the scale when you are paying down debt, you are subtracting from the liability column and adding to the asset column therefore increasing wealth without paying tax.

I have been singing that tune for many years now and if you check out recent Blogs more so in recent months. Don’t save as it is taxed, pay down your debt first. Think about it.

You have a mortgage with an interest rate of 7% and money in a savings account earning you 5% [lucky you]. The bank in theory is loaning your own money back to you at a higher rate and the government is taxing you on the interest you receive on the savings. A little like trying to fend off a dozen or so ninja warriors, hence the reason for preaching debt reduction.

So is it going to be another tax on what in theory is already taxed?

Yes and No, guess it just depends on what side of the table you are sitting. But isn’t it always.

Let’s look at the mortgage first: you have a $300,000 mortgage and pay it off in ten years. Even after costs you would expect your net worth to have increased in value so is it fair to expect that gain to be exempt from tax when people that are making the funds available for you to borrow the money, are taxed on their investment?

GST on rents: I can hear the outcry already, why are we being taxed; shouldn’t it be on the Investor that owns the property? The same applies, there normally are opposing views.

The investor is supplying a valuable service [housing] so there should be benefits for doing so, however there are areas for improvement. And yes they are being looked at as I write this Blog.

Will any changes put people off from investing in property?

Maybe those that do it solely for tax benefits but for the others, the majority that do it for a retirement plan, I don’t think so.

As for the taxing of rents: it would be political suicide if implemented now. For example someone paying $400 a week in rent would see and increase of $60 per week.

That’s 15% I hear you say, not 12.5%. Whoops did I say that out loud.

So what does the Government do, forget it all together, trust me that is not going to happen.

Another angle is capital gains tax which the investor already pays but the average home owner has managed to keep that under the radar. There was a task force put in place a year or so to look into this but I haven’t heard anything since.

Until now they haven’t been looking behind that door. Sorry, it is now wide open.

I can see the headlines now, just can’t make out the date;

“Government abolishes capital gains tax and replaces it with GST”

GST will be now payable on all property transactions...

Brian Dalley is a leading Property Consultant and former NZMBA Mortgage Broker, Property Investor and Real Estate Agent.