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New Zealand Property Focus

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Great find - thanks! Moving to NZ in December, so I'll show this to the lady to support my 'there's no way I'm buying there for a few years yet' stance!

I'm intruiged at the jokey tone of this official bank publication. I particularly like the way that the outlook for NZ house prices is summarised as: "Anyone for a game of Jenga™?" :lol:

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Great find - thanks! Moving to NZ in December, so I'll show this to the lady to support my 'there's no way I'm buying there for a few years yet' stance!

Spooky, me too! Although my other half needs no convincing.

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They do a property update every month so keep the page bookmarked. If the market crashes here I will find it impossible not to move out permanently.

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http://www.nbnz.co.nz/economics/publicatio...ocus_July07.pdf

monthly property market focus from The National Bank in NZ. Doesn't seem to have a VI element to it all. Might interest some readers here. The housing market seems to suffer from the same problems here as the UK.

Thanks for digging this up.

There is an extensive discussion of the widely debated tax issues surrounding BTL; rules that allow rental losses to be offset against income tax. Plainly National Bank come down against any moves towards ring fencing losses - well they would wouldn't they. It would be a problem for them because BTL makes up a large proportion of their lending and the status quo suits them very well.

I must admit I was surprised to see that 75% of landlords claim a profit or no loss. However, the report is guilty of spin and contradiction when it goes on to say that if ring fencing of losses was introduced "Rents would increase sharply, putting more pressure on inflation". Surely if landlords are not making a loss, it would made no difference if losses were ring fenced. Perhaps the bank know that recent interest rate rises mean that both the July 2007 and the 2008 tax returns will show that times have moved on and that even professional landlords are now making losses. Perhaps they also know that the cherry-picked 75% figure is not representative of the ~50% of landlords here who simply deduct rental losses from their gross income and pay tax on what is left. Of course these "Mum and Dad" investors are not making a net loss - not yet anyway, but if high IR's/strong $ cause further job losses, some of these will have to liquidate.

(Don't you just hate the phrase "Mum and Dad investors?". How loaded is that?)

During the last 4 years in NZ we have rented 6 different houses. Our landlords have either taken cash, with the understanding that they won't be declaring the income or they have claimed that the rent is cheap because they are able to offset the losses against income. I also have several high-earning friends in Wellington with BTL properties. In every case, the decision to buy rental properties has been primarily motivated by offsetting income tax, since so much income of their income is taxed at the 39% marginal rate. Thus, even if the details of the report are correct, I would argue that the widespread perception that BTL is tax advantageous, even if it is not, it has totally distorted the market here and inflated a monstrous bubble. If losses were ring fenced that bubble would be pricked overnight and National and other banks would soon find their letterboxes jammed with keys, a lot of bad debt on their books, and hardly any market for mortgages for several years. As it happens, I don't think it matters either way - first because the political will does not exist (Champagne Socialists run NZ too) and second, because high interest rates are about to do the job anyway. Changing the tax rules would just make things worse for the banks and the precarious NZ economy.

Outside of Auckland and Wellington, there really is no supply argument to justify inflated prices. Rural NZ seems to be 25% holiday homes with many areas where the permanent population is declining rapidly. Even so, just like in Britain, speculation means that house prices in these depopulated low-income regions is at close to city prices and locals are hopelessly priced out, or at least they would be if Banks like National were not awash with liquidity thanks to the Yen carry trade. Where we live right now, in Golden Bay, at the top of South Island, median salaries are $20,000 and median house prices are $400,000 and there is a bewildering array of rental property available. The most expensive I can find is $250/week for a fully furnished 4 bed home on a vast forest block. The market rate for that property is not less than $800,000 which means that even assuming they could rent it out (been trying for 3 months so far) the yield would be laughable anyway.

At least outside of Wellington and Auckland, something in NZ has to give. Reading between the lines, I think that the National Bank know as much and are worried.

To those posters moving to NZ soon, think carefully about the following:

1. Prices have probably hit a ceiling here - transactions are already falling and may be a precursor to price falls.

2. The $NZ has hit a ceiling too and will fall hard if/when the carry unwinds further. As last week showed, it is much more vulnerable than sterling.

3. House price:income ratios, strong dollar and monstrous trade deficit are not sustainable

4. Interest rates here are already high, and in my opinion will need to stay this way for longer than people think to prop up a post-carry $NZ and the impact of imported inflation - especially in the price of oil.

5. Unlike the BofE, the central bank here has shown that it is serious about inflation and has resolved to stop HPI in its tracks. It may well have overdone it already.

6. Lastly, as new migrants, you will not be taxed for 4 years on overseas investment income so if you have sold a place in Britain, there is a very attractive tax break available to you if you invest that money for a while. While we may endlessly debate whether BTL receives tax advantages, there is no doubting this one. Indeed, I wonder if such a generous break was introduced in order to discourage you from adding you fuel to the NZ's HPI fire, to save NZ from importing additional HPI from British migrants.

In short, if you are cashed up in sterling, there is no hurry to buy when you get here. Rent for a year at least - you will likely either benefit from falling/stalled house prices, a crashing $NZ, or both and meanwhile, you will get to know the market and make a much more informed choice. The vast majority of NZ property looks attractive but is structurally rubbish. Try not to let that £ burn a hole in your pocket - once you are in NZ, paying 39% tax on everything over the equivalent of $60K/£22K, it will seem like a lot more money than it does right now.

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Nice posts.

I was wondering, do you see any similarities between the NZ and Aus housing and currency situations?

My view is that a weakening world economy plus the carry trade unwinding should also weaken the Aus$.

Higher interest rates are also anticipated in Aus. which may just turn a struggling property market into a falling one.

I would welcome your views.

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