Forum Archive Index - June 2001

["Ian Andrews" <iandrews@ihug.co.nz>]

David has offered some very selective arguments, built around a faulty
proposition. Merely because one is invested in residential property per se
does not mean one has an "undiversified" position, since it is still legal
for one to also own shares.Residential property is also a collection of
markets, not just one market. I structured my property purchases this way,
so that each appeals to a different type of tenant. - families, single
women, working couples, trade/retail employed , "yuppies", good garden, good
privacy, good views, good parking etc. No 2 alike.

It is not a fact that gross rental returns are typically 3-6%, even in
Auckland, except for the best located homes, low maintenance  or ones with
good development prospects. There is a tradeoff between capital & revenue
gain; & capital gain by definition is not "risk free". In Auckland,  gross
returns are typically 5%-10%, with 7.5% probably a fair average in my
opinion. Gross returns in provincial towns & cities would typically be 8% -
15% & can be up to 20%.

So long as NZer's need somewhere to live, there will be a role for the
residential property investor; & it is arguable that living in good
accomodation aids people to be more productive & better citizens.

Contrary to popular belief, there is currently little difference if any in
the tax treatment of gains from property & those from shares. With both, to
simplify, short term trading gains are taxable & long term investment gains
are not. In fact, in some circumstances, gains on land can be taxable many
years hence if one is classified as a "developer" or can be shown to have
bought a property primarily for capital gain.With shares, the rules are not
as well established & specific.

Property has the advantage of being a proven performer in New Zealand, & has
been fashionable in every political climate. New Zealand has had a lot of
difficulty providing consistently worthwhile share investments to the
public, compared to other OECD countries, & this is still the case. The most
profitable commercial enterprises I know are the family companies which have
not "gone public".

I think it is realistic for New Zealanders to continue to hold both property
& shares & for them to continue to be treated equally for tax purposes.



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