Forum Archive Index - June 2001

["Tony" <tony@ltdrisk.com>]

David
A good argument and I feel the same way.
Funny how people turn on you when you talk like this in company!

tonyDB

-----Original Message-----
From: owner-sharechat@sharechat.co.nz
[mailto:owner-sharechat@sharechat.co.nz]On Behalf Of David Mitchell
Sent: Friday, 22 June 2001 06:00
To: sharechat@sharechat.co.nz
Subject: [sharechat] Property Vs Shares


I was pleased to see the recently released taxation
proposal recommended taxing home ownership. I support
this idea because I believe too much of our countries'
capital is wasted in residential property, as opposed
to the economic growth which could be generated by
investing in growth industries.

I believe this is one of the reasons why the standard
of living in New Zealand has declined VS OECD
countries over the last two decades. It is a
well-known fact that New Zealand has a high proportion
of home ownership, however, I think many people would
be
surprised to know that other countries with a similar
high proportion of home ownership include very poor
countries such as Bangladesh and Kenya. No doubt this
has somthing to do with a lack of investment in
economic development.

I have never understood the attraction in residential
property as an investment, (however I have no problem
with purchasing it as a form of consumption). For
example, using REINZ statistics, the median house
price
In New Zealand has fallen from $153,466 in January
1998 to $133,766 in May 2001, and these figures aren’t
even adjusted for inflation!! Also, the rental return
of residential property, in major centres, is only
around 3% to 6% before expenses such as rates, with
investors relying on capital gains to justify their
returns. But as has been shown, there is no capital
gain, only capital loss!! Another thing that puts me
off property is that the interest to pay for your
first house is not tax deductable, whereas if you
borrow to invest in business or shares, it is.

Some of the major demographic trends occurring in New
Zealand do not bode well for property. It is predicted
that New Zealand’s population will be stagnant
over the next century, along with all other developed
countries, so where is the growth in demand for
housing going to come from ? I also saw recently in
the
media that around 10% of New Zealanders owe $4 billion
in student loans. Because of this burden, many people
will delay, or forgo altogether the purchase of
a house. Another frightening scenario for homeowners
in the baby boom generation is that this group has
planned to pay for their retirement by releasing the
equity in their home, perhaps all at the same time.
This will have disastrous consequences for the
property market.

Well, I am a younger person who has recently completed
uni, and I never intend on buying a house because I
think it is a very undiversified position to be in. I
much prefer shares because of the higher returns and
ability to diversify. One argument is that you can’t
borrow money to invest in shares like you can in
property, this is in fact wrong because you can
through margin lending at similar interest rates.
Another argument is that shares are too risky, however
let's say you own a house near where you work and your
firm goes out of business, affecting the local
economy, affecting house prices. So you've lost your
job and money in your house in one blow. How
undiversified and risky is that !!

The media says that around 70% of New Zealanders'
assets are in residential property. 70% of our funds,
sitting around doing nothing, hoping for a greater
fool to buy it. Wake up New Zealanders, this is why
our wealth is declining as shown in the Westpactrust
Net Wealth surveys. The majority of us are borrowing
overseas currency to buy something which is declining
in value, employs no one and creates nothing. This is
one sure method of wealth destruction. This is stupid,
and New Zealanders should be discouraged from this
behaviour through taxation.

So it annoys me when short-sighted guys, protecting
their own interests, like Rex Hadley of the REINZ say
things like "We are encouraged to see the leaders of
all the major political parties rule out this radical
proposal"

David Mitchell




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