Forum Archive Index - June 2001

[David Mitchell <david_mitchellnz@yahoo.com.au>]

Here are my arguments

Malcolm Breadmore,

1. Yes, I agree someone has to own the house,
but this doesn't mean they are not overvalued or
that vast majority of the people who own them are
under a major economic illusion.

2. Why does the rent have to go up ? I'm not
sure about the rental market in other centres
however I look at my local paper in Christchurch 
and see two whole pages of houses for let. There
is a major oversupply. Also the major demographic
users
of rental housing, the 20 to 30 year olds is a
shrinking proportion of our population.

3. I am not comparing the NZ economy with Kenya 
and Bangladesh. I am comparing the level of home
ownership.

4. You and I both know that shares outperform
property. Sure, the NZSE has had a dismal record
but what about the ASX, NYSE, S&P500 ?

5. Yes I agree investors want the best returns, but
I believe the property market is overvalued 
because there is a large group in NZ who are still
under the illusion that residential property 
is bulletproof asset. It has treated them well in
the past and they continue the behaviour this way
without regard to changing demographics and inflation.

6. The lack of affordability of houses may increase
the number of renters, OK. This will increase the
rental return
of the houses. But people buy houses for their capital
gain, that is their major selling point. People who
are
on high tax rates buy houses to make a cashflow loss
to
offset tax, they buy them for thier capital gain.
The lack of affordibility will correct the market with

house prices falling with lack of demand and rentals 
increases with more renters.
 

After this correction, I believe that housing will
become a more attractive asset to own.


Ian,

I agree diversification is possible in property, but
only if you have alot of money and are prepared to
travel.

What I mean by undiversified is that, say you are just
starting to build an investment portfolio. You can
go into residential property using say $30,000 for
a downpayment buying a $100,000 house. All of your
portfolio is then tied up in that asset in 21 Joe
Bloggs Ave, NZ. The city and country where you live
and work.

Using the same $30,000 you could borrow $70,000
through margin lending and spend $100,000 on maybe 10
different shares. Maybe stocks in NZ, Oz or overseas. 

The point is it is very difficult and time consuming
in property to invest in Oz or overseas. Also you
can't buy $5,000 of 44 Smith St, Christchurch, $5,000
of Johns Lane, Auckland etc etc.
If you live in your own house, it is under the same
economic risks that you are directly under.


David Mitchell


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