Written By: - Date published: 7:29 am, November 26th, 2012 - 194 comments
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The Auckland property market is back through the roof again. It seemed to be the main focus of The Herald this weekend. An anonymous editorial offered an overview and advice:
Home buyers aim too high
Our addiction to real estate has not been cured by experience, as the Government hoped. House prices, as we report today, have now climbed back to their 2007 peak, banks are again offering loans of up to 95 per cent of a purchase price and investors are back in the market, raising mortgages on the house they live in to buy another. …
The predicament for first-home seekers is now worse than it was during the boom. Prices are as high as they were then but far fewer homes are available. Nearly all are being offered by auction, as happens when a market is volatile, and new investors can usually outbid a young couple looking for a home of their own at a price that will keep a mortgage within their means. …
Realistic young home-seekers should be able to find an affordable house in outer suburbs. Like previous generations, they can improve the house and land, plant trees, form residents associations to press for amenities and see that they are well maintained. Before long, they would find their home, their school and their community had become a desirable place to live. It’s the way prosperity starts.
Kirsty Wynn wrote:
Sellers score massive gains
It’s almost as good as claiming Lotto’s first-division prize – the winners in Auckland’s frantic housing market are selling their properties for hundreds of thousands of dollars above their official valuations.
Statistics show that in the past six months there have been at least nine properties that sold for $500,000 or more above their CV, and one went for a whopping $1.2 million above valuation. … The housing boom is also making it difficult for independent valuers to put an accurate price on properties.
As ever, Bernard Hickey’s piece is required reading:
Sell out country to cash in on tax perks
I sold my house in Auckland this week to take advantage of the “heat” in the market. I’m looking to pay off my mortgage and buy a house, mortgage-free, in Wellington. …
Let’s say I have $600,000 of equity. Brokers tell me that banks are keen to lend and will allow me to buy a couple of rental properties with 5 per cent deposits. I could then buy another five with 10 per cent deposits, and the rest of the money could be used as 20 per cent deposits to buy three more. That would allow me to buy 10 investment properties at $500,000 each for a total of $5 million, including borrowings of $4.4 million. That’s an average loan-to-value ratio of 88 per cent. …
Currently there seems to be just one direction for house prices in Auckland. The Real Estate Institute’s stratified measure of Auckland house prices showed they rose 14.4 per cent in the year to October. If that happened again next year I would make implied capital gains of $700,000 on my 10 properties, adding to the $84,400 of cash profits from the rentals. That implies a return of 130 per cent on the $600,000 of equity I leveraged into rental property. …
All the incentives are telling me to buy rental property in an Auckland market with a chronic shortage of houses. They say I should borrow $4.4 million from foreign-funded banks to boost the value of existing property. They say I should increase our foreign debt to enrich myself while not employing any other New Zealanders, and not paying tax on it. So what am I waiting for? I’ve almost convinced myself I should do it.
There are many issues here that need to be addressed. Some of them are about the incentives in the economy – that’s where Labour’s capital gains tax would come in. But the most important factor is, of course, the simple and practical issue of the lack of houses available to be purchased.
Labour’s solution is to build more houses.
National’s “solution” is to complain about Labour’s solution.