New Zealand - The Good, The Bad and The Ugly.

[hayleyearth]

The house we want came back $100k more than what we expected. It's evil that my mind still sees that as not too much because of being so use to large figures due to Rand's.

 

It's so much money this house thing, but I'm sick of paying so much rent too

[Wayne Potgieter]

The house we want came back $100k more than what we expected. It's evil that my mind still sees that as not too much because of being so use to large figures due to Rand's.

 

It's so much money this house thing, but I'm sick of paying so much rent too

where are you looking ?

[patches]

The house we want came back $100k more than what we expected. It's evil that my mind still sees that as not too much because of being so use to large figures due to Rand's.

 

It's so much money this house thing, but I'm sick of paying so much rent too

 

Sorry to hear. Was this at an auction?

 

I remember when house hunting around 2yrs ago, it was highly annoying that agents won't even give hints of the expected price range. They act like they don't know, but there is no ways the vendors don't tell them what their target price (not reserve) is.

 

The agents try lead you on saying "what is your budget" and even if you tell them a figure a fair bit lower than what the vendor may be expecting, they'll reply with "oh, you're totally in the ball park", just to coax you into registering and building up that auction interest/frenzy.

 

They also purposely list them on TradeMe in price brackets lower than they expect, just so they show up in more people's searches. Intentionally misleading.

 

Damn market! Damn agents!

[Wayne Potgieter]

Sorry to hear. Was this at an auction?

 

I remember when house hunting around 2yrs ago, it was highly annoying that agents won't even give hints of the expected price range. They act like they don't know, but there is no ways the vendors don't tell them what their target price (not reserve) is.

 

The agents try lead you on saying "what is your budget" and even if you tell them a figure a fair bit lower than what the vendor may be expecting, they'll reply with "oh, you're totally in the ball park", just to coax you into registering and building up that auction interest/frenzy.

 

They also purposely list them on TradeMe in price brackets lower than they expect, just so they show up in more people's searches. Intentionally misleading.

 

Damn market! Damn agents!

remember points 1, 6 and Interns contribution at number 7...Estate Agents Suck

[davetapson]

The house we want came back $100k more than what we expected. It's evil that my mind still sees that as not too much because of being so use to large figures due to Rand's.

 

It's so much money this house thing, but I'm sick of paying so much rent too

 

We decided that you got to get used to the idea of paying more than we'd really like. 

 

The problem with us is that the bank will only lend up to 90% of the valuation, and currently the valuations are way less than what properties are going for. 

 

Last one we tried, the agent thought the house would go for 1M or so, top end 1.1M (which curiously enough was what the valuer valued it at - you got to wonder if they colluded) and it went for 1.16M.  Which was huge for what it was.

 

We're trying once again, but I suspect the same thing is going to happen.

 

Wayne's plan is really the most logical, just short on appetite for it for us given we like space.

 

Of course you could go that route, get some capital growth to put against a deposit, and move somewhere you like after a few years.

[Wayne Potgieter]

We decided that you got to get used to the idea of paying more than we'd really like. 

 

The problem with us is that the bank will only lend up to 90% of the valuation, and currently the valuations are way less than what properties are going for. 

 

Last one we tried, the agent thought the house would go for 1M or so, top end 1.1M (which curiously enough was what the valuer valued it at - you got to wonder if they colluded) and it went for 1.16M.  Which was huge for what it was.

 

We're trying once again, but I suspect the same thing is going to happen.

 

Wayne's plan is really the most logical, just short on appetite for it for us given we like space.

 

Of course you could go that route, get some capital growth to put against a deposit, and move somewhere you like after a few years.

I found out something interesting yesterday when talking with the bank.

 

When building, essentially you have two main options.

 

1. You buy a turnkey landand build, you put down 10% and the balance pays out to the developer when certificates of completion are done.

 

2. You buy land, and then appoint a builder to do the work - banks view this as a construction loan. You pay 10% on the land, then the bank settles when the deal goes unconditional, you begin to pay interest on the land mortgage. While that is going on, you pay 10% to the builder, and the bank pays the builder in staged payments through the build. Again, you only pay the interest on that mortgage.

 

Generally speaking, you get more bang for your buck with option 2. Reason being, is with option 1, the developer has to buy the land and front 100% of the costs of the build. He is only paid out 9 months later and he has probably borrowed that cash. So he will be seeking a higher profit margin for his work. Because the house has a certain value as dictated by the market, the highest probability way to increase margin is to build slightly smaller and for lower specifications to create that higher margin.

 

So, if you can afford the interest on the mortgage while renting, option 2 provides a better return. This means that in the time that it takes to build, your investment will grow a little more than a standard turnkey.

 

I found that rather interesting.

 

EDIT:

There are downsides, time to completion on option 2 is about 3 months longer as plans need to be drawn up and sent to council. Also, you are facing higher risk as the builder starts already getting paid, so partnering with the right builder is essential..  Turnkey has less of these risks.

Edited November 4, 2020 by Wayne Potgieter

[davetapson]

I found out something interesting yesterday when talking with the bank.

 

When building, essentially you have two main options.

 

1. You buy a turnkey landand build, you put down 10% and the balance pays out to the developer when certificates of completion are done.

 

2. You buy land, and then appoint a builder to do the work - banks view this as a construction loan. You pay 10% on the land, then the bank settles when the deal goes unconditional, you begin to pay interest on the land mortgage. While that is going on, you pay 10% to the builder, and the bank pays the builder in staged payments through the build. Again, you only pay the interest on that mortgage.

 

Generally speaking, you get more bang for your buck with option 2. Reason being, is with option 1, the developer has to buy the land and front 100% of the costs of the build. He is only paid out 9 months later and he has probably borrowed that cash. So he will be seeking a higher profit margin for his work. Because the house has a certain value as dictated by the market, the highest probability way to increase margin is to build slightly smaller and for lower specifications to create that higher margin.

 

So, if you can afford the interest on the mortgage while renting, option 2 provides a better return. This means that in the time that it takes to build, your investment will grow a little more than a standard turnkey.

 

I found that rather interesting.

 

EDIT:

There are downsides, time to completion on option 2 is about 3 months longer as plans need to be drawn up and sent to council. Also, you are facing higher risk as the builder starts already getting paid, so partnering with the right builder is essential..  Turnkey has less of these risks.

Our current plan is to (try) and buy the land, which has a (big) two bedroom house on it already.  That way we have somewhere to live while the main house is built.

 

If you play your cards right and manage to add more value than it costs, you can actually get the construction loan with no further deposit as the final value will be more than the cost to build.

 

But, if not, building up the deposit for a house build should be easier than for the land, which costs a bundle compared to the house.

 

Spoke to Signature homes for construction and they are quite happy to engage in trying to work out what will work out best.  They say construction costs are 2.4k to 4k m2.

[intern]

Decided this post was actually a bit gloaty and unkind to intern so I've deleted it.

Haha don't worry arab, I have thick skin and yep, looks like I called it wrong (I am surmising what you may have said from Dave's subsequent comment). Not the end of the world...

[patches]

I found out something interesting yesterday when talking with the bank.

 

When building, essentially you have two main options.

 

1. You buy a turnkey landand build, you put down 10% and the balance pays out to the developer when certificates of completion are done.

 

2. You buy land, and then appoint a builder to do the work - banks view this as a construction loan. You pay 10% on the land, then the bank settles when the deal goes unconditional, you begin to pay interest on the land mortgage. While that is going on, you pay 10% to the builder, and the bank pays the builder in staged payments through the build. Again, you only pay the interest on that mortgage.

 

Generally speaking, you get more bang for your buck with option 2. Reason being, is with option 1, the developer has to buy the land and front 100% of the costs of the build. He is only paid out 9 months later and he has probably borrowed that cash. So he will be seeking a higher profit margin for his work. Because the house has a certain value as dictated by the market, the highest probability way to increase margin is to build slightly smaller and for lower specifications to create that higher margin.

 

So, if you can afford the interest on the mortgage while renting, option 2 provides a better return. This means that in the time that it takes to build, your investment will grow a little more than a standard turnkey.

 

I found that rather interesting.

 

EDIT:

There are downsides, time to completion on option 2 is about 3 months longer as plans need to be drawn up and sent to council. Also, you are facing higher risk as the builder starts already getting paid, so partnering with the right builder is essential..  Turnkey has less of these risks.

 

A colleague has just finished building an amazing mansion of a house up in Kerikeri.

 

He bought the land, then hired a builder. He took out a building loan, carrying a slightly higher interest rate than a regular mortgage.

 

Due to covid and a number of other supply-chain issues, his programme blew out by 15 months. He said those 15 months of extra interest and delays cost him nearly $50k.

 

His advice was if you're going to build, use a builder that is established in that area. He used a master builder with loads of experience, but he has just started his own branch of a franchise in that town, and without the established relationships with subtrades, small delays turned into big ones.

 

Classic NZ though... it's all about who you know, hahaha!

[Wayne Potgieter]

Haha don't worry arab, I have thick skin and yep, looks like I called it wrong (I am surmising what you may have said from Dave's subsequent comment). Not the end of the world...

I have come to accept that NZ does not have a huge casino sector because everyone gambles in property.

 

I am going to ask my architect to install a blackjack table in my casino house

[Wayne Potgieter]

A colleague has just finished building an amazing mansion of a house up in Kerikeri.

 

He bought the land, then hired a builder. He took out a building loan, carrying a slightly higher interest rate than a regular mortgage.

 

Due to covid and a number of other supply-chain issues, his programme blew out by 15 months. He said those 15 months of extra interest and delays cost him nearly $50k.

 

His advice was if you're going to build, use a builder that is established in that area. He used a master builder with loads of experience, but he has just started his own branch of a franchise in that town, and without the established relationships with subtrades, small delays turned into big ones.

 

Classic NZ though... it's all about who you know, hahaha!

This is good advice.

[davetapson]

Went out to have a look at that plot while the valuer was there so that I could take more time (pity about the weather)

Nice it is, peaceful it is not, given that it is across the valley from the main motorway north, but beggars and all that...

Was speaking to the agent about property prices and his view is that the main reason Auckland prices are what they are are because of a shortage of land.  He says that the only person who'd force release of land is David Seymour, but that the release of land will reduce house prices which will upset the banks, and nobody in the main parties is prepared to upset the banks.  He also implied that the house builders/banks/interested parties all collude to keeping house prices/building prices high.

So his view is that prices will not drop, just due to shortage.  He does acknowledge there will be houses on the market from distressed sales, but that they will be soaked up by pent up demand.

Take it where it came from.   Doesn't necessarily reflect outside Auckland.

[GrahamS2]

I was chatting to a colleague the other day regarding the house prices and the current surge. This was the train of thought.

 

Lets say I have save up $200,000. That's a fair amount of cash, but not impossible.

 

If I want to buy a house with that $200,000, the bank will lend me another $800,000 (providing lending criteria is met, and all that mumbo jumbo). Let's say at an interest rate of 3%.

 

If I buy a house for $1m, and over the space of a year it appreciates at 10%. Yes, that's high, but not impossible if one looks at the past year on Auckland's housing prices.

 

So not only has my $200,000 has made $20,000... sweet deal... BUT my borrowed $800k has gained $56,000 (10% increase minus 3% interest). So all in, I'm up about $76,000 (or $6333 pm) TAX FREE (equivalent of earning a salary of $102,000pa)

 

Yes, this is based on favourable interest and appreciation rates, and yes, rates, etc have not been taken into account.

 

But still... owning a home is almost a license to print money using mostly someone else's money.

 

Where else can you do that?!

 

No wonder there are cries for CGT and the like

 

*Disclaimer: I am by no means an economist, financial guru, or even a financially responsible adult    

You're spot on, and I'm testament to this type of thinking.

 

I recently bought a house for, let's call it, $1m. I had a fair amount of cash I could could have dumped into it, but with interest rates at 2.2%, I rather opted to put the minimum 20% in, and invest the rest with a fund manager. The upside is that, as you pointed out, I get exposure to the growth of a $1m asset for only $200k (plus interest) cost. But it also allows me to get a 9%+ investment return on my surplus cash, which, even after CGT, is a lot better than the 2.2% interest cost I'd be saving. 

[hayleyearth]

Sorry to hear. Was this at an auction?

 

I remember when house hunting around 2yrs ago, it was highly annoying that agents won't even give hints of the expected price range. They act like they don't know, but there is no ways the vendors don't tell them what their target price (not reserve) is.

 

The agents try lead you on saying "what is your budget" and even if you tell them a figure a fair bit lower than what the vendor may be expecting, they'll reply with "oh, you're totally in the ball park", just to coax you into registering and building up that auction interest/frenzy.

 

They also purposely list them on TradeMe in price brackets lower than they expect, just so they show up in more people's searches. Intentionally misleading.

 

Damn market! Damn agents!

Na, not auction, off plan.

We will continue with our interest to purchase. Let's see if we can move in in 9 months time.

 

(I'm Very scared about the huge amount of debt we will now go in.)

[patches]

Na, not auction, off plan.

We will continue with our interest to purchase. Let's see if we can move in in 9 months time.

 

(I'm Very scared about the huge amount of debt we will now go in.)

 

Tell me about it!

 

Imagine having R10,000,000 of debt. TEN MILLION RAND!!

 

It sounds ludicrous to us Saffers, right!?

 

If I had to imagine such a thing in SA, it would seem impossible to pay back in a lifetime. 

 

But based on salaries, interest rates, equity and all the other things that differ between SA and NZ...

 

R10m debt is still mental... but $1m is doable (it just took me about 6 months to get my head around it  )

 

 

[patches]

I did some quick comparison between the R10m vs $1m debt scenario

 

(all the above and below based on a 1:10 exchange rate).

 

In SA a R10m loan at 7% interest (current rate) over 30yrs would mean:

• R66,500 pm repayments
• R23,950,890 (~140%) paid over the total term

In NZ a R10m loan at 3% interest (0.5% above current rate) over 30yrs would mean:

• R42,160 pm repayments
• R15,177,750 (~52%) paid over the total term

So not only is the monthly cost in NZ approx. 2/3 of what it would be in SA  (making it far more affordable, plus in general salaries at a direct conversion are higher in NZ), but over the life of a loan one can see how "money is cheap" in NZ.

 

That 4% makes ALL the difference!