Brian Dalley talks Property Profit

We Export in Raw Material the Equivalent of 333,000 Houses a Year

Exporting valuable raw materials such as (logs) helping to sustain manufacturing in other countries when we could be creating jobs in our own country, I find absurd.

In NZ we have the expertise and the raw material in abundance to export kitset homes instead we export raw material (logs). Researching this article I tried to find out why and was told repeatedly, loggers get a better price offshore.

This made me even more determined to ask the hard questions but then the doors started to close.

A similar thing happened when I started questioning others as to why we hand out millions and millions of dollars in aid money when houses gets destroyed by hurricanes instead of exporting kitset homes made in New Zealand that can withstand extreme weather conditions.

I was talking to a guy that sent several containers of building material to one of the devastated islands and he said people where turning up one by one putting a couple of lengths of timber on their shoulders and wandering off to build who knows what.

He also made a comment that these communities were using aid money to purchase substandard building materials - thinking that were getting a good deal - which would only result in the shacks, as he called them, being demolished in the next big blow.

Another company director of a prominent building company said he had tried and tried over the years but governments showed very little interest and in fact would not even return his calls.

New Zealand forest owners started shipping logs to Japan in the late 1960s, but for decades exports were restricted by government policy (from Government forests) and by domestic log demand. However, when the Government sold its forests to private interests in the 1990s both the volume and market spread increased.

Total log exports increased from 1.3 million cubic metres in 1980, to 1.9 million cubic metres in 1990 and to 5.9 million cubic metres in 2000.

Now exports are around 10,000,000 cubic metres per annum, of this I have been informed more than 50% is shipped to China.

The log export boom has attracted a growing number of exporting companies. The Industry now has at least 16 companies plying the trade. This compares with only about 5-6 log exporting companies left on North America's West Coast.

Several new-entrant Chinese companies are now in the game. The very high prices bid for some stumpage sales in late- 2009 raised eyebrows, with conjecture that Chinese economic stimulus package money is behind such bids, and with volume more important than price.

In early 2010, some New Zealand sawmills report log shortages as the log export boom continues. But, knowing China, it can stop as fast as it started.

Source: 2010 New Zealand Forest Products Industry Review. DANA Ltd. See www.dana.co.nz or contact jan@dana.co.nz

I put this question to Jan at DANA Ltd: “Approximately how many averaged sized homes would 10 million cubic metres of logs produce?” but at time of submitting this article for publication, I had not received an answer.

Maybe I was barking up the wrong tree, but I don’t think so. It was very much like talking to a cartel. The scary thing is governments appeared to be in the mix.

Not to be out done I put the question to another source and their reply was staggering to say the least.

We export in raw material the equivalent of 333,000 houses a year or if they were solid wood houses around 125,000.

Even if you said only half these logs were suitable saw-log quality then the above numbers (divided by 2) still makes for impressive numbers.

The world is hungering for food and housing, we have the raw material and infrastructure to produce both so why aren’t we cashing in, rather than handing out cash. Why are we selling ourselves short?

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

60% of People are Paying Too Much for Their Insurance. (True or False?)

Are Banking Consultants and Mobile Mortgage Managers being pressured into selling insurance policies to meet sales targets and to qualify for bonuses?

Is this really happing?  

Sure if the person [selling] the policy is prepared to spend the time required to understand the client’s needs and has sufficient  knowledge of the policy they are selling then I don’t have a problem with them doing so however, first and foremost it should be about client needs, not commission and or sales targets.

Secondly it is my understanding the banks usually only represent one insurance company and as they (insurance companies) and banks for that matter, are not created equal, how can any lender promote a single company as being the best fit for each and every customer?  

Having sold insurance in the early 90’s when I owned Citiwide Mortgage and Insurance Brokers I became very familiar with the industry and to this day, I remain sceptical when it comes to insurance, as often it is sold on fear rather than necessity.  

Ask yourself this question, three or so years ago when the risk was greater than it is now, why wasn’t mortgage protection given more thought, yet today, it ranks right up there with the must haves.

A little like closing the gate after the horse has bolted don’t you think?

Back then, sales targets were not an issue as the big-ticket item (mortgages) was first and foremost in one’s mind as they were an easy sell.

Don’t get me wrong, not all people are hawking insurance for the wrong reasons and most insurance policies offer value for money. (Note I said most!) 

In saying that I have on numerous occasions and unfortunately more often than not, come across people that are either over insured, under insured, or not insured at all. It is as if they have been given a dart and been told to close their eyes and throw, sign here.

Fleeced recently was a young guy that had been paying into his insurance policy for years because that is how retirement plans were sold back then, but now as he intends to purchase an investment property he phoned his advisor to see what he should do. 

Simple, increase your policy he was told, feeling a little stupid for asking such a dumb question (the customers words) he went ahead and did just that.

He was not being stupid for asking, and one should never think that way, instead he was taken advantage of as the advice given was weighted to benefit the wrong person. 

He was already over insured and could in fact reduce his cover and channel the savings into reducing his debt much sooner resulting in significant savings.

Sure the salesperson missed out on commission and as he gave the wrong advice, the customer took his business elsewhere which was good to hear as the salesperson didn’t deserve the customer’s ongoing business.

Remember a lender cannot condition a loan that requires insurance to be taken out with them, but can however condition it be assigned to them which isn’t a problem.

Don’t get me wrong I am not anti-insurance; in fact I recommend it is reviewed annually. I am simply encouraging people to read the fine print, question the salesperson’s motives, and ask them to show you comparisons from other companies.  

This is what Tessa our insurance consultant had to say; 

“The key difference between the advice of a trained consultant is choice, analysis, knowledge, experience, service and accountability, the foundation of which her company StrategicAdvice was built." 

If 60% of people are in fact paying too much for their insurance, surely a quick phone call is in order.

60% is a shocking figure however having been exposed to the industry, sadly I find it very believable. 

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Find out more about your own insurances from Tessa and StrategicAdvice

More and More Rental Properties used in the Manufacture of Methamphetamine (‘P’)

Alarmingly, more than half of the P-Labs discovered in the last five years in NZ have been in rented properties.

How can this be? Aren’t property managers meant to be doing regular checks on rental properties? 

In most cases they are, but tenants have rights and must be given 48 hours notice before any house inspections this allows tenants to move the lab to another property. 

Apparently, the gases have a sort of a tangy smell but being faint a property manager would not necessarily notice it, which is little wonder ‘P’ is running rampant in society.

So were to from here, and who is ultimately responsible for making sure all that can be done to eradicate the problem is being done?

Landlords of the affected properties not only face huge decontamination costs, but the law also requires police to report the property concerned to local councils. In the majority of instances a permanent public record of the ‘P-Lab’ and contamination is then made on the LIM and Property report so it is the landlord’s best interests to do what they can. 

A ‘P-Lab’ can seriously devalue a property, not forgetting the costs involved with decontamination, which can run into the tens of thousands of dollars. This is on top of the consequential losses from missed and reduced future rental income. 

Some properties can’t be saved and have to be demolished and with ‘P’ being highly explosive there is also risk of fire which could also result in total loss, which may not be covered by insurance. This is after all an illegal activity.

Being potentially disastrous for investors, I started digging and unearthed a little device called the “MethMinder” developed here in New Zealand, a silent alarm system guaranteed to detect the manufacture of methamphetamine in a property.

This clever little device, which communicates wirelessly via our national mobile network, monitors the surrounding atmosphere within which it is placed.  Fitted with a number of anti tamper alarms, the device is completely self-sufficient, no cabling required. 

The property is continuously monitored back at the MethMinder control room, with regular diagnostic and environment status reports sent and logged irrespective of any incident. In the event of alarm activation, the monitoring team will then notify the landlord’s nominated contact and the police if required. This will dramatically reduce or even eliminate the contamination of the premises.

Tenants are informed from the outset, that the property is monitored by a MethMinder along with the consequences and charges they will face if they tamper with the device.

In this way a MethMinder protected property is a very effective deterrent to tenants even contemplating cooking ‘P’ in the first place.

When Geoff Dye the business Development Manager was asked if the device had detected anyone cooking P he answered, “Not yet because it’s such a good deterrent, people would have to be pretty silly to give it a crack,” he said. However we have had a few interesting cases and when confronted, the tenants vacated very smartly.

“When you’re interviewing people you let them know that this property has the alarm and they will be detected and then the bad tenants tend to default at that stage.”

“It also helps deter coercion of otherwise good tenets from having your property used to make ‘P’ by others. This is a growing problem and can happen to the best of families for many reasons.”

‘P’ not only possesses a risk for property owners but also to tenants moving into a house that was contaminated. Children are the most venerable.

As the Auckland Regional Public Health Service advises, no decontamination procedure can guarantee absolute safety; prospective tenants should satisfy themselves the property has not been used as a ‘P’ lab.

Traditionally authorities have issued warning signs for land lords and property managers to look out for. Apart from opportunist cooks, these guides may be of very little value, and are by no means a fail safe guide. 

The ‘P’ trade is now over a billion dollar industry in NZ with a life sentence available to manufactures. For this reason cooks have long since devised ways to cover their tracks.

Recommended warning signs to look out for include;

• Unusual chemical smells that are not normally present in the area
• Numerous chemical containers (labelled solvent, acid, flammable) stored or stock piled
• Stained glass equipment and cookware
• Plastic or glass containers fitted with glass or rubber tubing
• Portable gas tanks or other cylinders not normally seen or used in the area
• Chemical stains around household kitchen sink, laundry, toilet or stormwater drains
• Yellow/brown staining of interior floor wall ceiling and appliance surfaces
• Any unusual activity particularly at night

A quick check online uncovered the following news articles;

Cambridge  P lab bust reminder of drugs in small towns

Invercargill Suspect held at gunpoint during P-lab bust

Burswood (Akl) P Lab Bust Worth Millions

Hamilton Explosives found in P house 

Hastings Police P lab bust shocks residents

Remuera (Akl) Locality of busted P lab a concern for police

Unfortunately, this is only a short list but sufficient to get this point across, the problem is not defined to any one area. If you suspect a dwelling or property is being used as a ‘P’ lab contact the Police.

If you are a Property Investor, I can only recommend you seriously review your exposure to this potentially devastating problem and make sure you are doing everything possible to protect your assets.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Take Away the Land and What do you Have? – A Resurgence of Activity in the Building Industry.

Each time I bring up LEASEHOLD LAND as an alternative to making housing more affordable those with otherwise little to say come out of the woodwork to assure me such an initiative will not work. 

Knowing it has worked in the past, (St John’s) comes to mind, I sent a number of emails to various councils throughout the country for their comment.

All replied (apart from Auckland), which was expected as they have never bothered to in the past, but all of the others not only supported the idea but gave examples of how it has worked in their regions and in some areas it is still to this day working well.

Following is a reply from Helene Ritchie – Wellington City Councillor

“You will be aware I am sure that much of Newlands has been built on leasehold land-Manchester Unity land, and that this has enabled young couples then, some thirty or so years ago and since to have affordable housing.”

“I think leasehold land is a good way to ensure affordable housing-and we do need to find ways.”

If you take the land out of house and land packages and what do you have, AFFORDABLE HOUSING.

It seems we are hell bend on reinventing the wheel when we already have options that work but we still look for a better way. 

Sure there is nothing wrong with fine tuning, but to ignore something that has worked for years in favour of trying to find another option just doesn’t make any sense to me.

I am not advocating the government go out and purchase land and turn it into a reservation of low cost housing that is the last thing anyone needs or wants to see and I can’t think of anywhere in the world that concept has benefited anyone but there are alternatives worthy of consideration.

Government Subsidised Leasehold Land

Housing NZ have a large number of properties they are getting little or no return on so why not sell the (houses) to the tenants and lease the land to them for a nominal amount with the tenant having an option to purchase the land (for a set price at a nominated time in the future). This could result in pride of ownership and ease the burden on the costs of HNZ supplying and maintaining subsidised rental accommodation.

It is a futile exercise offering to sell houses to the tenants if the cost of ownership is not affordable. 

Sure the government will be still subsidising such a project but when one sits back and has a look at the big picture (and there is a lot to think about) it makes far more sense and not only just in financial terms.

Apartments

Councillors from Wellington and other regions also support apartment (or) high density  living as it has less impact on the infrastructure as apartments are generally close to public transport and in many cases central business districts.

Recently The Government in conjunction with Kiwibank and a few other lenders set up a package to help Maori build on their land as lenders in general are not keen on lending on land with multiple ownership entitlement.

As lenders are generally reluctant to loan on apartments (although for different reasons), it would be a huge assistance if the government offered to insure lending for first home buyer (as they have done for Maori) so they could purchase an apartment with a minimal deposit or even no deposit. In many cases, this would result in people paying less to own than they would to rent.

If this is the case (which it is) why are the lenders requiring at least 30% to 50% deposit on apartments. 

The quick answer is they were burnt by property investors, developers and others thinking they could make a quick buck.

I had been advising for the past three years or so to keep away from apartments but have recently changed my tune a little and can now see the upside.

Both of the above options shouldn’t necessarily be limited to first home buyers and should be available to any New Zealander that doesn’t meet main stream leader’s criteria.

I am not advocating that this type of living is for everyone and it is not a quick fix but if we are serious about make housing more affordable, and kick starting the building industry we do need to look at alternatives because what is on the table is not working.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Where To From Here? 2010 and Beyond...

 It’s little wonder people are confused and lacking confidence when you read headlines like,  

• Property listings surge, sales remain static.
• January building consents value falls to seven-year low.
• End to Auckland mortgagee sales surge some years off.
• Interest rates set to increase later in the year

Then John Stewart, First National general manager, was reported as saying 20 percent reductions were becoming more common.

As reported last year I feel there are far too many people holding on in the belief that if they hold on a little longer they will be able to weather the storm.

I was having a chat with a couple of property investors about this on the weekend. Too many know they are going to sink and don’t look for a way out as they know it is going to cost them.

It generally takes around three months before a bank serves notice and takes legal action to enter into a mortgagee situation and in many cases a forced sale could be avoided if people simply accepted that they had to sell, settle the debit, and start over.

I fear one of those headlines "End to Auckland mortgagee sales surge some years off" could become a reality if people facing hardship don’t face the situation and accept the fact that they must move on.

I really don’t think there is going to be any surge in value within the next year or two that would warrant anyone holding on.

Sales are likely to be subdued rather than static so it isn’t going to be all doom and gloom but it could very well be for those that live in hope of an overnight resurge in values.

The current state of the market has little to do with supply and demand but rather affordability and the only way that is going to change is for incomes to increase and values to remain subdued.

There is activity out there, contrary to the headline,  January building consents value falls to seven-year low as residential approvals show 1042 consents issued for new dwellings last month compared with 812 in January 2009.

Read the headline again, it was only a play on words; January building consents value falls to seven-year low.

Interest rates set to increase later in the year now this is a hard one and many if not all are only guessing as the data we must rely on to make a calculated decision is so fickle. At a guess, I would have to say I do not think interest rates are going to increase sharply over the next 12 months or so.

Although New Zealand is only a small country, one should not generalise when it comes to property, as there are so many variances to take into account and figures can become distorted. 

I am not sure if John Stewart’s comment of a 20% reduction in values is something that should be relied upon. In some regions and certain price brackets maybe, but in general I don’t think property values will fall by much.

People must remember if they are buying and selling on the same market the person trading up is generally better off taking a small hit, as they will make it up at the other end.

It is the people trading down that will likely be a little worse off but as I have already mentioned it is better to be left with something than nothing at all.

Due to demand, we have spent a considerable amount of time redesigning our website to better report regional market trends rather than generalising as it is was becoming increasing difficult to convince people to look at what is going on in their own regions. Sure National trends do have some impact on various regions but not all.

In fact, it is common for regions to buck national trends. For example, when a large employer sets up shop like Fonterra did in Hamilton.

Summary

• 2010 and beyond – a subdued market through 2010 and into 2011 then increasing in line with affordability.
• If you are facing hardship, face the situation and accept the fact that you must move on, as there is not a quick fix on the horizon.
• When considering interest rates think how an increase of 1% would affect you.

Yes, I know some have been popping the champagne corks and saying the recession has ended and we are on the road to recovery and I think that we are, however there are still a few bridges to mend.

We all see things differently, and any decision you make should be based on what works best for you.  

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

What are the Tax Loopholes?

With book titles such as The Insider's Guide to Real Estate Investing Loopholes, and the governments online brochure IR 435  laying out how to take advantage of Investing in Residential Real Estate, it’s little wonder Mum and Dad investors are taking advantage of what is on offer.

From memory it was approximately 1992 when the Government introduced the concept of “loss attributing qualifying companies”, commonly referred to as an (LAQC) which have been a favoured vehicle of property investors and their advisors ever since.

I remember at the time being a little taken back at the government’s generosity allowing investors to offset losses against personal tax whilst at the same time building tax-free equity.

It’s now 2010, 18 years later and all of a sudden it’s no longer acceptable and the loopholes need to be plugged. A little absurd one might think as they were there from day one. 

To those that are running around pointing the gun at property investors I would suggest if you haven’t already done so, put the gun down and read the brochure that was put together by the government to aid investors. IR 435

There really aren’t that many Property Investment Loopholes under the spotlight, (well not that we know of) however the few we do know they are looking at, could be crippling for the ill prepared if implemented in or around May this year (2010)

• Deprecation
• Tax offset against personal income
• Negative Gearing (interest only loans)

Deprecation

Yes I have heard of many examples of people pushing the envelope and fudging the line between depreciation, maintenance and capital gain. This at times can become a very fine line so it is understandable that more work is required, but not certain if it is going to be an end all for property investors.

Sure, some Accountants are outraged as they say their clients made investment decisions based on depreciation, tax right offs, and if they lose those benefits, they could go to the wall. Maybe those Accountant’s are simply putting up a shield in case they are pelted with rocks from disgruntled investors after all, they were the ones that gave the advice.

Tax offset against personal income

I don’t really see how the government could justify axing this benefit as in its current form “isn’t a loophole” as such, however there is a loophole that they are likely to look at.

Most loans for property are set up as an interest only whereas people use equity in their own homes to purchase another borrowing 100% of the purchase price with losses attributed against their personal income.

They don’t pay down the debt and instead rely on capital gain. This is where I believe change is needed. All investment housing loans unless they are speculative should be on principle and interest not interest only.

If this simple change was made less people would get into trouble with over capitalising and the tax system would be fair. Investors would be paying down debt so would be cash flow positive a lot sooner therefore paying tax and personally I don’t see that as a bad thing.

From day one, yes I was in the game when “loss attributing qualifying companies” were floated, but even back then I would tell my clients, “do not make your decision based on the tax benefits treat depreciation and taxes as icing on the cake and use any payout to reduce your personal mortgage”.

You may think some of what I have just said hypercritical, as I have never been an advocate of negative gearing (interest only loans) apart from as a short-term solution.

Not true, as what I would tell clients is this; work out what the difference between interest only, and principle and interest is, and pay the difference off your personal loan which will reduce the amount of interest you pay yet still maximising the tax benefits.  Holes like that are likely to be plugged.

For example;

Investment Loan $350,000 @ 6.5% interest only = $1895

$350,000 over 25 years @ 6.5% principal and interest = $2363

So the difference you add to your personal loan $468

Personal Loan $200,000 over 15 years @ 6.6% = $1762 plus $468

This would result in you paying your personal loan off in 10 years and five months and saving something like $38,000 in interest whist maintaining the maximum tax benefits and building untaxed gain at the same time. In addition, if you also used the tax benefits to pay down your personal debt you would be even better off.

Do not be afraid to pay down debt and become cash flow positive. Leave negative gearing to the “speculators”.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Property Screeches to a Holt as Investors are Brought to Their Knees

As John Key launches an all out attack on property investors, (who account for approximately 5% of total sales) the real estate market losers traction.

I find it extraordinary that such a small percentage of people could have such devastating effects.

“SALES PLUMMET TO THEIR LOWEST LEVEL IN ALMOST TWO DECADES” says the Real Estate Institute of New Zealand (REINZ). The number of sales has fallen to its lowest level since electronic records have been kept.

On the upside, based on the above reports it is now unlikely the OCR (official cash rate) will be raised next month as I previously anticipated.

But let’s step back for a moment and take a look at what we are presented with instead of banging away at our own tom-toms.

Below is a blog I put together in Oct 2009

Nothing short of a World War or Great Depression will change things

Nothing short of a World War, Great Depression, total or near destruction will see real estate cycles track as they have over the past years and heaven forbid either happening any time soon.
 
Recently that statement was challenged by a University student, mind still full of textbook ideologies determined to prove the theories she had learnt correct.
 
As the system that monitors and controls cycles was tampered with five or six years ago it is going to take us some time to weather the storms and further turbulence is yet to hit. (Hence the current blip on the radar)
 
Five to six years ago a cycle had come to an end, it was time to take a break from soaring property prices to allow incomes to increase so further growth would be affordable.
 
It was time for the market to take a breather but it didn’t, and this is where it got all pear shaped and came unstuck. The system was tampered with and then became prone to failure. Lenders changed their lending criteria to keep loaning money, borrowers kept borrowing, and no one wanted the party to end.
 
Humans are like that, unpredictable, speculative and inquisitive we generally are out to better ourselves and in doing so often forget there is cost associated with growth.
 
My point to Fay, cycles have been about peaks and troughs, where what we should be looking at is sustainable growth, not the crash burn and rebuild cycles. And thankfully no, a world war or a great depression isn’t required if we take heed of what has recently rocked the world but if we don’t; they could very well become a reality.
 
Seriously, we really do need to start learning from the past as this isn’t the first time we have been rocked by a financial disaster. Although the last was initiated in a different industry (.com) the fundamentals where the same.
 
I think the old system that monitored and controlled real estate that inherently was based on a seven-year cycle worked fine and should be used as the model moving forward.

First we need to start with little if any growth (price increases) then in two or three years ease back into growth mode.
 
This is a better option than the alternative – the War the Depression, wipe everything out and start to rebuild from the ground up. Sounds a little dramatic, but some are doing just that and if we don’t make changes (now) I am afraid it will become a reality for many more.
 
In the past when I questioned people on how much they wanted to borrow 90 percent would reply,  “That is why we got you here, to find out what the bank will lend us.”
 
As I would point out there is another side to the coin, how much do (you) think you can afford.
 
Yes it’s not only the Reserve Bank and the lenders that must take responsibility for righting the wrong but the borrowers must also take on some of the responsibility.

Back to my present opinions…

All of the above makes perfect sense but is does little to explain the spike prior to Christmas (2009)

That’s an easy question to answer, nervous and or over capitalized investors bailing out coupled with mortgagee sales and the normal November surge – no other reason really.

It’s simple really and this is what the government should be concentrating on rather than property investors (the 5% of the market). Focus on making housing more affordable at the bottom end, which will create a flow on effect.

LEASEHOLD LAND IS THE KEY and there is plenty of it. In doing so it will create employment and taxes far in excess of what they could hope to get out of the already over taxed.

Sure there are loop holes that need to be plugged and I am sure they will be but, I am afraid when one comes to the table with a closed mind it is very hard to see the big picture.
 
So then, is now a good time to invest in real estate, prices are low, interest rates are reasonable and values are in line with building costs?
 
Yes, if you can afford to, there will probably not ever be a better time.

Just remember, interest rates will increase so pay down as much debt as possible whilst rates are low. Capital gain will happen over time but at a much slower pace so don’t rely on that as a get out of jail card, DONT RELY ON TAX BENEFITS and all should turn out fine.
 
Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Buy a One-Way Ticket and Leave the Country Now!

 
Little wonder I rarely see eye to eye with Bernard Hickey, the person that lead with that rant soon after John Key addressed parliament.

And to rub salt into the wound Air New Zealand, a company that was propped up by government funds (taxpayer funds) places an advertisement within the article.

Very patriotic.

Interesting how those that say we would all be better off across the ditch are making the statements from within New Zealand. A little hypercritical don’t you think.

Then out comes the Goff “No bold plan at all” guess neither he nor Hickey actually listened to what was being said and simply faxed already prepared statements to the media. Then in fairness we don’t all see eye to eye do we. It’s such a pity we don’t all push from the same side as I am sure we would all benefit in the end rather than pushing against each other and getting nowhere.

Negotiation 101, Herb Cohen believes the world is a giant negotiating table and, like it or not, you're a negotiator.

Whether you're dealing with your spouse, boss, department store, bank manager, children, solicitor, or best friend - in every encounter with other people, negotiating is always taking place. And how well you handle those encounters determines whether you prosper happily or suffer frustration and loss.

With his helpful and sensible approach, Cohen shows that negotiating is a process you can understand and predict - and most importantly, that it is a practical skill you can learn and improve upon. Maybe a little investment in modern day education wouldn’t go astray.

It was reported by the NZ Herald that Mr Goff went on to say the winners of National’s tax package will be the Prime Ministers best mates on their high income and the losers will be average New Zealanders.

Why is it we scold those that work hard to get ahead in life, those that in realty are the very people that contribute towards things such as public health, which they rarely use, public transport, the welfare system, I could go on but won’t. If Mr Goff can’t see that, I am sure his supporter’s wont.

As everyone knows I am an advocate for property investors and yes I can be a little one eyed at times but today Martin Evans, The President of the Property Investment Federation is in my sights.

This I feel, was the rant of the day and there were a number.

He is going to recommend to “his” organisation that investors stop maintaining their properties and put rents up as much as they can in retaliation to the government's intention to abolish depreciation.

I am serious, he was apparently quoted as saying that, as reported by the NZ Herald.

There are already far too many investors that don’t maintain their investment properties to expectable standards so I suppose a few more won’t make much of a difference. It will however benefit those that do look after their investment properties and in doing so those that are paying the mortgage.

Mum and Dad Investors, take no notice of this ranting, maintain your properties, look after your tenants and DO NOT ENTER INTO PROPERTY INVESTMENT solely for the deductions such as depreciation and tax right offs and all should go to plan.

Investors are now saying, as they based everything on what they could skim off the top, they can no longer afford their investments because they have to make money, (just like any other business) as the cream is about to evaporate.

I have been telling investors for years, base your figures on income and expenditure and treat deprecation and the tax breaks as icing on the cake as one day the government will wake up and you will be left with only the cake. Guess that day has finally arrived.

I must say I do find it a little hard to understand how a building doesn’t depreciate in value and would have thought the tax right off against personal income would be at the forefront. Hold that thought, it’s not over yet. As an investor, I don’t really have a problem with that so long as the business can be run on the same lines as a limited liability company. Really, it is just back to square one. 

Personally I thought that we property investors were in for a thrashing, but if things go ahead as I think they will, it will tip over a few speculative investors that opted for capital gain rather than debt reduction and lived off the cream, but for those that took my advice, it will be business as usual.

Now that the cards are on the table keep at it. Invest in a property and lease it back to the government with a guaranteed rental for ten years.

Did you really think they were going to behead those that are currently buying new housing to lease to the government and remember; in this way it is win, win.

By investing in purpose built property for Housing New Zealand it doesn’t affect the property market in any way, creates employment, and houses those that would otherwise be living in substandard accommodation.

Before gritting your teeth and aiming your spear, read John Key's speech (with and open mind) and think for a while. You may just decide to put the spear away. Don’t just get on the band wagon with others that have their own axe to grind.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.

Are Property Investors in for another Flogging?

 
A meeting was called to look at ways of creating a level playing field resulting in a tax reform bill tabled.  [ Tax Working Group Report ]

Why it was decided to exclude any representation from property investors, the very people the finger is pointed at, is beyond me. Are they being set up to take the fall for the real culprits of the Real Estate market turmoil?

The less privileged, as they are commonly referred to, may be rejoicing but before they start sniggering should the government implement the “proposed changes”  in its current form, they should hold off from throwing a party as they could be the ones taking to the streets in protest.

The tax reform has very little to do with creating a level playing field. It is about revenue gathering.

As to finger pointing, yes property investors that keep buying houses to help with the housing shortage, shame on you.

Sure it has been reported as of 30 November 2009 there are 10,423 people on Housing New Zealand’s waiting list but just because the government have opted to lease from private investors as they simply cannot afford to house that number themselves, you shouldn’t benefit from doing so.

Am I pro property investors? Sure and why wouldn’t I be, but are they responsible for the world recession or the New Zealand property market spiralling out of control?

Not at all and I might add this is not the first time it has happened and listen to this. The same players were responsible on both occasions and to date have never been held accountable, well not in this country.

The first time was back in the 90’s not long after the “share market crash” which brought many to their knees.  Mum and Dad investors looked for a safer alternative as a retirement plan and what could be safer than bricks and mortar.

As this caught on, supply and demand kicked in thus fuelling an increase in property values.

Put the finger away, I haven’t finished yet.

At the time lending was capped at 80% and as property values had taken a hit due to the crash many simply didn’t have the equity in their properties they once had.

Credit Analysts could see that it was only a matter of time before properties would be back to at least post crash values so there would be little risk in relaxing lending policy to boost lending/sales so Countrywide Bank took the lead and offered 90% lending.

Most other lenders sat on the fence but after time they couldn’t bare the thought of all the money they were losing so they picked up the ball and were back in the game.

Countrywide then took it a step further. Well it was Citibank actually but theirs was a Clayton’s policy, more of a marketing stunt than a genuine offer but Countrywide’s was the real deal. Punters now only needed a 5% deposit to purchase a home.

This really had a snowball effect and was starting to worry the reserve bank. Out came the big stick as again is their intention, they started flogging the wrong people increasing interest rates, which had little or no effect on the lenders that started the snow ball rolling [ not property investors ] or Joe public.

2004 saw what was described as the beginning of the “Bank Wars”. 

BNZ weren’t getting their share of the action from mortgage brokers so decided to take an axe to them and take on the industry single handed. All hell broke loose with all other lenders matching whatever was thrown at them.

Again, the reserve bank became nervous hitting the lenders with a wet bus ticket, which saw all but Kiwibank taking time out. Kiwibank donning a DC3 starting its own battle attacking those from across the ditch.

The Aussies not to be out done still had other weapons of destruction at their disposal. First came a policy change. Rather than using 30/35% of income as a formula to assess servicing criteria they changed to a budget surplus format.

I remember having a loan declined one day and resubmitting it the following day for $150,000 more using the new servicing formula and it was approved.

They did not stop there. Then came 100% lending, no deposit at all required and if you were self- employed you didn’t need to confirm income. Simply put a figure on a piece of paper and wolla, you were in business.

2008 the writing was on the wall, property prices were finally out of control and sales volumes had started to fall dramatically. It was then evident that the weapons of destruction [overzealous lending policies] were taking affect. House prices were simply no longer affordable, so it was time to retrench to the bunkers, back to 80% lending until the dust settles.

As we are about to repeat the cycle this time let’s get it right, change the tax rules and create a level playing field but first, we need a smoke screen , we start by flogging the property investors – sound familiar.

Summary: Banks get off scott free, property investors get flogged and Joe Public think it's great until they can’t find a decent place to rent.

Brian Dalley is a leading Property Consultant | former NZMBA Mortgage Broker, and Real Estate Agent.