This article was published on 24 October 2015. Some information may be out of date.

Q&As

  • Is greed behind Auckland house price rises?
  • Apartment or unit? Go with what you prefer
  • Rental property not a good way to invest her inheritance
  • Individual shares or a share fund?

QTo what extent would you attribute the rise of house prices in Auckland over the last ten years to the greed of both vendors and the real estate salespeople, who are of course all part of The Market?

I’m excluding developers, since I assume they are professionally qualified to earn a salary this way and manage the project etc. I was thinking more of the ordinary person who is selling a house to move and capitalize, or the many ordinary persons who have moved from other jobs to become real estate salespeople.

Speculators, traders, are another breed entirely, and would also need to be addressed.

AI’ve sat on this question for a while, so I could think about it, but I don’t seem to be getting any wiser!

The setting of Auckland house prices is, of course, all about supply and demand. As Economics 101 teaches us, whenever there’s a bigger demand than supply, prices will rise, and that’s clearly what’s happened here. Heaps has already been written about that. But you’re looking more at the emotions involved.

Can you blame someone for asking a price that a buyer is willing to pay? Nobody is forcing the buyer. And if the seller is moving to another Auckland house, they need a to get high price so they can afford to buy their next property.

Having said that, I heard a story recently about a young couple who had just bought a house. When they first saw the place they loved it, but realized they were likely to be outbid by apparently wealthy people also taking an interest.

One day, as they left an open home at the house, they spotted an elderly woman sitting in a car nearby. Acting on a hunch, they asked if she was the owner. She was indeed, so they told her how much they wanted to live in her home.

The upshot is that she sold to them even though others offered more. And that’s not the only story I’ve heard of people selling cherished family homes to the buyer they liked best, rather than the one with the deepest pockets.

But maybe everyone other than that type of seller is a bit greedy?

As for real estate agents, they make more if prices are higher, and no doubt entice people into listing with them by talking of high prices. But they also make more if their turnover is higher, and sometimes pressure sellers to accept a relatively low offer just to get the sale done. So who knows about their total effect on prices?

Speculators and traders? They’re trying to buy as cheaply as possible and sell as expensively as possible. So maybe those two forces neutralize one another.

What do other readers think?

QI’m 29 and have a stable job. Having around $27,000 in KiwiSaver and $33,000 in savings, I would like to get into the property market. Being single the bank will only lend me around $350,000, so that I can meet the mortgage repayments on a single income.

I’ve been looking around for a first home in East Auckland and at this stage I could probably afford an apartment or a small unit if I’m lucky.

Is it a good idea for a first home buyer to buy an apartment in Auckland as opposed to a property with land (i.e. a tiny unit)?

I’m more inclined towards an apartment only because it would be a newer, with modern furnishings.

Some people say I would still get a capital gain when I eventually sell the apartment and move to a bigger home. Others say I would make a very minimal capital gain with an apartment sale.

AIt’s so confusing when you get conflicting advice. But I wouldn’t take too much notice of any of your advisers!

Even experts can’t accurately forecast whether you will make a bigger gain on a unit or an apartment. You might not make a gain on either. The more Auckland property prices keep rising, the more likely it is that they will fall some time in the nearish future.

Nor is it helpful to look at whether apartments or units have risen more in recent years. Often, when the value of one type of investment has increased faster than another, the opposite happens in the next period.

History is full of instances when the fastest growing investment suddenly becomes the slowest growing — or the fastest falling.

Let’s say, for argument’s sake, that apartment prices have risen more slowly than units. People will realise they can get a better buy with an apartment, so that will boost the demand for apartments and reduce the demand for units. In turn, that will push up apartment prices.

So what should you do? I say go with an apartment, seeing it’s what you prefer.

And don’t worry too much about a possible Auckland property downturn. As long as you stay in the Auckland market, if your apartment loses value, house prices will probably fall too. They are somewhat different markets, but they’re unlikely to get seriously out of whack.

What if you move out of Auckland after local prices have plunged? You should still be able to afford a good property elsewhere, given the current price differences.

Even if that doesn’t work well, hey, you’re 29. If you move about a bit in your life you will sometimes win on property and sometimes lose. I’ve had a Sydney house almost double in price in two years, and an Auckland house lose 30 per cent over a similar period. It all comes out in the wash.

QI am almost 60, and all going well will work until 65. I have KiwiSaver, but only joined three years ago so not a lot there yet. My house is freehold and I have $30,000 saved for emergencies, but rarely touch it.

I recently inherited $400,000. I don’t know what to do with it and hope you can help me. I have five children and would love to give them something. I would also like to have a little extra to help me through retirement.

I am thinking an investment property, but have never had money to invest before and feel very nervous about doing all of this. I live alone and don’t really have anyone to assist me in this.

I live in Auckland so realise there is very little for this amount here. Would I have to go out of town to invest? Your thoughts would be appreciated thank you.

AWhile rental property can be a good investment, I don’t recommend if for you for three reasons:

  • You’re right that it would probably be best to buy outside Auckland, so you can get a property in good shape with reasonable rental income. That means you won’t be on the spot to monitor maintenance, deal with tenant problems and so on.
  • You don’t sound keen on the idea. Some people can’t see past rental property, but for others it holds little appeal. It’s probably to do with upbringing and appetite for risk — and whether the idea of repainting a kitchen fills you with delight or dread. It doesn’t sound as if you have the Property Personality.
  • Perhaps most importantly, you can’t gradually spend your way through a rental investment in retirement. True, if you buy a property with a small mortgage or none at all, you should get rental income after paying rates, insurance and maintenance. But you can have more income than that from a different investment.

In what? If you’re happy with your KiwiSaver provider, you could put the money in that account, or a similar non-KiwiSaver fund from the same provider. You might want to first use the KiwiSaver Fund Finder on www.sorted.org.nz to see if you’re with the best provider for you.

When you get to 65, let’s say you want to spend the money from then to 85, planning to live on NZ Super after that. A simple plan is to divide the money by the 20 years — so if the total is $400,000 you would withdraw $20,000 a year to start with, through monthly withdrawals.

The next year, spend one nineteenth of the money, the following year one eighteenth and so on. Returns should mean that your spending will grow most years, to at least keep pace with inflation. And if you want to withdraw a lump sum occasionally — perhaps for a new car, travel or home maintenance — you simply have less to spend every year after that.

What type of fund should you use? I suggest investing what you plan to spend in the next three years in a low-risk fund; the money for years 4 to 10 in a balanced fund; and the money for after that in a higher-risk fund if you can tolerate volatility. Every year, move some money to adjust for the fact that a year has passed.

Too complicated? A good KiwiSaver provider should offer guidance on this. Or spend a bit of your money on an authorized financial adviser. See the Info on Advisers page on www.maryholm.com for help with finding one.

As far as the children are concerned, you might give them, say, $5000 each now. But beyond that I suggest you plan to leave them your house and any unspent savings when you die. Too many people live frugally in retirement whilst giving to children who end up much better off than their parents.

QI have to admit I am very financially naïve and have got a little money stored. I have never bought individual shares as I do not know how to go about this.

Should I invest the money in a fund or should I try and learn how to buy shares? I do not want the hassle of owning a rental property.

AYou can buy individual shares through a sharebroker. For a list of brokers and other basic information, see the stock exchange’s website, www.nzx.com/investing. It refers to sharebrokers as “NZX participants.” Read some brokers’ websites for more info.

However, unless you have $100,000 or more to invest, it’s hard to get a wide range of shares by buying them individually. And if you don’t hold a wide range, you’re taking unnecessary risk, as your particular shares might perform poorly.

With a smaller amount of money, a share fund works better. Most funds hold many shares, and it’s easy to make regular deposits or withdrawals. Also, the fund managers take care of dividends and so on.

The downside is you pay fees. To keep an eye on fee levels, see the KiwiSaver Fund Finder mentioned above. Like the previous correspondent, you could invest in a KiwiSaver share fund or — if you want to retain access to your money — a similar non-KiwiSaver share fund.

Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd FSCL, a seminar presenter and a bestselling author on personal finance. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.