Is it time to consider selling your property investments and put the money into assets that actually grow the economy? One investment expert says New Zealand would be a lot better off if such a change were to occur.
Jeremy Williamson, head of private wealth and markets at Craigs Investment Partners, said there was momentum building for a move away from a “love affair with property and property investing”.
“We think that’s great for a number of reasons. New Zealand is always going to have an affinity with property investment but there are so many benefits for us as a country if we can turn the dial away from it, into more productive parts of the economy.”
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He said property investment was not the most efficient way to help create a better life for the next generation of New Zealanders.
“What does it do on a national scale for us if we’re just buying and selling houses back to each other to create wealth? I don’t necessarily believe for the collective it works.”
He said New Zealanders’ knowledge about investing in other assets was growing.
“If you put $100 into a New Zealand house 30 years ago it would be worth nearly $600. If you put it in New Zealand shares, it would be $1100.”
He said people had favoured property investment for the reassurance of being able to “touch and see” it, but that was changing.
“There is a whole generation of people who got burnt in 1987 in the sharemarket crash. But the reality is that generation is starting to pass and there is a new generation of people coming through that have had a really positive experience in asset classes outside property.”
He said the ability to leverage a property investment – borrow money from the bank to buy a house with only a 30% deposit, for example – would also make it appealing.
But he said if even 10% of the money being invested into property went into other assets, it would make a big difference.
“We over-allocate to property, we’re reinforcing inequality through investment in an asset class that isn’t productive. We’re inflating the asset class and putting it out of reach for the next generation.
“If we were to set ourselves an objective, we want a more productive economy, more opportunities for our kids, all that stuff, if we’re allocating capital into more productive asset classes the tax take from that downstream is going to increase anyway.”
He said there was also a conversation to be had about creating the right tax incentives to encourage that.
“It’s worth discussing at a national level. A house can’t grow an economy. Investing in productive, growing companies can change the economy for the good.”
He said now could be a good time to realise property investments and put the money into other asset classes.
Infometrics chief forecaster Gareth Kiernan said the average residential property investment return over the 10 years to March was 9.5% a year, including rents and capital gains.
Morningstar said the per annum return of a typical aggressive KiwiSaver fund over that period was 9.34%.
“The worst 10-year stretch was the 10 years to June 2017 (8.7% per annum), and the best was the 10 years to December 2021 (14% per annum).”
He said housing could be less central to investments in the future.
“The house price falls in 2022/23 have demonstrated that house prices are not a sure bet to always go up.
“Significant increases in insurance costs and local government rates mean that the operating expenses associated with rental property are much higher than in the past.”
He said KiwiSaver had also made people more familiar and comfortable with financial investments.
“A lack of expectations about capital gains for housing is also likely to limit investor demand for property for some time yet. Poor housing affordability and low rental yields suggest limited room for house prices to be bid up significantly – and rising property values are a key component of property being an attractive investment.”
Rupert Carlyon, founder of Koura KiwiSaver, said he agreed that New Zealand needed to move away from property.
“With the world moving into negative population growth in the next few years it will have massive implications on property prices. The dynamics for property don’t look great over the next 10 to 15 years when you consider the potential for slowing to no population growth, falling real wages and higher interest rates driven by inflation.”
He said Bitcoin had been the asset class that had delivered the best performance of the past decade.
It had given investors a 45,000% return.
“However it is important to point out that during this period it went from being a small speculative asset class to gaining acceptance into the mainstream. That is evidenced by the launch of the ETFs the inclusion by governments of Bitcoin in their reserves.
“While it is highly unlikely that we see this type of growth again – it is important to point out that Bitcoin is still a small asset class compared to others.
“With a market cap of US$2.4 trillion it is only 10% of the value of gold, just over 50% of the market cap of Nvidia and tiny compared to the value of the real estate market. If adoption continues we expect to see some of these gaps close.
“Though while less risky than it was a few years ago, risk still exists. It is important that investors remain diversified and don’t place all their bets on any single asset or asset class because history shows assets will always move in cycles.”
rnz.co.nz
