Homeowner's Blog

Buy vs Rent in New Zealand

Despite higher costs

Why is home ownership so popular?

 

You will find many debates about home ownership, the property market  and how to get onto the property ladder, but for most people home ownership is the expensive solution. New Zealand’s property market is heavily taxed as a course of business on developers and traders. Capital Gains Tax is already included in the annual tax return for investors and property traders paid on IR3, IR4 or IR6. Despite all the confusions why is the property market so popular?

 

The property market is highly overvalued and here are few thoughts why:

 

1)  New Zealand is a country of small businesses. Properties carry the load of the nation by providing jobs and income for families across the country such as builders, plumbers, electricians, cleaners, landscapers – you name it.

 

Even enterprises rely on assets provided with properties. When I tried to found my first business (it was an IT business concept) banks did not take the risk to provide any finance. In other words, without assets accepted by the bank – no go!

 

 

2) Kiwis have to buy properties to secure family or  business. If you want to expand a business, bridge a shortage of income, or want to pay for a family affair such as a wedding,  a health related operation and so on, you can borrow against freehold property. What would you do without borrowing capacity?

 

 

3)  The most common reason to go onto the property ladder is to secure the retirement. For New Zealanders there is no compulsory retirement fund available and the Kiwisaver Scheme was only introduced few years ago with the Budget 2005.  

 

But still, for people who don’t mind making their hands dirty by renovating, improving or building a home from the scratch, there is no better way to leverage money and live the kiwi dream and a retirement in a freehold property.

 

4) The Option for home owner

Let me assume you own a freehold property and when retired sell it for 600k - you would be able to downsize to a smaller, cheaper home to free up some cash and subsidize your retirement.

You could also access the equity in your home without selling or relocating by a reverse mortgage and still pass on something to your kids.

 

 

5) Lack of trust

New Zealand’s market is fragile because of its size and depends on immigration and the Asian-Pacific economy. High prices, low productivity and income - people have reasons to be suspicious. For instance the Kiwisaver was introduced within the budget 2005 by force and without full support. And it has already been tampered with in 2010 as result of the earthquake catastrophes in Christchurch and Japan.

 

 

That summarizes why properties are important to kiwis despite higher costs when stepping up the property ladder. The question for many is  - what else can people do on long-term if they do not want to be a burden on future generations?

Does it make sense?

 

Klauster

Home ownership blog illustrates the kiwi way of life, why the property market carries the load of the nation and despite higher costs the preferred retirement is based on equity.