The Unconditional Blog

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25

Young kiwis on their OE attracted to NZ property

Posted on: August 18th, 2008 | Filed in Property Investing
Kiwi OE in London

I was recently in London undertaking in partnership with Sable Mortgages a series of presentations on NZ property targeted at London based kiwis. It provided a great opportunity to profile the website and present a view of the NZ economy to a very well informed audience. During these sessions I was struck by two things.

1. There is an amazing wealth of young NZ talent in London that is so well connected and achieving success in business. By virtue of the web these kiwis know of everything going on back home

2. They are passionate and knowledgeable about home and all plan to return

The age old view of a “brain drain” has always been the political banner waved to justify poor economic performance, the fact is far from a brain drain as these kiwis are exercising their brains and gaining valuable insight into the wider world – they often leave penniless students and return asset rich and worldly wise adults ready to contribute to the development of this country. Sure they do not all return but over time a vast majority do and we as a country are better for it.

Returning to the subject of this post. Over the course of 4 nights of presentations over 250 attendees absorbed these presentations; keen to be better informed as to the opportunities of investing in property in NZ whilst they enjoy their time in the UK. The presentation was a classic situation of seeing that when you add it all up, you can see why for them investing in property in NZ makes sense – sometimes it just needs to be spelled out in black and white to reinforce the benefits.

  • No capital gains tax
  • No stamp duty – the UK Stamp duty is paid by property buyers, and is levied at 1 per cent for houses between £125,001 to £250,000, 3 per cent for £250,001 to £500,000 and 4 per cent for £500,001 or more
  • Ability to leverage equity from one property to another
  • Taxation benefits of LAQC
  • As prospective returning kiwis borrowing NZ dollars to buy NZ property presents no currency risk as the intention is to live in NZ in time
  • NZ lenders like UK based kiwis earning in GB pounds!

Added to this is the fact that even relative to salaries these kiwis can buy more for their money, take this situation as used in the presentation.

These 2 houses theoretically could have been bought 5 years ago – both for the price of £162,500 or NZ$427,000, the one on the left is a 5 bedroom house in Greenhithe on a good size section, the other a 3 bedroom semi in Hemel Hempstead (community distance to London – comparable access to each city’s CBD).

5 years down the track with appreciation as has been seen in both markets of a comparable 50% – each house now would could have been sold for respectively £250,000 and $657,500. The big difference though is the net return on that investment. In the UK allowing for stamp duty and capital gains tax and the slightly lower mortgage rates the return would be £65,000 or $170,000; however the NZ house would net the owners $215,000.

As ever we know analysis like this is always with the benefit of hindsight and today’s market is very different from 5 years ago, however the component costs and taxes haven’t changed (although there is demands in the UK for short term stamp duty relief to stoke the market from it’s stagnant position). All I can say is that over drinks (of course suitable stock of Speights, Stienlager and Marlborough Sauvingon Blanc) there was great interest from these UK pound cash rich kiwis keen to snap up some “good buys” in NZ for their planned return in a few years.

Article Discussion

  1. Excellent post Alastair. I have linked to it from a thread here. I’m working on figuring out how can generate more off-peak traffic for interest.co.nz from expats in the Northern hemisphere.

  2. Ben Young says:

    Interesting, your finding what I’m experiencing. Going overseas if you are a young graduate (with intention of coming back later in life) is a given.

    To be honest it almost seems stupid to stay if you can go to the likes of London and simply send your savings back home as an investment.

  3. BTW any chance of installing a gadget that allows comment editing ?

  4. Good article, however the one thing missing is comparable incomes or mortgage servicability.
    NZérs at home think our property prices are too high, whereas those in UK think they get good value for money compared to what they get in UK.

  5. Keith,

    Whilst I agree there needs to be a view of comparable incomes to mortgages, in this case however there is no value in comparable – these kiwis are on contracts for roles that would not exist in NZ and therefore for them the challenge is to burn through relatively good salaries or be a bit more prudent and provide a cushion of later life returning to NZ.

  6. andy hamilton says:

    Of course many kiwis will have bought into the UK housing market in past years, particularly the younger professionals, the idea being, no doubt, to sell up to help finance their return. The majority of kiwis will have bought in London, the latest batch in the last few years, egged on no doubt by the fact that London property has, in recent times, seemed such a sound investment (or at least thats what estate agents claimed)

    It is a great shame then, for their future plans, that the London market is in complete and utter free-fall – down an AMAZING 5.3% in the month of August ALONE.

    http://www.guardian.co.uk/money/2008/aug/18/houseprices.housingmarket

    The collapse of the UK housing market is shaping up into a once in a lifetime event (rather like Japan in the 1990’s); both Nationwide and Halifax report a national market down a staggering 10% in 9 months (and accelerating).

    Caught in a descent like that, am I the only one left confused as to how a) the kiwi diaspora are going to return cash laden and invest in an asset which has just burnt their fingers (and much else) off, and, b)the much trumpeted cash rich Pommy immigrants are going to be similarly rushing to overpay on NZ houses having experienced the same thing?

    Keep a good watch on the UK house market -its crash, while already spectacular, is shaping up to be one of the greatest financial train wrecks to occur in Western Europe since the 1930s.

  7. andy hamilton says:

    (This would not originally post as it contained a link to the Guardian newspaper, so here goes again):

    Of course many kiwis will have bought into the UK housing market in past years, particularly the younger professionals, the idea being, no doubt, to sell up to help finance their return. The majority of kiwis will have bought in London, the latest batch in the last few years, egged on no doubt by the fact that London property has, in recent times, seemed such a sound investment (or at least thats what estate agents claimed)

    It is a great shame then, for their future plans, that the London market is in complete and utter free-fall – down an AMAZING 5.3% in the month of August ALONE (see Rightmove data out today quoted in all the main UK papers)

    The collapse of the UK housing market is shaping up into a once in a lifetime event (rather like Japan in the 1990’s); both Nationwide and Halifax report a national market down a staggering 10% in 9 months (and accelerating).

    Caught in a descent like that, am I the only one left confused as to how a) the kiwi diaspora are going to return cash laden and invest in an asset which has just burnt their fingers (and much else) off, and, b)the much trumpeted cash rich Pommy immigrants are going to be similarly rushing to overpay on NZ houses having experienced the same thing?

    Keep a good watch on the UK house market -its crash, while already spectacular, is shaping up to be one of the greatest financial train wrecks to occur in Western Europe since the 1930s.

  8. Andy

    I think this is a classic case of reading the headlines at a 10,000 ft perspective and then taking the reality on a one by one basis. Sure the UK market is seriously stuffed (that is a technical term) – driven uniquely by the speculative buy-to-let market for which NZ has been atune to for many years. This is their version of the US sub-prime fiasco, ours in finance companies – all are traceable back to lapse financial controls.

    Anyway the point is in talking to kiwis at this event – a cross section – not the most representative sample admittedly, but all-the-same real people – not medians and averages.

    Of those who owned UK property – all were pragmatic typically “we on paper were looking at a 170,000 pound profit over 3 years, now it looks more like 120,000 pounds! – still that is going to be good converting to NZ with the NZ dollar dropping”

    Of those (the majority) who were renting – they were pleased to have avoided the catch of UK property and earning UK salary feel well placed to buy NZ property now with the intention of returning in 2 to 5 years when they will have paid off at least half their mortgage.

    As ever statistics are the aggregation of large collections of individuals – all with their own motivations and circumstances – the market is merely the net result of these actions.

  9. andy hamilton says:

    Alistair – the rate at which the UK market is dropping makes this observation frankly risible:

    Of those who owned UK property – all were pragmatic typically “we on paper were looking at a 170,000 pound profit over 3 years, now it looks more like 120,000 pounds! – still that is going to be good converting to NZ with the NZ dollar dropping”

    At the moment the UK market is falling so fast that in effect its going back 2-3 months historically for every month it goes forward. Hence (Nationwide/Halifax figures) now show prices have fallen below where they were in June 2006 (that would be 2 years and 1 month ago). The next figures out will no doubt show prices are now below April 2006 and so on. At that rate by November/December of this year everyone who bought in the last three years will be showing a LOSS, never mind some make believe 120,000 profit so either you were speaking to some highly deluded individuals or you misheard someone.

    Along with everyone else in the UK kiwi immigrants who bought in the last 3 years will be sitting on net losses by Christmas (its merely everyone who bought in the last 2 years at the moment). Just look at the data for Pete’s sake and never mind what people might claim at a cocktail party!
    As for the falling kiwi effect – the pound is actually sinking like a rock at the moment (as the FX markets realize what a terrible situation UK plc is in) – as a consequence the kiwi has retraced losses against the pound in recent weeks. The kiwi will no doubt fall a long way against many other currencies but I wouldn’t necessarily think one of them will be the pound (a currency which probably has even more problems than the kiwi).

  10. Andy

    With respect – the data you quote is true of the market, but just like many people who individually bought 3 to 5 years ago they will still be in a favourable equity position (current value based on declining values less outstanding mortgage), just as the people I spoke to.

    Now I am not saying that a sample of 5 is a statistical sample, I am just recounting facts from indiviudals. I have no reason to believe that they are not reflecting their true situation.

    As ever sales stats and median are the result of those that have had to sell for the vast majority of both the UK and NZ.

    I think it is always good to remember that in any one month the number of property transacted is less than 0.4% of the privately owned properties in this country, so the other 99.6% have not sold their property. For these people if they do not sell then they will choose to hold or accept the consequences.

  11. andy hamilton says:

    OK Alistair we will re-visit this at 5% intervals in the future (ie when the UK market is down 15%, then 20% etc), and you can convince me again how unrepresentative these figures are and how all these kiwis (and everyone else in the UK) will still have positive equity to transfer to NZ.

  12. Andrew Burns says:

    I dont think a sample of five justifies the exposure on this blog, ‘Young kiwis on there OE attracted by NZ property’….unless the motive is to talk up the market.

  13. Andrew Burns says:

    where is the edit function to fix my spelling mistake?

  14. andy hamilton says:

    Andrew B. – as it says at the top, this site is ‘the impartial voice of the industry’ so there is absolutely no way that the motive would be to talk up the market. Please re-consider your ill-advised suggestion.

  15. Let me set the record straight – the role of this blog is not to “talk the market up” or for that matter “talk the market down” – this blog is I judge an opportunity for me in my role of CEO of the realestate.co.nz website to share some insights, statistics, observations and opinions founded in the access to information that I am provided with in my role.

    I do not have “an agenda”.The value of a blog is the opportunity to engage with my audience; not I may say in an elitist way, but as a way to garner discussion and allow others to share their opinions.

    I wrote this post because I did attend and present at seminars in London – there were smart young kiwis there. I wrote about it because I wanted to share my experiences. If you judge that shallow and self centered, then clearly I am not engaging as I would wish. However this blog is not and will never be a covert vehicle for any industry propaganda.

    A blog is and always must be honest, authentic, and personable – if it fails on any of these counts then it will loose relevance and audience, I do not judge that I am doing that and the visitor stats show that.

    As to editing posts – a last characteristic of a blog is the human touch – we all make mistakes, so accept as I do the odd spelling mistake. If you want to change an opinion of make another point – just post again.

    Thanks
    Alistair

  16. Andrew Burns says:

    I dont think a sample of five justifies the exposure on this blog,
    ‘Young kiwis on there OE attracted by NZ property’….
    unless the motive is to talk up the market.
    Sorry Alister, motive is the wrong word to use as it
    infers many things,ie. agendas etc.
    A better statement would be,

    I dont think a sample of five justifies the exposure on this blog,
    ‘Young kiwis on there OE attracted by NZ property’ as information
    such as this influences decision making and it should be based on
    a larger sample size.

  17. Andrew,

    I fully accept the potential for misinterpretation, however I think you are missing the point – the purpose of this blog post was not to comment on the views of 5 people in London, I could do that by talking to 5 people in the CBD in Auckland this morning.

    The post is about an initiative underway in the UK of which I was personally involved to support young kiwis who have a passionate desire to maintain a contact with their home and for whom property owning in NZ is important. I think this is valuable as is the reinforcement of the financial benefits to them of buying whilst employed in the UK – which is what this post will do as it will be found through appropriate searches.

    As to whether it justifies the exposure on this blog – I guess that is my decision and I respectfully hear your view that it does not. We beg to differ whilst respecting each others opinions.

  18. Alistair, I think it is just hay making season for the tall poppy feilds.
    I thank you for sharing your experience in London, as it is information we would not otherwise know.
    As one interested in the NZ property market, and influences from outside markets, your information is just one more peice in the puzzle that helps us all come to our own conclusions.
    For anyone to suggest that every word that you say should be taken as gospel, and that it is the definitive end of all information that is required, credits you with incredible knowledge & stature.
    As credible as you may be, I make my own decisions based on wide reading. I learnt a long time ago that not everything you read in the press actually represents the real story, so feel free to gloss up your headlines as much as you like. :)

  19. Kiwi Abroad says:

    I am a (relatively) young kiwi in the UK (granted not in London) who has money saved up for a deposit on a house. Our aim is to purchase in NZ where we can convert that money into a 50% deposit and look to be paying off our mortgage before returning to NZ, or return to a very small mortgage. I know other young kiwis working here who also follow the NZ market, searching for and gaining an opportunity which will establish an investment for their return. Not every pocket of the UK has experienced the property devestation reported in the same capacity. There is a huge variation in the real estate here in good times and in the bad, and young kiwis in London and the South East will be all to aware of this. I commend your post, and the discussion it has generated, long may it continue.

  20. Andrew Burns says:

    Unfortunately Kieth, not everybody researches widely, and many young new zealanders in the last five years got mislead by ‘glossy headlines’ in the real estate industry.

    Any initiative to get the cream of NZ back into the country is wothwhile.

  21. Mike Abbott says:

    Firstly I would like to thank Alistair for his attendance at our seminar in London and for this blog. It’s these kind of open (and seemingly heated) discussions that make the property market so interesting. As a finance broker operating in the UK, NZ, Australian, European and South African markets in these times I would suggest it’s probably not wise to make property investment decisions purely on the basis of newsflow. Reasons: 1) newsflow lags too far behind the event in property 2) Property markets are VERY lumpy (all successful investors know this) 3) Property data is not standardised like in other asset classes. What this means at the end of the day is you need to be on the ground dealing to get a real feel for how fast (and how much) price levels are falling/rising. Alistair has already aluded to the well-known truth that when transaction levels fall to current levels, market data gets distorted. We see this played out in our business every day. We have established investor clients actively buying against the prevailing trend because the yields are starting to make property assets in prime areas attractive relative to other assets. As expected they are all looking for deep discounts (usually from distrssed sellers) but they recognize the opportunity offered by a market undergoing a fundamental price correction. We all know it’s impossible to call the bottom of a market and by the same token the market will always overshoot the new level (on the up and on the down). So in essence my message is – if you are serious about understanding any property market you need to dig much deeper than the newsflow.

  22. Jodi Cottle says:

    Hello everyone – my name is Jodi Cottle and I organised the London seminars and presented with Alistair at them a couple of weeks ago.

    I just wanted to add to all this… there are no glossy headlines in what we present; it is factual and nothing is talked up or down. At Sable and through realestate.co.nz we are all about tranparency and we pride ourselves on this. The clients that have benefited from these seminars are generally first time buyers, they are willing and able to invest in property for either investment reasons or just simply buying a home to move into on their eventual return to NZ and we structure the mortgage around these goals.

    All in all these seminars were hugely successful and I am very excited in the fact that we are helping so many of these guys buy property in NZ. Many of these previously thought this transaction would have been too difficult from London.

  23. The joys of social media!!

    Thanks for the breadth of contribution from Keith and “kiwi abroad” – there are always 2 sides (or many sides) to every story.

  24. Also to Jodi and Mike – Thanks for your comments, I think your contribution and perspective demonstrate a fresh approach – one that in my mind is a breath of fresh air for an industry that traditionally has created a veil of confusion, through which it has sort to further its own ends taking with it (at times) the hapless consumer!

  25. andy hamilton says:

    Hi Alistair
    I realize this thread is probably defunct but I saw this on the UK market and just had to draw it to your attention. Things are so bad that a new term has been invented: ‘Brickor Mortis’

    Rightmove have provided a bulletin board for sufferers to post their comments, which are very revealing:

    http://www.rightmoveattraction.co.uk/brickormortis/story

    As I stated above the UK is embarking on a once in a generation housing collapse on a scale of Japan in the 1990’s. The losses of equity are already immense and will become staggering.

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