No two properties are created equal

By MARY HOLM

Q. Your correspondent who bought his house for $19,000 in 1968, and it is now "only" worth $300,000, obviously bought the wrong house in the wrong suburb.

What is more unforgivable is that your patsy answer took his patsy calculations at face value, thus doing a gross disservice to your readers.

I was active in buying houses during the same era. My records show that I bought houses in Mt Eden, Epsom, Sandringham and Remuera around the same time, for prices ranging from $12,000 to $18,000 each.

These houses are now worth somewhere between $650,000 and $2.5 million each.

Your continuing bias on this subject and lack of knowledge that you constantly display is not doing your readers any favours. Taking one example and parading it as the truth for the whole $20 billion-a-year property market tells me one thing.

You would serve your readers better by telling young marrieds how to stretch the housekeeping money rather than tendering financial advice on which you obviously have no knowledge.

It would be interesting indeed if you told your readers just how many properties you have bought and sold during your lifetime, so that we can all better gauge your credentials.

Signed: Olly Newland (45 years in the business). PS: I challenge you to publish my name and the full uncensored contents of this letter in your next column.

A. That's one way of getting your letter into Money Matters (uncensored except for a spelling correction), when hundreds don't make it each year.

I'm a bit annoyed with myself for taking the bait, but I can't resist.

So let's see now: I've bought and sold one house in Wellington and three in Auckland, plus my current home. Also one in Australia and two in the US. Not nearly as many as you, no doubt, but varied.

As regular readers will know, I lost 30 per cent on a house in the blue-chip suburb of St Heliers, bought before the 1987 Crash and sold after it. (And they thought shareholders fared badly in the Crash!) But - before you leap to conclusions - the value of my Sydney house almost doubled in two years, and I've done very nicely thank you on several others. Overall, property has treated me well. So have indexed share funds.

Of much more relevance than my own experience, though - and for that matter, your experience - is that of large numbers of other people.

I learn the big picture from studying, reading, interviewing, and hearing from the wide variety of people who write to this column. And I go to reliable sources such as the Reserve Bank and Statistics New Zealand for information and aggregate figures.

That's what I did last week. One example: "Since 1963, says the Reserve Bank, house prices, on average, have risen 2.2 per cent more than inflation each year."

So I'm not sure where your claims of my taking "patsy calculations at face value" and "parading [one example] as the truth" come from.

Anyway, you've now given us some more examples. Thanks, and congratulations for doing so well.

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Q. I have read for a long time, with interest, your column and have a couple of things which might help to clear up the debate.

Due to property being heterogeneous - i.e. no two properties are identical - there is the opportunity for the ruthlessly professional property investor to reliably beat the market.

There are enough mum and dad property "investors" out there ready to buy or sell at a good margin above or below the property's investment value.

The ruthless property investor is aided by a real estate industry spotted with newbies and less-than-honest types who - either through their own ignorance, lack of experience or need for a sale - are more than willing to coax a seller into parting with his or her property for less than market value.

It is only the strict property investors who dedicate their own time to thoroughly investigating the properties they buy or sell, and are driven by seeking disproportionately high profits through excellent tenancy, who will beat the market. They praise all the other "property investors" for helping to keep the market buoyant and liquid.

Someone has to take a hit, and it is very rarely property's elite investors.

Unless you see yourself in this category, you are more likely to underperform than outperform. Leave investing to the real pros, and see a financial planner! By the way, I am not a real pro, but at least I know it.

A. Good point, although "ruthless" might be too harsh a word.

In the sharemarket, every Telecom share is the same as every other one. Given the value of all Telecom shares, it can be worthwhile for analysts to research the company and trade some of the shares.

Same for other big companies.

We don't, though, see professionals analysing every property. If you put a lot of time into researching a house and its neighbourhood, you could well be the only one who does that.

And, with your superior knowledge, you could indeed talk the innocent into selling for less - or buying for more - than a property is really worth.

You might, though, never do anything unethical, prospering simply because you've learned over the years which types of properties perform well in which circumstances.

I'm sure those who put many hours into property research tend to do well. It's rather like any other job, for which you expect to be rewarded.

Olly Newland, with his 45 years in the business, is probably a good example.

But for every knowledgeable person who does better than average, somebody else has to do worse than average.

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Q. As a matter of interest, what would $19,000 invested in the sharemarket in 1968 be worth today?

A. If you invested in mid-1968 in the New Zealand sharemarket - as represented by the NZSE40 index and its predecessor - your shares would be worth $235,000 today.

But wait, there's more - in the form of dividends. And they make a big difference.

Including dividends, "the gross value would be $1.8 million, but this is a little misleading as tax would have had to be paid on the dividends," says Michael Chamberlain, of MCA NZ.

"Allowing for tax at say 33 per cent (remember tax was 66 per cent for a while for some people), and the net dividend was reinvested, it would be worth about $925,000."

Olly Newland has done better with some houses, but national data show that most people certainly haven't.

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Q. I would like to refer to your comment a few weeks ago about the statement that "the very rich got rich via property", and share with you that you are half incorrect.

The refrain depends on "where". I came from Hong Kong, and the refrain is true there. Do not rely on my personal experience, but look at Forbes magazine.

In its just-released list of 2004's richest people, only three from Hong Kong are in the top 100. They are two Li families and one Kowk family, ranking at No 19 - with a fortune worth US$12.4 billion ($18.6 billion) - No 22 and No 61 respectively. They are all property developers in Hong Kong.

To further demonstrate the point, of the list of 587 richest published, 10 of the 15 Hong Kong people included are engaged in property, mainly in Hong Kong.

I have to admit that Hong Kong is a strange place and cannot be classified as normal.

Also, I have to mention that most layman property investors in Hong Kong, since the Asian financial crisis in 1997, have suffered catastrophic losses. The average value has white-washed by 70 per cent since then. That is why you are half-correct.

The other point I wish to raise, and in support of your ever-persistent view of not investing too much in property, is that there has already been too much speculation in New Zealand property in the past year, though not comparable to what happened in Hong Kong.

And last, but not least, I am a new reader and enjoying your comments.

A. Welcome, and thanks.

To clarify things for other readers, I wrote recently that the world's richest people did not, in fact, get that way via property, but via software and shares.

Hong Kong is, as you say, pretty different from New Zealand. Still, you make some interesting points.

One is that, while some people have done exceedingly well with property there, most people have recently done appallingly. It's hard for us to imagine property values dropping 70 per cent.

As you say, we haven't had as big a boom here, and nobody is expecting prices to drop much. But many experts won't be surprised at some decrease.

And when we look at the long-term view, almost anything is possible.

In Britain in the early 1990s, house prices fell an average of 10 to 15 per cent, with some falling 35 per cent. In Japan in the 1990s, prices fell 70 per cent. And the Economist is expecting prices to fall fairly soon in Australia, Britain, Ireland, the Netherlands, Spain and parts of the US.

There's no magic reason why, in the years to come, New Zealand should be exempt.

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