Who’s To Blame For The Rising Cost Of Property? (Column)

Olly Newland’s column May 2012

Almost on a daily basis websites are full of angry people accusing ‘speculators’ of ramping up the price of property — supposedly pushing it out of reach for ‘the poor’ and first home buyers.

'The Tax Gatherer' 1540 - Marinus Van Reymerswaele (click to enlarge)

‘Bring in a Capital Gains Tax!’ is the cry, or there are calls to ‘restrict’ lending for property purchases, or to ‘punish’ investors by removing tax advantages, or to flood the market with more undeveloped land. Some even want the government to tax gains that have not even been realised.

This cacophony of shrill envy aimed towards property investors is almost exclusively driven by those who cannot comprehend this market reality: where someone has actually taken the plunge, bought a property of some kind and then — whether immediately or over time — made a profit.

However let me tell you that it’s not ‘speculators’ who are driving up the price of property. Indeed, they are more likely driving *down* the price of property! For speculators can only really thrive by fierce haggling in order to buy at bargain prices.

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Thanks Olly

Dear Olly

You may not remember me but I contacted you earlier this year through your website seeking a bit of inspiration about what next step to take. My husband and I are both teachers, my husband was a painter and decorator prior to retraining as a teacher.

We have a 2×2 bedroom flats under one unit title in [...] which was valued at $430k – we bought it for $300k seven years ago with 18k deposit. They are currently renting for a combined total of $530 p.w.

We had attempted to sell them twice with no luck and after spending the equivalent time renting in [...] – more recently with a young family we took your advice and leveraged off the equity in our property to purchase on 100% finance a 3 bedroom do up in [...] for $380k on over 800 sqm site.

When we first bought it for the first time in 7 years one of our flats was unrented for 6 weeks, we scraped through somehow and are now working at a motivating pace with decorations.

We have no extra $ at present to do major work but it is amazing how a coat of paint transpires a house.

I wish to thank you for pushing us into taking a chance and pushing ourselves to do this even though financially its tight. We are stretched to the limit at present but once my hours increase next year we can pull out more money for essentials and hopefully sell [...] in due time and reinvest up here.

And as a bonus we landed in an up and coming area with a peek of the sea and amazingly, enough room out the back to sub-divide in the future if we wish too.

Thanks heaps Olly – simple words of encouragement do change peoples lives.

Kindest regards
Michelle [surname withheld]

Q&A: Which property strategy?

Which of the following strategies seems like the best for someone entering retirement; 1. Buy one 4BR new townhouse 500K 2. Buy one 2 BR new townhouse 320K 3. Buy two 2 BR 25y/o flats 450K I’m assuming for retirement that no mortgage is best?? — Rick

Dear Rick
I would buy the two x 2 brm units as 25 years is not a great age for property. Remember new properties carry a 15% GST component in  them which makes any capital growth that much harder to get.
In general the rent from a tidy but older unit is not proportionally less as compared to a new unit so you would get a little more rent for the same outlay.
No mortgage in retirement is best of course, but a property with a manageable mortgage is no bad thing in any event.