So it seems like as Kiwis, we are obsessed with property. Property is an asset class which does deliver good returns over time. However, they are not always positive capital returns. We only need to look back to 2008 to see that. Historically though, residential property has returned 9%pa capital compounded returns according to Valuation New Zealand’s Capital Valuation Index since 1971. This is a good return.
So Matt, you start an article titled my obsession and follow with Kiwis are obsessed with property, and then talk about property being great, what’s your point?
My point is, if you were after income and had $1,500,000 to invest would you want a 3% gross return or a 5% gross return in a conservative portfolio. The difference in gross terms is $30,000 per year. Not grossly insignificant!! Who said finance couldn’t be funny?
This is why it pays to review your portfolio of investments, property included, regularly. Some yields on property in Auckland at the moment are as low as 3% (When you measure them by the value of your property now vs when you bought it). You may have made $600,000 in capital gains on that property on paper when you bought it for $900,000 three years ago. The reality now is, if you compare yields, your $1,500,000 property would potentially deliver a better yield with the cash invested elsewhere.
You may be saying but if I sell, I will miss out on further capital gains from property. That’s why I invested in property! You are right, you may miss out on further capital gains in property. If you are in a position to do that, without risking capital losses or liquidity issues, if you needed to sell in a flat/falling market, then that’s your prerogative.
The figures used in this blog are for example only, please don’t rush off and sell your property investments to put them into a conservative portfolio. Each investors position is different and these figures were used to raise awareness. You should seek personalised Financial Advice from an Authorised Financial Adviser when it comes to investing.
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- Posted by Isbister
- On September 29, 2016