Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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14/12/09

Brian Gaynor: Stocks and shares vs bricks and mortar


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Brian Gaynor explains that although shares have given higher returns overall than housing since 1994 factors such as availability of bank loans, more stable returns and tax advantages create a bias towards housing investment.

The Government need to look at reforming the tax system in particular if investing patterns are to change.

Since 1994 the sharemarket has done slightly better than residential property but our housing stock is now worth 11.1 times the total value of the NZX.

This is a difficult question but the data in the accompanying table gives a broad assessment of how the two asset classes have performed since the end of 1994.



Based on these figures the sharemarket has done slightly better than residential property as the NZX All Companies Gross Index, which includes all listed companies, has appreciated by 200 per cent while the REINZ House Price Index has risen by 159 per cent.

But the issue is more complex than this and we need to take into account a number of factors including volatility, gearing, tax, costs and the range of returns available from individual houses and shares.

The table, which also includes returns for each of the three five-year periods within the 15 years, shows house prices are much less volatile than share prices.

The best five-year period for houses was a plus 60 per cent and the worst plus 23 per cent whereas the best for shares was plus 79 per cent and the worst plus 1 per cent.

Most investors in the housing market would have done reasonably well over the past 15 years, no matter when they bought. However, anyone who entered the sharemarket in mid-2007 would have suffered huge losses, because of the sharp contraction between then and March 2009, but if they had waited until earlier this year they would be sitting on large profits.

Thus, although the sharemarket has performed better than housing over the 15-year period it is still extremely important to get the timing right as far as buying shares is concerned.

The next issue is gearing, which is where housing has a big advantage over shares.

Banks have been willing to lend more than 80 per cent of the purchase price which means that the return on equity invested in houses has been extremely high even after interest servicing costs are taken into account.

However the flip side to gearing is that it does increase the risks, particularly if a purchaser overpays for a house and cannot meet the interest payments.

This is why there have been so many mortgagee sales over the past 12 months, even though prices only fell 11.4 per cent from top to bottom, according to the REINZ House Price Index.

Tax considerations also favour housing because the Loss Attributing Qualifying Company (LAQC) regime allows house buyers to deduct interest costs yet they don't have to pay tax on realised profits.

The next issue is costs, which is a negative as far as housing is concerned.

There are lots of costs associated with residential property including rates, insurance and maintenance costs.

These costs can seriously erode the returns from houses and transaction costs are also higher than for shares.

There are no ongoing costs associated with an individually held share portfolio although managed funds attract fees. However investment managers in New Zealand have consistently outperformed benchmark NZX indices.

As there are no ongoing holding costs associated with shares it is appropriate to use gross sharemarket indices, rather than capital indices, because all dividends can be fully utilised by investors.

Finally there is a much wider variation between the performances of individual shares compared with individual houses.

View the full article here.
 



tags: brian gaynor, shares, housing, investment

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Please play the ball not the man.