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The Professional Trustee Team

Property Investors Not Productive?

When it comes to building wealth, do you put your hard-earned coins into property, shares, bonds or something else that is going to grow your wealth? 

The decision we make, whilst ultimately a personal one, is influenced greatly by historic events that have affected our economy, current political policies in operation, legislation we have on our books, and naturally, the culture operating within society. 

Take New Zealand for example. Many Kiwis will remember 'Black Tuesday'. October 20, 1987 was the day thousands of New Zealanders lost considerable money as the New Zealand share market followed New York's Dow Jones, crashing and decimating personal wealth. New Zealanders remember that historic event and consequently, many are wary of investing their money in the stock market. Which leads them to considering property to build their wealth through.

Our political and legislative arena also tends (in my opinion) to add to the attractiveness of property as an investment. Our environment contains relatively stable government with an honest legislature. This leads to economic stability within our country. All pre-requisites in my view to an individual being willing to risk and invest their capital in the first place.

Culture in Kiwiland also welcomes those that do well. In the main we all want to help each other and frequently do – free of charge and without favour. Pitching in, giving a hand and sharing with others is what New Zealanders are known for. Encompassed in that is the knowledge Kiwis share about investing. In particular, the ways in which we our build wealth through property and the pitfalls to avoid. GRA Property School was born from this desire to share knowledge and help people. 

But there is an edge to New Zealand culture which I find exasperating. It's the few that engage in the 'tall poppy sabotage behaviour'. You'll know the type of people I'm referring to. The doomsayers that constantly tell us the property market will crash, the misguided that critique anyone trying to build a better future through property for themselves and their families, the morally judgemental who espouse the view that those that get ahead by property investing are somehow are taking advantage of others. 

Social media give a voice to these people. Comments abound from individuals berating property investors on the basis they don't add to our country's wealth because, ultimately, they don't contribute anything to our economy by simply buying houses. If you take their comments apart though, they just don't stack up. 

Without property investors, housing stock would be decimated. Property investors provide accommodation for many to live in and mostly, it's accommodation of a good quality. Despite the negative comments that circulate, the majority of investors provide pleasant houses to tenants and aren't slum landlords. Possessing and renting out a house may not actually be creating a good but it is providing a very necessary good in New Zealand. Decrease the number of property investor landlords and many people would go without a roof over their heads. Further pressure would be placed on government bodies to provide an increased level of rental accommodation, and social services would undoubtedly face greater challenges.

Property investors gentrify worn-out housing stock. Every time they get a new tenant, they bring the house back to a safe and sanitary state. This adds an enormous amount of value to the living standards of Kiwi battlers who might otherwise not have the financial capacity or inclination to improve their living environment. 

Those landlords that undertake subdividing and building activities are indeed creating something. They are providing new housing stock – something New Zealand and in particular Auckland desperately needs. In building new dwellings, other trades such as the company that manufactures and supplies the particle board, the shop that sells the nails and glue, and the builder that puts it all together, get to sell their goods and services too. This keeps people in work and wages and helps build our economy. All productive activities that do indeed add to a country's GDP.

Additionally, it has to be remembered that small and medium businesses (which is what our economy is comprised of) usually need capital to operate, to buy stock and to pay staff wages. That capital is frequently borrowed, and the security offered to the banks for such borrowings is property. So in essence, landlords fund their businesses by using their properties, which in turn offers employment and wages to others and goods and services to the public, thereby injecting cash into the economy.

I've had the opportunity to research, listen to others and to evaluate the validity of their views. Often what they say is just their view and certainly isn't fact based on any reality. The negativity surrounding property investors falls into this camp. In the main, investors make real physical and economic contributions to individuals and to our society. For these reasons, we should stop and ask ourselves if those sprouting negative commentary are basing their opinions on reality or simply venting and letting loose their green-eyed monster. 

The Professional Trustee Team
The Professional Trustee Team
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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Property School provided great info about subdividing and looking for sites in Auckland as well as creative cash flow techniques. - Finn T, June 2018

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