City of Sales

Garages used as bed­rooms

Weekend Herald - - Front Page - nzher­ald.co.nz

The first slide at the prop­erty in­vestor’s con­fer­ence cel­e­brates the death of New Zealand’s pro­posed cap­i­tal gains tax. “Phew!” it says. “De­feated!”

“We de­feated it!” says host Matthew Gil­li­gan, read­ing aloud. He pauses for dra­matic ef­fect and looks up. “I did have to can­cel a new Porsche though.”

The au­di­ence laughs. Gil­li­gan, pink­faced, laughs. Be­hind me, a girl laughs and then whis­pers ex­cit­edly to her boyfriend: “He sounds just like on the pod­cast!”

It’s 9.30am on a dreary Satur­day morn­ing in May, and the Prop­erty Lead­ers One­Day Event has be­gun. For eight hours in the win­dow­less room at the Eller­slie Events Cen­tre, 500 in­vestors will sit in un­bear­ably hard plas­tic seats, learn­ing how to “thrive in the down­turn”.

The con­fer­ence — an an­nual event — is or­gan­ised by Gil­li­gan’s com­pany, Gil­li­gan Rowe & As­so­ciates, and his other com­pany, Auck­land Prop­erty Men­tors. It prom­ises “up-to-date con­tent from prop­erty lead­ers”. It also prom­ises free lunch, and the chance to win a trip to Fiji, all for just $55.

“We are try­ing to pro­mote pros­per­ity in the prop­erty com­mu­nity,” Gil­li­gan says. He then asks the au­di­ence not to take pho­tos of any of the pre­sen­ters’ slides, in case it is passed off later as of­fi­cial fi­nan­cial ad­vice. For­mal­i­ties over, he flicks to the next slide.

Prop­erty has long been New Zealand’s favoured in­vest­ment choice. But in the years fol­low­ing the Global Fi­nan­cial Cri­sis, as val­ues in Auck­land dou­bled and the re­gions fol­lowed not far be­hind, it has grown more pop­u­lar than ever. In 2005, for ex­am­ple, in­vestors made up 32 per cent of buy­ers. By 2015, in­vestors were 42 per cent. Huge money has been made. Be­tween 2013 and 2018, in real terms, the value of hous­ing and land as­sets grew $277 bil­lion while fi­nan­cial as­sets grew by $153 bil­lion. Prop­erty

has be­come the de­fault choice for any­one look­ing to in­vest.

Amid this age of pros­per­ity, prop­erty ad­vice ser­vices like those of­fered by Gil­li­gan Rowe and As­so­ciates have be­come a main­stay of the New Zealand in­vest­ment scene. Each mar­kets a slightly dif­fer­ent prod­uct. Auck­land Prop­erty Men­tors has a “school” — 10 weekly night classes about tax and port­fo­lios and in­ter­est — plus the op­por­tu­nity for “stu­dents” to meet other po­ten­tial in­vestors to col­lab­o­rate on joint ven­tures. Other firms also of­fer ren­o­va­tion ad­vice, or on­line sem­i­nars. They speak of “trad­ing” and “hold­ing” and “wealth cre­ation”.

The goal is al­ways a “pas­sive in­come”; the dream, an early re­tire­ment.

A dream, which — ac­cord­ing to the speak­ers at the con­fer­ence — should not be for­saken even as the mar­ket flat­tens.

“Prop­erty haters like the Gov­ern­ment like to stress you. Shamubeel [Eaquab, an econ­o­mist] loves to beat up on prop­erty in­vestors and get in­side your head,” Gil­li­gan says.

He prom­ises the con­fer­ence will de­liver tips and tricks on how. He says a mort­gage bro­ker will tell the group how to get around loan-to-value ra­tio (LVR) laws. Real es­tate agents will pro­vide in­sider in­for­ma­tion. And, he says “colour­ful” de­vel­oper Kenyon Clarke will speak af­ter lunch about his “jour­ney” from boom to bust, and back again.

GIL­LI­GAN IS an ac­coun­tant by trade. He is the au­thor of two books — Tax Struc­tures 101 and Prop­erty 101 — a colum­nist in New Zealand Prop­erty In­vestor mag­a­zine, and a reg­u­lar on the New Zealand Prop­erty Pod­cast. He is also an ac­tive prop­erty “trader” with his own port­fo­lio, and seem­ingly, a hero of the New Zealand prop­erty scene. When Gil­li­gan talks, in­vestors lis­ten. When he posts in the New Zealand Prop­erty In­vestors Chat Group, in­vestors com­ment and they like.

Here is some of his ad­vice: The cur­rent mar­ket sit­u­a­tion is “slow­ing” but on the plus side “in­vestor-bash­ing” has peaked. He “doesn’t mind” the new healthy homes laws, aimed at mak­ing rentals safer. Twyford is on the right track with Ki­wibuild but he’s “stuffed the num­bers up”.

Fi­nance is now tougher to get, he says, the banks cau­tious. As for the Re­serve Bank, they don’t re­alise the hous­ing mar­ket is the back­bone of small busi­ness, he says. He ac­cuses them of “virtues­ig­nalling”, try­ing to im­press the Gov­ern­ment.

But mi­gra­tion is good, he says. In some places — like Tau­ranga — sup­ply is­sues are un­der con­trol due to coun­cil ac­tion. “From an in­vestor that’s trou­ble. We want the op­po­site,” he says. Coun­cils like Auck­land, for ex­am­ple. “Auck­land is the gold stan­dard of dysfunctio­n.”

He says it is im­por­tant to un­der­stand the im­pact of both mi­gra­tion, and nat­u­ral pop­u­la­tion rates. A slide called “The Slide of Death” gets a huge laugh. It ex­plains net births and deaths, and the im­pact that will have on de­mand. For ex­am­ple, Tau­ranga has a large el­derly pop­u­la­tion, he says. “I’m not buy­ing in Tau­ranga.” More laugh­ter.

At the end of his pre­sen­ta­tion, the big ques­tion: Will Auck­land be the next Syd­ney? In Syd­ney, and Mel­bourne, prices are al­ready down 14 per cent, with con­cern they could fall fur­ther. “I think it will be a soft land­ing,” he says. The au­di­ence gave a pal­pa­ble sigh of re­lief.

AF­TER GIL­LI­GAN’S talk, he in­tro­duces Ki­wibank’s chief econ­o­mist, Jared Kerr. Kerr as­sures the au­di­ence that in­ter­est rates will re­main low for “a very long time”. He ex­plains that mi­gra­tion is good for in­vestors. He talks about a lack of sup­ply, and how peo­ple are forced to live in “higher den­sity ar­range­ments”.

“Think of bat­tery hens rather than free range hens,” he says. Be­hind him, a slide reads: WE ARE SHORT 100,000 HOMES!!

Auck­land will fall and the re­gions will rise, he says. “But the prop­erty mar­ket will hold up over time.”

The day goes on like this, pre­sen­ter af­ter

To beat up on in­vestors is just ridicu­lous. You guys are the bedrock of our so­ci­ety. Once the Gov­ern­ment recog­nises the pri­vate land­lord has a place in so­ci­ety we will do bet­ter as a coun­try.

Kenyon Clarke

pre­sen­ter say­ing: Don’t worry. There is money to be made.

The flip side of the boom years, of course, has been fall­ing home own­er­ship rates and ris­ing rents, a hous­ing short­age, and an ac­com­pa­nied boom in home­less­ness. We do not learn about that at the con­fer­ence. We also do not learn any­thing about ten­ants (other than at one point, Gil­li­gan says he had a whole fam­ily sleep­ing in the garage of a prop­erty he’d bought! They were us­ing a bucket as a toi­let. He evicted them. “Just an­other day in the life of a land­lord,” he says.)

We learn a lot about Prin­ci­pal and In­ter­est, about In­ter­est-only, about debt-toin­come ra­tios (don’t worry about those, Kerr says), about how loss ring-fenc­ing can’t be avoided, but how some forms of tax could.

Sev­eral real es­tate agents come and go. “It’s nice to be in a room of peo­ple that ap­pre­ci­ate us,” the first says. He talks about promis­ing in­vestor ar­eas on Auck­land’s North Shore. An­other de­scribes the “po­ten­tial” in the re­gions. He sounds like an auc­tion­eer. Otaki: “Bit left to go there.” he said. Christchur­ch: “A lot more to hap­pen there.” In­ver­cargill: “Might be a bit more growth com­ing on there.”

One of the agents is Gil­li­gan’s sis­ter. Me­gan Jaffe owner of Ray White, in Auck­land’s Eastern Sub­urbs. She is one of the coun­try’s top-sell­ing agents, we are told. Her ad­vice is to buy “lock and leave” prop­er­ties to sell or rent to baby boomers when they reach re­tire­ment age and want to down­size.

An agent from South Auck­land as­sures in­vestors he can help them avoid buy­ing in state house ar­eas. He tells a story to il­lus­trate how banks are tight­en­ing up on lend­ing. “I re­cently had a guy who had his loan de­clined be­cause the bank said ‘you had too much take­out’ and I said ‘get your wife to start cook­ing,”’ he says. “Haha.” The au­di­ence laughs with him.

Silent wait staff bring out end­less trays of sausage rolls and spinach pas­tries for morn­ing tea. In the long cof­fee queue a man says: “I’ve been think­ing about a deal.” He says he is a client of a mort­gage bro­ker in the room. He says he is at the con­fer­ence to get time to think about his in­vest­ment strat­egy, away from his kids.

His mono­logue is in­ter­rupted as Ab­so­lutely Ev­ery­body by Vanessa Amorosi comes pip­ing through the sound sys­tem. Peo­ple take their seats. Gil­li­gan gets back on stage. “Some­body with a Lexus has a win­dow down,” he says.

“Your alarm has been go­ing off all morn­ing.” The au­di­ence laughs.

THE PROMISED trick for “cir­cum­vent­ing” the Gov­ern­ment’s loan-to-value ra­tio laws turns out to be a sales pitch. Mort­gage bro­ker Kris Ped­er­sen presents his new, non-bank lend­ing prod­uct, which will only re­quire a 20 per cent de­posit for in­vestors, in­stead of the usual 30 per cent.

Ped­er­sen brings news from Aus­tralia, where a na­tional in­quiry into the fi­nance sec­tor has seen banks crack down.

They are be­ing much tougher on in­vestors, and in­clud­ing ex­tremely strict new rules around dis­cre­tionary spend­ing. It could hap­pen here, he warns. For­tu­nately, his prod­uct of­fers less scru­tiny around in­come and debt.

The only catch is a slightly higher in­ter­est rate, some­where be­tween 4 and 5 per cent.

Gil­li­gan notes how in the “good old days”, Ped­er­sen was able help clients “clean up”, with three months of spend­ing very lit­tle to prove they were fis­cally pru­dent. “Now banks want to see two years of state­ments,” Gil­li­gan says. Ped­er­sen says yes, in some cases they do. But his lenders don’t. How­ever, they aren’t in­ter­ested in apart­ments. Or com­mer­cial prop­erty.

Tua Sa­seve, Gil­li­gan’s busi­ness part­ner at Auck­land Prop­erty men­tors, takes the stage to a round of ap­plause. Sa­seve leads a team of 30 traders and in­vestors, who scour open homes on a Satur­day morn­ing, in a group. In two years, Sa­seve has as­sisted with 60 trades, Gil­li­gan says. “I trust him im­plic­itly,” he says. “No one has lost any money.”

Sa­seve says the men­tor­ing scheme is about us­ing prop­erty as a ve­hi­cle to wealth. They have “sys­tems and pro­cesses”, he says, which they teach in a team cul­ture and en­vi­ron­ment. There is a “no dick­heads” pol­icy. He is slightly apolo­getic about that. The best clients “know why they are do­ing it”, and are re­source­ful and hard-work­ing, he says. He doesn’t ex­plain the cost of the pro­gramme, or whether the men­tors take a cut of any sales. “We help peo­ple change their lives,” he says.

He gives ex­am­ples of re­cent trades, all from South Auck­land.

In Wey­mouth, a trader added a fourth bed­room by adding a wall in the lounge, mak­ing a $54,000 profit. In Man­gere, a client re­cently con­verted the garage to two “util­ity rooms”. “We don’t call them bed­rooms,” he says. In Wey­mouth again, a two-week ren­o­va­tion — com­pleted be­fore set­tle­ment — saw a $52,000 profit. Po­lite clap­ping and a whis­tle from the au­di­ence at that.

Two of Sa­seve’s stu­dents also speak, both mid­dle-aged Pakeha women wear­ing “prop­erty men­tor” T-shirts. They say they have given up their jobs to fo­cus on prop­erty. “My goals are to build cap­i­tal and to have a pas­sive in­come to live on in re­tire­ment,” the first says. The sec­ond has bought and sold 13 prop­er­ties so far. Gil­li­gan thanks the women and turns to the crowd. ” Work­ing doesn’t make sense,” he says. “We spend 2000 hours of our life in a year for a salary. You can trade 2000 hours for 100k or you can do two trades and make that.”

“These stu­dents of Tua are do­ing that. They’re giv­ing up their day job and try­ing some­thing dif­fer­ent. Sorry it seems like a bit of a sales pitch. The mes­sage is ‘get some­one to help you’,” he says.

AT ONE point, Gil­li­gan asks: “Does any­one re­mem­ber the Rich­mas­tery days?” Rich­mas­tery, once headed by Phil Jones and David Hows, told peo­ple how to get rich in a prom­i­nent series of pro­mo­tions and sem­i­nars. It folded in 2009 ow­ing cred­i­tors more than $75,000. Jones was later bankrupted, ow­ing West­pac $1 mil­lion, ac­cord­ing to news­pa­per re­ports. The sto­ries also men­tioned Rich­mas­tery’s “star” pupil, Dean Lef­tus, who went on to be­come a men­tor in his own right. In 2011, his com­pany, Prop­erty Gu­rus, was also placed in liq­ui­da­tion. An­other round of Ab­so­lutely, Ev­ery­body sig­nals the end of the lunch break. A “prop­erty an­a­lyst” speaks about iden­ti­fy­ing good de­vel­op­ment sites. Gil­li­gan talks more about tax, mainly the new loss ring-fenc­ing laws, which have ev­ery­one in a spin. “The IRD or the Gov­ern­ment or who­ever is do­ing this re­ally hates res­i­den­tial prop­erty,” he says. “They’re try­ing to dis­in­cen­tivise spec­u­la­tion and in­vest­ment on hous­ing.”

But, Gil­li­gan says, at least things aren’t as bad as in Aus­tralia, where the Gov­ern­ment has re­cently brought in new tax avoid­ance laws.

“Jacinda was smart and showed great lead­er­ship on the cap­i­tal gains tax,” he says. “I don’t think govern­ments re­alise how an­noyed the pop­u­la­tion get with play­ing with the tax base.”

Finally, the bit ev­ery­one seems to be wait­ing for ar­rived. Gil­li­gan an­nounces de­vel­oper Kenyon Clarke as “the man who builds more houses than the hous­ing min­is­ter”. He has ex­pe­ri­ence in merg­ers, ac­qui­si­tions, cor­po­rate fi­nance, de­vel­op­ment and prop­erty in­vest­ment, Gil­li­gan says. His com­pany, Du Val, was the sec­ond­largest apart­ment builder in Auck­land. But it hadn’t been easy. In 2008, af­ter amass­ing a huge prop­erty port­fo­lio, Clarke lost ev­ery­thing he owned. In 2009 he was de­clared bank­rupt, ow­ing an es­ti­mated $50 mil­lion. (Clarke later said it was be­cause his bank had un­ex­pect­edly called in his loans dur­ing the Global Fi­nan­cial Cri­sis). But he’s built him­self back up again, and is so suc­cess­ful he’s even started his own char­ity. Clarke leaps to the mi­cro­phone. “How many of you here did well at school?” he says. No hands go up. “School didn’t work for me.” He de­scribes his jour­ney, form be­ing ex­pelled, to mov­ing to New Zealand from the UK, to build­ing his in­vest­ments the first time, and the sec­ond. He speaks of multi-mil­lion dol­lar apart­ment de­vel­op­ments, of ris­ing yields, of the press­ing need for in­vest­ment prop­erty.

“We don’t have a hous­ing cri­sis we have an ac­com­mo­da­tion cri­sis,” he says. “It’s not en­ti­tled jour­nal­ists that can’t af­ford to buy in Re­muera that’s the prob­lem. It’s peo­ple sleep­ing in gut­ters next to McMan­sions.”

Pri­vate in­vestors owned 500,000 prop­er­ties in New Zealand, he says.

“To beat up on in­vestors is just ridicu­lous. You guys are the bedrock of our so­ci­ety.

“Once the Gov­ern­ment recog­nises that the pri­vate land­lord has a place in so­ci­ety we will do bet­ter as a coun­try.”

He says build­ing apart­ments creates jobs. Apart­ments are great in­vest­ments. They have a higher yield per square me­tre. You can even rent them to MSD as so­cial hous­ing. His 25 me­tre square apart­ments are leased to MSD for $390 a week. Some

ten­ants even try to fit more than one fam­ily in there, he says. The need is end­less.

He plays a video of his de­vel­op­ments and speaks to it in a boom­ing voice, us­ing words like “as­pi­ra­tional” and “af­ford­able”.

Gil­li­gan joins him on stage at the end. “We are a com­mu­nity of peo­ple help­ing peo­ple,” he says.

Clarke nods. “There is a vast need for rental ac­com­mo­da­tion,” he says. He ends his seg­ment with a warn­ing. Al­though it felt “shit” to lose ev­ery­thing, it has taught him a valu­able life les­son.

“It’s a mis­take to con­flate self worth with net worth,” he says. The au­di­ence claps.

Kenyon Clarke

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