Propertyscouts Monthly Landlord Newsletter - October 2021
New houses exempt for 20 years
In March this year the Government announced that landlords will no longer be able to claim mortgage interest from their tax bills. New homes were deemed to be exempt, however what constituted a ‘new home’ wasn’t announced at the time. It has now been announced that any property receiving a code of compliance from March 2020 will be deemed to be a ‘new house’ for 20 years, regardless of how many times it is sold during that period. There has been a lot of consternation amongst investors since the Government announced removing the ability to claim interest as it was deemed a loophole, which almost nobody accepted as being the case. Interestingly, it’s been reported that the change could net the Government upwards of $800 million per year.
Covid 19 isn’t all bad for landlords
It seems hard to believe that we can even print a headline like that, let alone justify it, but the reality is across all of the Propertyscouts offices throughout NZ we once again have historically low rent arrears. The same happened during the last lockdown so we can only assume it’s a result of tenants being amongst those being compensated for the Government going ‘hard and fast’ and locking the doors to businesses across Aotearoa. To compensate they’ve doled out cash like there’s no tomorrow and let’s face it there’s not one eligible recipient that wouldn’t have been grateful and there is no doubt that the cash handouts have saved countless businesses from going bust, and it seems helped the odd tenant catch up on their rent arrears. The reality is with the level of some rents we have now compared to the wages of the more lower paid, a lot of tenants live day to day and find it extremely difficult to ‘catch up’ when they get into rent arrears, so it seems that the Government’s handouts have been good for tenants and helping them (in some cases) catch up on rent arrears. But here’s the problem – where’s all the cash coming from? Printed, borrowed and previously saved would be safe guesses and that’s all good except that the normal strategy for that sort of spending would be to use it on the likes of hospitals, roading and other infrastructure and investments. What impact will that have on us as a country in the future one might ask?
Region Roundup
This month’s regional roundup comes to us care of Duncan McLean who is the owner of Propertyscouts Hawke’s Bay. Duncan has been operating his business in Hawke’s Bay for almost 5 years after spending 18 years in the Police and has described the transition from the Police into Property Management as a very natural one.
Propertyscouts Hawkes Bay has seen some fantastic growth thanks to a number of reasons. Investors looking to the region, the conversion of private landlords to professional management and the level of service Duncan and his team of 6 deliver. Propertyscouts Hawke’s Bay were the fastest growing Propertyscouts franchise in NZ for 2020-2021. Propertyscouts Hawkes Bay covers an expansive area from Central Hawke’s Bay in the South through to Bay View in the North – a distance of almost 100km. The area has seen some exceptional house price growth in the past few years with Hawke’s Bay being one of the National high achievers with an average house price August 31st 2021 of $802,733 up a massive 29.2% from the same time the previous year (note: this statistic does include the cheaper rural Central Hawke’s Bay). In Hastings, the average house price increased 35% to $824,239, and Napier increased 29% to $826,415. Rents have also increased dramatically (16.3% in the year through to June 2021) albeit not quite at the same rates as the house price growth, meaning the gross yields have dropped slightly. Hawke’s Bay can best be described as the ‘food bowl’ of NZ with a huge industry based on viticulture, pip fruit, vegetable, seafood and of course farming. The commercial sector is booming and there is a massive under supply of housing for all of those coming to the region for work. It is not unusual to have 70-80 applications for any property in the first week – meaning 100% occupancy year-round and the best quality tenants to select from. The area is also spoilt with a very good mix of quality schooling, both public and private (Lindisfarne, Hereworth, Iona, Woodford House) and the Eastern Institute of Technology provides tertiary education. Although there are some large-scale housing developments on the cards in the region Duncan firmly believes the massive tilt in supply and demand means that the house prices are going nowhere-but-north in the near future.
If you would like to get in touch with Duncan, you can reach him at: hawkesbay@propertyscouts.co.nz or on his mobile: 021850933
Market update
A big thanks to Tony Alexander for the information he sends out and (kind of) allows me to plagiarise. If you are interested in reading Tony’s full report, you’ll find it here:
Tony's View 23 September 2021.pdf (tonyalexander.nz)
The main reasons why house prices have surged almost 37% since mid-2020:
- Record low interest rates (not just mortgage rates, but bank deposit rates).
- Removal (for almost a year) of LVR restrictions.
- Diversion of foreign travel budgets. About 12% of the $10bn we normally allocate to foreign travel has been diverted into the housing market.
- Focusing on one’s home nest in pandemic times in times of worry having a secure, safe, useable home counts for a lot.
- Higher construction costs. Supply chain disruptions and surging demand have caused a spike in construction costs housing.
- FOMO. This includes parents helping with deposits for fear of seeing their offspring miss out and purchasing property.
- Returning expats. There is no evidence of a surge in net Kiwi immigration beyond the simple reclassifying of short stay visiting Kiwis as migrants. However, people have convinced themselves that one million Kiwis are beating on our doors eager to get in. So, we have bought property before they arrive with their foreign earnings.
- Lockdown savings. People built up savings during the March – May 2020 nationwide lockdown and young people in particular chose to devote the accumulated funds to a housing purchase.
Buy, sell or hold
Ask any canny property investor who’s been in the game for a while what their biggest property mistake has been and most (well the truthful ones anyway) will tell you about properties they sold and wish they still owned. It’s no surprise that a lot of investors are considering selling, given that property prices are at an all-time high. And why wouldn’t you? Well, here’s a couple of reasons you may like to take into consideration:
- There may be tax implications.
- Like house prices, rents are at an all time high so chances are the return you’re getting on that investment is much better than any other return you are likely to get from the proceeds.
- If you sell and then buy again, you’re likely to be buying in the same (inflated) market – only your yields will be much lower.
- Unless you sell the property yourself, it’s possible a large chunk of the ‘profit’ you’re lightheaded about will go to the real estate agent driving that flash European car.
Before you decide to sell consider the yield you are getting now as well as the potential for further capital gain by holding the property longer. To calculate your gross yield:
- Multiply the weekly rent by 52 (weeks in the year).
- Divide this figure by the cost of the property.
- Then multiply by 100 to convert it to a percentage.
e.g. $400 rent per week x by 52 = $20,800 divided by the original cost of the property (say) $400,000 gives you a figure of 0.052 multiplied by 100 gives a gross yield of 5.2%
Rents at an all-time high
Across the country rents remain at an all-time high of $550 per week according to Trade Me’s rental price index. If you are interested in what the average rent is in your area and what it’s likely to do in the future then this article from landlords.co.nz written by Tony Alexander and the First Mortgage Trust will be of interest:
Ask an Expert
As most of you know my business partner (and son) Ryan was asked by the publishers of the NZ Property Investor magazine to step into the role of the ‘expert’ for property management issues. Here is this month’s question that Ryan was asked to answer.
Question: I am a homeowner with tenants living next door. For years we have had problems with the tenants. Since Easter we are now being hounded with the pounding of basketballs. I have contacted the owners and property manager who ignores the problem. All she will say is the tenants have the right to live on their property. In the tenancy act it states that the tenants must not disturb the neighbours. Surely with this noise they are making they are in breach of their tenancy agreement?
Answer: To a certain extent the Property Manager is correct that the tenants have ‘the right to live in their property’ but at the same time they should behave in a way that doesn’t interfere with the peace of neighbouring properties. Section 40(2)(c) of the Residential Tenancies Act 1986 states; The tenant shall not - cause or permit any interference with the reasonable peace, comfort, or privacy of any of the landlord’s other tenants in the use of the premises occupied by those other tenants, or with the reasonable peace, comfort, or privacy of any other person residing in the neighbourhood. It seems like the neighbouring tenants may be in breach of this section. Perhaps you could approach the tenants that are making the noise in the first instance. If that doesn’t work, then I would suggest that you again approach the Property Manager and point out that the tenants seem to be breaching section 40(2)(c) of the Act. The Property Manager should at the very least speak to the tenants but if he/she feels it necessary the tenants can be served with a 14-day notice requiring them to stop annoying the neighbours. If it can be proved that the tenants are intentionally making the noise to ‘harass’ you then it’s possible that their actions amount to an unlawful act pursuant to section 40(3A)(d) of the Residential Tenancies Act 1986 in which case exemplary damages can be awarded.
Disclaimer
The Propertyscouts newsletter is prepared each month by Milton and Ryan who are the owners of Propertyscouts NZ. Milton is based in Christchurch and Ryan is based in Auckland and between them they support the 16 Propertyscouts offices operating around NZ. The newsletter goes out to 1000’s of NZ property investors each month. Given the opinions expressed in parts of the email it’s important that we make it clear that the contents are opinions and observations and made in good faith. We suggest that in all cases independent legal and financial advice is sought.