Monthly Landlord Newsletters

Time to look at buying across the ditch?

There are plenty of Kiwi investors who have dipped their toes into the Australian rental market. We don’t profess to be experts, but we spoke recently to someone who invested in the Australian property market about 6 years ago. Here’s what he had to say about the experience.

Q. Where did you buy and why that location?

A. I bought a one-bedroom apartment in a complex of 21 units. It needed some TLC which suited me. I paid about AUD$200k for the unit and allowed AUD$30k for the makeover. The unit I purchased was in Noosa. It’s in a holiday resort complex and there are onsite managers who rent it to holiday makers when I’m not using it.

Q. Why did you buy in Noosa?

A. Well, who wouldn’t want to lie on Noosa main beach in the middle of a NZ winter! But seriously, I looked at the Gold Coast and other locations on the Sunshine Coast but I realised that the Noosa Council are doing all they can to protect the area from over development (no high rises) so it was a bit of a no brainer – a sought after location and tight constraints on future development.

Q. Tell us about the process. How did you find the apartment, negotiate the purchase etc.?

A. It’s not a lot different from here. I searched online and came up with a short list and then hopped on a plane for a ‘working’ holiday in Noosa. The apartment I eventually purchased was being sold by the onsite managers on behalf of the owners. A lot of onsite managers have their Real Estate licences for exactly this reason, so that they can sell units when they hear that an owner is looking to sell. I made it clear to the managers that I would be renting the unit through them when I wasn’t using it. The negotiations were straight forward. I made a verbal offer, they countered with a verbal offer, I countered which they accepted and then it was written up on a sale and purchase agreement. In NZ every offer and counter would have been done in writing.

Q. Was it easy to move your money from NZ to Australia?

A. Yes, that was very easy. Of course, you must consider the exchange rate and any bank fees in moving money across there. From memory the exchange rate was about .96. In basic terms that means for every NZD$1,000 I moved over I got AUD$960 so be sure to include that into your calculations. I also had to pay stamp duty on the purchase. In Queensland you pay $1.50 for each $100, or part of $100, over $5,000 and then $1,050 plus $3.50 for each $100, or part of $100, over $75,000 and if you are in the big boy’s league $17,325 plus $4.50 for each $100, or part of $100, over $540,000. There are online calculators you can use to work out the stamp duty you will have to pay.

Q. Did you have to use an Australian lawyer?

A. Yes. Initially I used a conveyancing firm, but they turned out to be no good. Next time I’ll just use a lawyer. The lawyer I have there is a Kiwi, so she knows it from both angles. Moving the funds out of my bank account and into the conveyancing company’s account was problematic due to the Australian money laundering rules.

Q. So overall has it been a good experience? What are the positives and minuses?

A. Obviously Covid didn’t help with the closed boarders. For the first few years I paid no tax due to the money I spent doing the apartment up. It rents very well and has been very well looked after by the onsite managers. It’s quite a good earner now and I use the money it makes to ensure I have a good holiday whenever I’m there. It’s well and truly doubled in value in the time that I’ve owned it and there is a list of people wanting to buy apartments in the complex. I made a mistake by buying it in the name of my family trust. Trusts in Australia don’t work like they do here in NZ and as a result I will probably pay about 50% on any capital gain in tax! But at this stage I’m not thinking of selling so I’ll worry about that when the time comes. At the moment it’s providing about a nett 12% return (before tax).

Q. Would you do it again?

A. Absolutely. I’m on the hunt now. As a NZ resident wanting to buy in Australia you should always get legal advice from an Australian lawyer. Be cautious of buying ‘off the plans’ or buying a property while you are not actually in Australia as there may be substantial tax implications.

7 steps to help you achieve financial freedom

1. Live below your means. Do you really need that takeaway meal?
2. Don’t leave money in the bank. Make it work for you.
3. Acquire assets not liabilities. Rich people acquire assets while poor people acquire liabilities that make them look rich.
4. Find a way to make money in your sleep. Slaving away in a job that you don’t enjoy for five days a week so that you can have two days off is no life.
5. Learn to take reasonable risks. You can’t become wealthy by playing it safe.
6. Be wary. You become wealthy in your mind well before you do in your bank.
7. Take care of your health, it’s your greatest asset. A rich man has a 1000 wishes while a sick man only has one wish

Wellington property owners told to hold off selling

According to Maria Stephens, the NZ head of EXP Realty, Wellington homeowners should hold off selling if they want to maximise the sale price of their property. The reason she said is that Wellington house prices have ‘fallen further away from the National average’. The regions median price dropped to $848,000 in June, down from $885,000 at the same time last year. Total sales were down 39% from the same time last year. The region’s median price was now below the national median of $850,000 which made the market challenging for sellers according to Stephens. She went on to say that sellers who weren’t under time pressure should consider taking their properties off the market ‘until we see a recovery’ and price aspirations are more achievable.

Other Real Estate commentators weren’t so fixed in their views on what property owners should or shouldn’t do. By way of example someone wanting to sell and buy within a short period of time shouldn’t be too disadvantaged (if at all) because they will be selling and buying in the same market. Our view is that no property owner should sell unless they have to. We harp back to comments from numerous investors who have claimed that their worst real estate deals have been the ones where they sold properties they shouldn’t have.

Property Investor Insights care of Tony Alexander and Crockers

Key points from this month’s investor insights are:

• Investors are increasingly pulling back from selling their properties despite rising interest rates.
• The proportion of investors planning to try to raise their rents in the coming year has fallen to the lowest level since we started our survey in June 2021. The average rent increase intended to be sought is also at a record low for our survey at 5.7% from 6.3% in March.
• Fewer investors are finding their bank to be tough on them.
• A net 14% of investors say it is now hard to find good tenants – a quick turnaround from the net 15% in March who said it was easy.
• 58% of investors with mortgage rates coming up for renewal plan on fixing only for one year, up from 46% last month and 30% in March.
• No firm evidence yet exists of greater plans to reduce debt as interest rates rise and deductibility of interest expense from taxable incomes declines.
• In this month’s survey 325 responses were received.

Landlords’ responsibility to record chattels in rental properties 

If you rent a property which is furnished or partly furnished then it is the landlord’s responsibility to complete a detailed inventory of the chattels in the property. The chattels list should be attached to the tenancy agreement and the landlord and tenant should check the chattels off at the start of the tenancy. It’s also very good practice for landlords to photograph the chattels at the commencement of each tenancy. Having a good record of their chattels paid off for one Auckland landlord recently when they came to carry out the exit inspection only to find that the tenant had sold a large number of chattels from the property. The landlord was awarded $7,000 by the Tenancy Tribunal as compensation for the chattels the tenant had removed from the property and subsequently sold.

Big increase in options for tenants pushes rents down 

As the old saying goes – ‘what goes up must come down’ and that seems to be the case with rents at the moment. Just as the housing market has turned in favour of buyers so too has the rental market turned in favour of renters. Rental listings nationwide were up 11% in June. For a full explanation of what’s causing this situation and what the foreseeable future may hold click here to hear a Stuff interview with our very own Ryan Weir.

Due diligence when buying property 

It’s a no brainer right? Make sure that you do adequate due diligence when you buy any property and don’t assume that just because the property is tenanted that it is compliant.

The landlord of a Dunedin basement flat found out to his considerable cost that renting a non-compliant property can be expensive. The landlord purchased the Dunedin properties in 2012 which included a basement flat. At the time of his purchase the basement flat was tenanted. A new 3-year tenancy commenced in 2019 but ended in June 2021 when council inspectors visited the property resulting in a dangerous Building Act notice being served on the landlord. The flat had no ventilation, rotting carpets and moisture and rot around the base of the walls so it’s little wonder that the tenant ended up in hospital with health issues relating to the living conditions at the property. When appearing before adjudicator Jane Wilson at the Dunedin Tenancy Tribunal, the landlord relied on the fact that a tenancy was already in place when he purchased the property back in 2012. Structural alterations to the flat which the council inspectors found were non-compliant were not carried out by him he told the Tribunal. It seems that adjudicator Wilson had very little trouble finding that the property was ‘unlawful’ and as a consequence awarded the former tenant more than $25,000 in compensation.

It’s hard to have any sympathy for this landlord. Their naive actions drag all landlords down and provide easy ‘news fodder’ for media who never seem to tire from reporting bad landlord behaviour.

Recent law changes don’t work for students 

The Otago Daily Times (“ODT”) has reported that new laws introduced in November last year don’t fit the Dunedin flatting culture. Sections 60A and B of the Residential Tenancies Act, now state that tenants living under a fixed-term tenancy are only required to give landlords 28 days' notice about their intention to stay or go before their tenancy ends. Normally Dunedin student landlords would be asking their tenants if they wanted to commit to a further tenancy in the first half of the year, otherwise the flat would be advertised as being available for the following year. As a general rule, Dunedin students don’t tend to stay put in the same flat for more than a year. Organising flats for the following year around July and August was ideal because it gave students time to find flats before the pressure of end-of-year-exams and before students left the city for the summer.

Our very own Rebecca Harris, who owns Propertyscouts Dunedin with her husband Brad, commented in the ODT article saying the “student flatting culture was indeed a different market.” All we ask she said is that students let us know as soon as possible what their plans are. Otago Property Investors Association president Kathryn Seque said if flat-hunting season began in December, many students would not be in town for viewings. "They want to be able to see the property and touch the property, and make sure it doesn’t have a hole in the roof." These very issues were raised at the time the Government announced that they were looking at making changes to the RTA but, predictably, were not taken into account. So just as a reminder – tenants on a fixed term tenancy do not have to advise the landlord of their plans for the tenancy until 28 days out from the tenancy ending. If they advise that they wish to stay on, unless otherwise agreed with the landlord, the tenancy reverts to a periodic tenancy once the fixed term expires.

If you are interested in reading the full article click here.

Tony Alexander's reasons for investors not to abandon the housing market 

He says keeping an eye on the rapidly rising stock of listings and improving purchase prices is a good idea, but bargains will not be prolific this cycle. Other reasons include:

1. Rising construction costs – it’s getting expensive to build a house in NZ. As costs go up more people will look to buy existing rather than new.
2. Social housing demand - pressure on the Government to buy and arrange construction of extra social housing will run for decades.
3. Falling Construction - The country has had a building boom boosted by record low interest rates, a mistaken belief property shortages exist throughout the country, booming construction encouragement by every man and his dog and a surge in net migration inflows leading to incorrect predictions of future population growth.
4. Migrant numbers rising - With the borders reopening migrants are able to make their way into New Zealand.
5. Special residency visas - The government has granted migrants on temporary work visas the ability to apply for a residency permit. It was envisaged that 165,000 might do so but it looks like the number will exceed 200,000. Not all of these people will immediately buy a property now that they are legally able to. But at some point, when the cycle stops falling, the residency visas will be cited as a reason why prices will move back up again.
6. Property as a hedge to inflation - Inflation is running at 6.9%, forecasters offshore are revising upwards their inflation predictions, oil prices continue to move higher, and there is open talk of stagflation.
7. Homes going back to Airbnb use - Many properties are being placed back in the pool of short-term rentals for foreign visitors. As the pool of rentals dries up rents will rise, and additional encouragement will be provided to people to try and buy a property rather than keep renting.
8. National will restore old tax rules - The National Party has stated if it is re-elected in 2023 or 2026 it will take the bright-line test down from 10 years to the original two years, and fully restore the ability of investors to deduct interest expenses against rental income when calculating tax obligations. The closer it is to the election and the more the public look for change, the greater the incentive will be for investors to hold onto their properties and to buy more.
9. Rents are rising - Renting is sometimes promoted as being a better option than buying. This strategy has failed for virtually all those who have followed it – often on the advice of analysts who do not understand the factors causing prices to rise compared with incomes. Rents can rise rapidly, and it will take the mother of all net migration outflows to substantially dent the march of rental costs upward.
10. Bank deposit rates won’t rise much more - Banks are flush with deposits courtesy largely of the Reserve Bank’s excessive money printing operations over the past two years. The RBNZ over-reacted to the pandemic and banks have little need to offer high deposit rates in order to attract the funds needed to back domestic lending.
11. The long-term price trend is up - Many people like to believe there will be a return to the old days when average house prices were 3 times incomes. They won’t. On average New Zealand house prices have risen 7% a year since 1992. From now on the average is likely to be closer to 5% due to loosened building regulations.
12. Wages growth is accelerating - Wages may not be keeping up with inflation, but their rate of rise is lifting. 
13. Job security is high - The unemployment rate is 3.2% and likely to fall further. The difficulties which businesses are experiencing in finding skilled and unskilled labour are at record or near record levels.
14. High test mortgage rates used - It is true that many people who borrowed money last year will see the interest portion of their weekly repayments more than double as their mortgage rate rises from below 2.5% to more than 5%, but banks tested almost everyone on their ability to pay a mortgage rate above 6%.
15. Listings becoming plentiful - The biggest concern buyers have long expressed is there are not enough listings. Now stocks are running 80% ahead of a year earlier and this concern has faded away to virtually nothing.
16. Real estate buying agents failing - Real estate agents are paid by the seller, not the buyer, and with so many properties to pick and choose from few buyers will be hiring agents to scout out a property for them. That particular part of the real estate market will be dying more quickly than overall agent revenues.
17. Peak credit crunch passed - From July 7th the CCCFA rules officially loosened, and banks can undertake lending without the fear of being fined $200,000 each at senior management and director level should it be determined they had engaged in irresponsible lending.
18. Housing markets move in cycles - Nobody can pick the timing of the tops and bottoms and can only guess usually inaccurately as to how far prices will rise and how much they will fall or rise at a slower pace. Observations can be made when behaviour changes and the changes underway now indicate the cycle is functioning ‘normally’. That means an upturn lies down the track and just as those who sold before the peak did well, those who buy before the market turns and the herd chases its own tail again will do well.
19. Not all buyers are retreating.
20. Frustrated buyers re-engaging - Many people needing to shift home in the past couple of years have not been able to do so because of the market frenzy and the shortage of listings. They still need to move and as listings rise further, they will step forward to finally make their transaction, selling then buying or buying then selling in the same market.

Tenants action group comes up with their own plan to fix something that’s not broken

Hot off the press a Wellington tenants’ action group wants landlords and property managers to implement a 10-point plan it has come up with. The action plan includes:

1. All rent prices permanently lowered to 25% of the lowest benefit;
2. Landlords must provide evidence they're addressing repairs, including accessibility issues, within one week of being notified by tenants;
3. Tenants in substandard housing must be appropriately relocated at landlord's expense during major repairs or renovations;
4. Minimum tenancy length five years. Tenants may exit at will;
5. A permanent end to evictions during cold weather months (May to September), holiday periods, and emergencies such as natural disasters or pandemics;
6. Abolish bond and all substitutes. Hand back all bonds from landlord to tenant regardless of contract. Costs of repairing any damages will be covered by existing rent payments;
7. Pets allowed in all flats, including dogs;
8. No entering the property uninvited at all. Flat inspections abolished;
9. Landlords cannot ask prospective tenants for credit checks, employment history or any other references; and
10. Landlords must provide 365 days’ notice before selling or reoccupying the house.

Points 1 to 10 above indicate to us that when you have too much time on your hands and put your mind to fixing something that isn’t broken the ideas you come up with may not be all that great or even practical. We’ll leave it at that as anything further we say may appear unprofessional but there has been plenty of media commentary ridiculing the suggestions of this out of touch group. The full article (if you can be bothered) can be read here.

Ask an Expert

Q:  In March 2021 I signed a lease with my landlord for 12 months.  When the 12 months was almost up the landlord asked if I wanted to stay on and I said that I did.  The landlord said that I could have another lease at the property for 6 months.  I thought that was a bit strange at the time but I agreed to a further 6 month fixed term lease.  The landlord has now sent me a text saying that he wants me to leave at the end of the additional 6 month lease.  I asked if I can stay on for another 6 months and he has said no because his girlfriend is going to be moving into the flat.  I’m thinking about going overseas at the beginning of next year and I think it will be hard to get a flat for the length of time in between, not to mention the added cost of having to move.  I guess it’s the landlord’s property and he can do this?

A:  Well actually no, the landlord can’t do this based on the information you have provided.  On the 11^th February 2021, the law in relation to terminating tenancies changed.  Prior to then what the landlord is suggesting in his communications with you would have been lawful but that’s not the case now.  Because you signed your latest lease after the 11^th February 2021 the landlord is only able to end your fixed term lease under certain criteria.  The criteria for a landlord to give notice to end a fixed term tenancy, on its expiry date, is:

1.  The owner or a member of the owner’s family intends to move into the property within 90 days from the end of the fixed term tenancy.
2. The property is normally used for employee accommodation and it’s intended to be used for that again.
3. The owner is putting the property on the market for sale within 90 days of the tenancy ending or the property has been sold and the new owner requires vacant possession.
4. The property was bought for the use of nearby land for a business activity and is required to be vacant for that purpose (this must be stated in the tenancy agreement).
5. The property is to be converted into commercial premises for at least 90 days.
6. Extensive renovations are to be carried out that would make it impractical for the tenant to live there (the landlord must take steps to begin this work within 90 days after termination date).
7. The property is to be demolished (the landlord must take steps to begin demolition within 90 days after termination date).

So, as you can see from the information you have provided the landlord doesn’t meet the criteria for ending your fixed term tenancy on the basis that his girlfriend is moving in. A ‘girlfriend’ is not a member of the owner’s family.  Unless you and the landlord agree otherwise your tenancy will revert to a periodic tenancy when the fixed term tenancy ends. You may (or may not) wish to point out to the landlord that he commits an unlawful act by trying to terminate a tenancy when he/she is not lawfully able to.  

Ponder this 

Be prepared to take risks. You come into this life with nothing and you leave with nothing so you have nothing to lose.

Disclaimer 

Given the opinions expressed in parts of this newsletter, 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.

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