Monthly Landlord Newsletters

Changes to the Healthy Homes Standards  

On the 22nd of November, the Government announced changes to the Healthy Homes Standards.  The changes are to take effect on 26 November 2022, and are as follows:

• For private landlords who have not yet been required to meet the standards, the timeframe for compliance for a new or renewed tenancy increases from 90 days to 120 days.

• The final date by which all private landlords must comply moves from 1 July 2024 to 1 July 2025. 

• For Kāinga Ora and Community housing providers, the deadline for compliance moves from 1 July 2023 to the new date of 1 July 2024.

According to the Government announcement, the proposed timeframes will ensure the rental sector achieves compliance with the Healthy Homes Standards, while recognising the impact that COVID-19 has had on implementation in recent years.  While any extension on time to comply with the Healthy Homes Standards is appreciated we would hazard a guess that a very high proportion of private landlords are now already compliant.

Regulation of Property Managers

Hmmm… maybe the Government has been reading our newsletters?  And if so, we can’t blame them.  Last month we wrote about the importance of regulating Property Managers and low and behold – this month Megan Woods has outlined the Government's proposal on regulation of our industry.  Our very own, Ryan Weir, provided his thoughts on the Government’s announcement on Today FM. Listen to the recording here. 

Before we take a deep dive into what they are proposing let’s put this on the table.  We have always been very strong advocates of regulation.  Any regulation is better (hopefully) than no regulation.  Regulation will help protect the rights of property owners using property management companies and will also weed out poor property management operators.  Regulation means that there will be less property managers prepared to manage dodgy non-compliant rental properties.  Put simply, regulation will be good for the whole industry and will benefit landlords and tenants alike.  But just how good it will be will depend on just what form the proposed regulation takes.  

At this stage, detailed information is lacking which has the industry screaming for more information.  But what we do know is that private landlords are not to be regulated. They of course will breathe a sigh of relief, but in our view, it’s a huge ‘misstep’ by the Government.  Not regulating private landlords and only regulating property managers is just plain dumb! With more than half of rental properties managed by private landlords, not property managers, only half the industry will be regulated and the Government’s aims under the current proposal will probably not be achieved.  This announcement was the perfect time to tidy up the whole of the residential rental industry.  Instead, they appear to have taken the view that the main issue is with how property managers behave and have given private landlords a ‘get out of jail’ card.  The useless private landlords out there (and there are quite a few of them) will continue with reckless abandon, impacting on the reputation of landlords and negatively affecting the experience of renters. 

So under the Government’s proposal what will regulation look like? It would involve compulsory registration and licensing for individual property managers and their organisations, training and entry requirements, practice standards, and a complaints and disciplinary process that would be administered by the Real Estate Authority. Property managers would need to complete training before starting in the job and undergo continuing professional development.

Residential Property Managers Association (RPMA™) chairman David Pearse said that while the association was all for the regulation of property managers, he was a bit “shellshocked” by the announcement. “There is very little detail on how things will actually work in the one page provided. How can we submit or comment on something if we don't know more details?”  With the Real Estate Authority set to be the regulator of the industry, it was not clear whether that would mean all property managers would have to join the Real Estate Institute, he said. “If so, that could be a big step back for the industry, as we are currently looking at setting higher standards for property managers than there is under the institute.”  Many Propertyscouts business owners are already members of the RPMA and it was hoped that they could have had some regulatory oversight if possible.  The announcement that the REA will administer and oversee the regulation could be problematic for the long-term existence of the Residential Property Managers Association. 

The difference between us and Australia

We tend to keep an eye on the Australian housing market, albeit, not as closely as we do the NZ market these days.  It's interesting to keep an eye on both and make comparisons from time to time.  It wasn’t all that long ago that you could look at the Sydney property market and say (in general terms) what was happening there would eventually make its way over here to NZ, usually ‘landing’ in Auckland first and then making its way south. Depending on who you look to for information it seems that Australian combined capital city property prices have now fallen 6.5% since their peak earlier this year.   Compare that to here in NZ where nationally we are down 12.4% on the same time last year.  The Official Cash Rate (OCR) in Australia at present is 2.85% while our OCR has recently risen to 4.25%.  Overall, the property market in both countries has gone from a strong sellers’ market to a buyers’ market.  Much fewer properties are selling at auction and more and more properties are being listed with an asking price.  If you’ve hopped across the ditch recently, you’ll be aware that the other noticeable difference between Australia and us is that they are trusted to travel at speeds of up to 110kph on their amazing highways and there’s a noticeable lack of suspension-wrecking potholes. 

What is the relevance of the Official Cash Rate (OCR) 

We hear a lot about the OCR and the doom and gloom when the Reserve Bank increases it.  So why is it so relevant to just how much money we have in our pockets?  It's actually quite simple.  Whatever the rate the OCR is set at is the interest rate banks pay when they take out a loan with a maturity of 1 day from another bank.  The more the banks pay, the more we pay for the money we borrow.    

Property Investor Insights care of Tony Alexander and Crockers 

Key points from this month’s investor insights are: 

• There is a slight rise evident in the proportion of investors looking to buy who will seek an existing rather than new property.

•  Interest in undertaking one’s own property development continues to decline.

• The proportion of investors planning rent rises is slowly trending down, but average rent rises sought have increased for two months in a row.

• Despite rising interest rates and tax rule changes hitting interest expense deductibility, investors are showing no inclination towards accelerating their pace of debt repayment.

Full results can be found here

The ‘meth’ (mess) around methamphetamine contamination   

The Government has announced that it will consult and regulate on methamphetamine-contaminated houses. Ryan Weir from Propertyscouts’ head office has been invited by Te Tūāpapa Kura Kāinga  - the Ministry of Housing and Urban Development (HUD) to provide feedback in early December.  The consultation process will include the amount of methamphetamine residue that is harmful, how to test for it, how to decontaminate houses and what to do with contaminated possessions.  National, the Government says, had caused a real ‘dog’s breakfast’ over the issue with hundreds of tenants being evicted from their state houses through pseudo-science.  On this occasion, we tend to agree that under the National Government the laws around what constituted a meth-contaminated house were overly stringent.  But it didn’t just result in state housing tenants being evicted - plenty of private tenants lost their rental properties as well and let’s not forget the landlords who were and, in some instances, still are faced with huge remediation costs.  In 2018 the Sir Peter Gluckman report turned meth contamination on its head in NZ. 

It’s time to settle the rules once and for all.  In the proposals, a maximum acceptable level of surface methamphetamine residue is proposed to be set at 15 micrograms per 100 square centimetres, which is also the level which a property needs to be decontaminated back to, or below.  Previously it was set at 1.5 micrograms per 100 square centimetres which was far too stringent.  The proposed level of residue is consistent with the findings of Sir Peter Gluckman’s report and advice from ESR.  Once adopted the sector will have certainty on what level of methamphetamine residue requires decontamination which will be a huge step forward on the present situation.  Once relevant regulations are in place, landlords will not be able to knowingly rent out premises that are contaminated above the prescribed levels (as set out in the regulations), without decontaminating in accordance with the regulations. They will be liable for a financial penalty of up to $4,000 if they do so. 

Consultation on the process started in November.  Let’s hope that it doesn’t get bogged down with committees and submissions as the proposals are sound and make good sense of what is at present a real meth mess.  

Four reasons to get a chattels valuation for your rental property 

Recently, Ryan Weir wrote an article on the very good reasons you should get chattels in a rental property valued. Here are the four reasons for doing so. If you would like to read the entire article, click on the following link: Four reasons to get a rental chattels valuation

1. Reduce the amount of taxable income on your rental property

As IRD allows chattel depreciation to be considered as an expense, the amount of taxable income will be reduced accordingly by the amount of annual depreciation. It’s important to note, however, that depreciation can only be claimed if a chattels valuation has been completed. Whilst chattels valuations require a small upfront cost, ultimately, the long-term pay-off is worth it. By investing in a chattels valuation, investment property owners can achieve their dream of pocketing more income (whilst paying much less in taxes).

2. Offset the expense of mortgage interest rates

With mortgage rates running high, property investors are paying significantly more to service their mortgages. Adding to this burden, the new interest deductibility laws mean most owners will start paying more tax on their investment properties

Under the new tax deductibility laws, for most properties purchased on or after the 27th March 2021, mortgage interest rates are no longer a tax-deductible expense (unless the property is a new build or rented out under social housing), resulting in an increase in taxable profit. Chattel depreciation will help to offset the newly acquired taxable profit.

3. Benefits of a chattel’s valuation for “new builds”

Although the new interest deductibility laws do not apply to new builds, the potential rewards of a chattels valuation can be higher for new builds than for pre-existing dwellings. The value of new chattels is higher than those of second-hand ones, so depreciation is higher in early ownership.

4. The benefits of a chattel’s valuation will always outweigh the costs

The best way to illustrate this point is by using an example. A property has chattels worth $40,000. One day, these chattels will be worthless. If chattels are not depreciated as an expense, the property owner will have to absorb this as a $40,000 cost. However, if chattels are depreciated, there is a potential saving of $13,200 (calculated @ tax 33%). Professional chattel valuers only charge somewhere between $450-$475 +GST for an apartment or single family home and $725 for a two-unit multi property.

Evidently, the cash-in-hand benefits of obtaining a chattels valuation far outweigh the cost of obtaining one.

Should I get a Christmas gift for my tenants? 

Owning a rental property is no different to owning a small business and should be treated as such.  It’s common for businesses who have interacted positively throughout the year to exchange gifts at the end of the year.  It helps to cement the relationship and set up a good ongoing relationship. If your tenants have been good tenants, then you may choose to give them a gift.  Remember it’s the thought that counts so the gift doesn’t have to be expensive.  A nice handwritten card accompanying any gift is also a good idea.  We would never suggest that you offer a one-off rent reduction as it can sometimes be misconstrued.     

Property slump or crash 

There is no doubt that 2022 has been a hard year for property investors in terms of seeing the values of their property portfolios dropping.  The important thing to remember around this is that your property is probably still worth more than it was pre-Covid (which wasn’t all that long ago).  And if you don’t have to sell your property then in reality what it's valued at today as compared with what it was valued at a year ago or two years ago is irrelevant.  Most property commentators will tell you that it's not a property crash until properties have dropped in value by 20% from peak to slump, so on the back of that we can say that we’re in a slump not a crash – well not yet anyway.  There’s no doubt 2023 is going to be an interesting year, but not just for property. 

So, it begs the question – is now the right time to be taking advantage of a slump in property prices by adding to your property portfolio?  If you’re an investor that likes to buy and hold for the long term, then the answer is probably yes and if you’re worried about house prices dropping even further (which potentially they could do) take a leaf out of Warren Buffett's book.  He says he likes it when shares he’s purchased drop in value because it means he can buy more of them for less.    

Propertyscouts ‘Ask an Expert’ column in the Property Investors Magazine

Q.  I recently advertised my rental property as being available for rent for $550 per week.  Maybe I was a bit light on the rent because I got a lot of enquiries and people wanting to rent it.  I like to rent my property for less than it’s worth so that I can get good tenants.  One tenant has offered to pay me more rent than I had it advertised for.  I think they will be good tenants but I don’t know if I’m allowed to take more rent than I had it advertised for?

A.  Since February 2021, rental properties must be advertised with a rental price and landlords cannot invite or encourage tenants to ‘bid’ on the rental.  In the case you have outlined it sounds like there has been no ‘bidding’ as such.  Simply, one potential tenant has indicated that they are prepared to pay more for the rental property than the price you had it listed at, in order to improve their chance of securing the property. This is acceptable and you can accept their offer to pay more if you are happy to offer them the tenancy.   

What can we learn from 2022? 

Investing is seasonal.  Right now, we are in winter but spring will come. 

1. Downturns bring opportunities.  Be courageous when others are frightened.
2. Reach out to experts for their advice.  Get on the phone and call Propertyscouts, mortgage brokers and any other ‘experts’ who can give you advice.  Then sit back, sift through the information you have gathered and decide on your course of action.
3. The property market won’t keep going backwards.  Ask anyone who’s been in property for any length of time, and they will tell you that the market always comes back.  Historically properties double in value every 10 years. 
4. Keep to your investment strategies.  Don’t let a bump in the road derail your plans. 

Ponder this

The intelligent investor is a realist who sells to optimists and buys from pessimists (Benjamin Graham)     

Are you thinking of selling your investment property – or buying another?  

If so, please get in touch with your local Propertyscouts office as it’s possible we will know of someone looking for a new investment property or know of one for sale.  And remember, with Propertyscouts offices throughout NZ you no longer have to buy local.  Chances are wherever you buy we’ll have an office and ‘star performing’ property manager to look after your investment as if it was their own.

Recently, we've also teamed up with eXp Realty New Zealand to provide a one-stop-shop to NZ property investors. With each of us being specialists in our own fields (property management and real estate), our partnership means we will be able to help you move through the life cycle of property investment. For more information, hear from Maria Stephens and Ryan Weir.

Are you interested in attending live, monthly webinars?

The Propertyscouts Scouting Space (‘The Scouting Space’ for short) is a space for developers and investors to connect via insightful monthly webinars - webinars that have been facilitated to provide you with insider knowledge on hot property markets around New Zealand and where the best property opportunities are. If that sounds like a bit of you then you can register your interest by signing up to our dedicated mailing list here: www.propertyscouts.co.nz/the-scouting-space

Our interest in facilitating these webinars is simple. We want to help existing and future investors navigate the property lifecycle with as few problems as possible. 

And that’s a wrap for 2022

It's time for you to brush off the swimmers and give the barbie a scrub.  Or should that be to brush off the barbie and scrub your swimmers?!  We hope that over the Xmas New Year period you get to have a break and have some special time with family and friends.  Rest assured we’ll still be on deck taking care of your property and the 1000’s of other properties we look after right across NZ.  It’s been our absolute pleasure to be your property managers during 2022 and we look forward to continuing to be of service to you in 2023.  From all of us to all of you, have a safe and awesome Xmas and New Year.  

Disclaimer

Given the opinions expressed in parts of the 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.