Monthly Landlord Newsletters

Only 11 months until Xmas

One month down and only 11 to go and it will be the end of another year in property. There are plenty of people out there predicting what the property market is going to do this year so we thought – why not give the old Propertyscouts crystal ball a rub to see what we can come up with?  Along with all the other ‘know-it-alls’ the following predictions are made on a whim and a prayer and could possibly turn out to be – completely wrong, or completely right – or somewhere in between the two. 

Some think that property investors have taken a bashing from the present Government (send all complaints about that comment to the complaints department please) so the October election will factor strongly (in our view) with how property will come out at the end of the year.  Given the resignation of the Prime Minister this will afford Labour the opportunity to flip-flop on some of their more contentious policies leading up to the election so don’t be surprised to see a softening on some of their property policies.  Of course, Labour can’t be blamed for all the current woes facing property investors.  Covid, the war in Ukraine, and the global inflationary situation are all playing a part in what some are saying is a ‘perfect storm’.  Yes, things are tough and there will be a lot of property investors out there doing it hard as their mortgages come off low fixed interest rates and they are faced with considerably higher rates. 

There are some positives, however.  Banks (generally) aren’t stupid.  They are in the business of making money not losing it so having a whole bunch of their customers who can no longer afford to make their mortgage payments is not good business.  In approving finance to their customers, they will have factored in a ‘buffer’ to take account of exactly what we are seeing with the increase in the OCR (official cash rate).  The reality is that while it might be tough for some, they should have the financial resources to meet higher interest rates on their mortgage repayments, because if the banks were doing the job properly back when they approved the finance they would have made sure this was the case.

And it’s not all doom and gloom. NZ has a housing shortage crisis (OK that shouldn’t, in the normal course, be seen as a positive).  That means that in most locations around NZ there will continue to remain good demand for rental properties.  Yes, in some places landlords may need to be ‘conditioned’ to lower rental income but rents have held up well and have kept abreast of the high inflation over the last year or so.  And if history is any indication this will continue.  On average rents have increased by 4.33% annually in NZ for the past 28 years – but around 7% over the last couple of years!  Proof that property is a good hedge to inflation.  And just like Ying and Yang, this year will offer pain and opportunities.  There will be some property owners seeing the value of their properties fall who will sell and these people will have to meet a falling market.  There will be good buys out there for astute investors, prepared to take a punt on just how far the market may fall – or decide if it has fallen all it’s going to in this cycle.

The Scouting Space is in full swing!

We’ve sure been busy since our last Monthly Landlord Newsletter. Did you catch our very first webinar last month? We picked the brains of our guest speaker, Henry Van der Velden, and Co-host, Ron Gloag (Owner of Propertyscouts Central Otago). Together, they provided a great deal of comprehensive and valuable insights into property development and investment opportunities in the Central Otago Region. In case you missed it, or you would like to watch it again to refresh your memory, here’s a link to the webinar recording.

In addition to our December webinar, last week we interviewed Jasmine Yao to gain insight into property development projects and activity in the Auckland area. Jasmine is the Co-Founder and Executive Director of Black Robin Equity and has extensive experience in sales and marketing as well as early-stage companies. With 10 years' experience in real estate and sales, she has been on both sides of the transaction and has a deep understanding of investor needs. Jasmine is a member of the Institute of Directors and comes from a legal background having been admitted to the Bar in New Zealand. Check out the full webinar here.

Regulation of Property Managers up in the air if there is a change of Government

Unless you’ve been circling Mars in your spaceship for the last few years, you’ll know that we here at Propertyscouts are staunch advocates for the regulation of all property managers.  National, it seems, aren’t quite so committed to the idea.  In their view, there are bigger ‘fish to fry’ so if they can form the next Government then regulation of our industry is up in the air and quite possibly will be kicked for touch.  That would be a travesty.  Why are we so committed to regulation? 

Well firstly, there are a lot of bad operators out there and regulation will weed them out.  In an ideal world property managers AND private landlords would be regulated, but we are far from living in an ideal world.  It seems the best we can hope for at this stage is regulation of property managers and the useless private landlords out there (yes take it from us there are more than you might think) can carry on providing sweet pickings for lazy Stuff reporters.  You see, the problem with an unregulated industry that deals at times with vulnerable people and bucket loads of money is that not all of us are legit.  Some, thankfully only a very few, see our industry as an opportunity to operate on the fringes of the law, and in some cases entirely outside of the law.  And it only takes a couple of bad apples, and one of those Stuff reporters we’ve referred to, to tarnish our whole industry.  So come on National, if Labour could commit to regulation, then so can you.  

What would we do if we were a property investor with some cash reserves?

In light of the crystal ball gazing above, if we were a cashed-up committed property investor, we’d be looking at this as the year of opportunity.  Perhaps not in the first half of the year but certainly in the second half.  We’d be out there scouting around for great buys.  This will be a great market for bargain buys so be prepared to make plenty of ‘under-market’ offers, buy with your brain not your heart and be conservative with your numbers.  If the property you finally buy outperforms your conservative analysis, then that’s a good thing.  Panicked sellers will offer opportunities as will investors scared off by the present gloomy property outlook. 

As our old friend Warren Buffet famously said ‘be cautious when others are greedy and greedy when others are cautious’.  But in our view, there are two things to remember.  Firstly, if you do decide to add to your property portfolio this year you won’t be alone so don’t go thinking you’re going to have the market all to yourself – there will be plenty of competition from other investors.  Secondly, don’t confine yourself to where you live for your next investment property search.  Tap into the experts at Propertyscouts and be prepared to look for bargains wherever there is a Propertyscouts office in NZ, or even across the ditch on the Sunshine Coast.     

Strategies when coming off a fixed-term mortgage

A lot of mortgaged investors will be looking at coming off fixed-term rates soon and for some that will be daunting as the rate they have been on certainly won’t be the new rate being offered by the bank.  We aren’t financial or investment advisors, and this isn’t intended as investment advice, it's more strategies we are happy to share that we know some of our NZ investors are considering at this time.  As usual we suggest you always get the best financial advice available to you and truth be told – that’s not us. Each of these strategies is dependent on your circumstances and your bank and the policies they have, but it costs nothing to ask – right?

• Strategy 1:  Consider a mix of fixed terms to average out your risk of rates going up or down
• Strategy 2:  Shop around.  Just because you’ve been dealing with the same bank for years doesn’t mean that they are the most competitive.
• Strategy 3:  Failing to prepare is preparing to fail.  You’ll know when your fixed-term mortgage is ending so don’t leave it to the last minute to deal with it. You can often reserve a rate in advance, which protects you from interest rate rises leading up to the fixed-term expiry.
• Strategy 4:  Extend the term of your mortgage.  If you are on a 15-year term, for example, see if your bank will allow you to extend the term as that will decrease the monthly payments.
• Strategy 5:  See if your bank will allow all, or a component of, your mortgage to be interest only.  That means that, for any period you are on interest only, you aren’t paying off any principal but if things are tight this may be enough to see you over the worst.  Banks take on a bigger risk when they offer interest-only mortgages, so lenders look for well-qualified borrowers with higher credit scores, lower debt-to-income ratios and will require a higher-than-normal level of equity in the property.       

Not everyone’s a dog lover  

The tenants of an Ashburton property who left before the end of the fixed-term tenancy (because the owner would not allow them to have pets) were ordered by the Tenancy Tribunal to pay the landlord unpaid rent.  There aren’t too many property managers we would venture to say, who can’t relate to this story.  Many is the time that we have turned up at a property which doesn’t allow for pets only to ‘spy’ a pet feed bowl in the corner of the kitchen and when asked the tenants will invariably deny having a pet, claiming the bowl ‘belonged to a friend who stayed for a day or two and brought their cat with them’.  Yeah right, there’s probably a Tui billboard in there somewhere.  It’s always disappointing when tenants don’t adhere to the requirements of their tenancy agreement.  A lot just don’t seem to appreciate that when they sign a tenancy agreement, they are agreeing to all of its terms and conditions, and they can’t ‘cherry pick’ the terms they want to agree to and others they don’t. 

In the case mentioned above it was clear that the landlord didn’t allow pets at the property and the tenants knew this to be the case when they entered into the tenancy agreement.  The tenants arranged to rehome their dog.  Unfortunately for the tenants the rehoming didn’t work out so the tenants, during the term of the tenancy, asked the landlord to allow them to have the dog at the property.  The landlord said they would allow this but wanted an additional $100 per week which the tenants refused to pay.  They left the property before the end of the tenancy and stopped paying rent and as a result the landlord rightly took them to the Tenancy Tribunal.  The Tribunal adjudicator noted that fixed-term tenancy agreements could be reduced when there was an unforeseen change in someone’s circumstances, and when there would be severe hardship if a term was not reduced, which would be greater than the hardship to the other party if it was reduced.  The tenants went into the tenancy knowing that pets were not allowed and the fact that they were unable to rehome their pet as they anticipated was not an unforeseen change in circumstance sufficient to meet the statutory test. 

Family faces an increase of $450 in weekly mortgage payments

A recent Stuff article discussed the plight of a couple whose weekly mortgage repayments had jumped by $450 per week making the repayments almost unaffordable.  The couple in question, Rory and Harriet O’Sullivan, had cancelled almost every one of their subscriptions and were considering selling the family car.  They had even resorted to making their own washing powder according to the article.  The couple sold their home in the UK but found that they needed a $920,000 mortgage when they purchased their North Shore property for $1.13 million in January 2021.  The Stuff article was re-posted on Facebook and overall the feedback was negative, blaming the O’Sullivan’s for being in the predicament that they now find themselves in. 

It’s pretty obvious that they didn’t foresee interest rates increasing to the level they now are, but it also appears to be a classic case of not having a sufficient ‘buffer’ or ‘overreaching’ that is buying with your heart, not your brain. It’s easy to say in hindsight but on the face of it, this couple should have done more due diligence or sought out good professional advice to ensure that as interest rates increased (which they were always bound to do) that they would have sufficient financial capacity to cope. The bad news is that the O’Sullivan’s certainly won’t be in this pickle on their own. 

According to Core Logic a staggering 49% of mortgage debt will need to be refixed in the year to the end of November, and another 10% are on floating rates!  If you are interested in reading the full Stuff article here is a link. 

Tenancy Tribunal accused of ‘creeping socialism’

Salesh Chand, a partner at property accountancy firm GRA recently suggested that a Tenancy Tribunal adjudicator ordering a landlord to lower the rent on their rental property from $730 to $610 was interference amounting to creeping socialism.  Chand’s view, which we agree with in principle, is that the market self-regulates.  “For example, if a landlord asks for rent that is way above the market, tenants will not lease the property in the first place. It is self-limiting, and the landlord will need to lower an unreasonably high rent in order to attract a tenant”.  He went on to say landlords being told what they must charge is tampering with the free market and that because free markets are self-regulating they do not need help from Government departments in order to function properly.  The law as it stands is that landlords are only permitted to charge a tenant market rent. 

In our experience, the issue of what is fair market rent is rarely an issue at the beginning of a tenancy because the landlord is easily able to say to the tenant – ‘if you think it’s too expensive, don’t rent it’.  More often than not the issue crops up when either the market has dramatically ‘cooled’ during the tenancy or the tenancy is being renewed and for whatever reason the landlord believes that the property is now worth more rent. Our advice in this situation will always be to keep the communication open and honest for the sake of a few $’s a week versus putting what rent you can charge in the hands of a Tenancy Tribunal adjudicator. However, if a landlord believes that the rent they are proposing is ‘fair market rent’ then they need to stand up for their right to charge this.  We’ll leave it to Salesh Chand to finish with his view: “This is just more evidence of a dangerously socialist government thinking it knows best, condoning actions that are in fact damaging in the grand scheme of things. We need to reject the nanny state socialism, centralised authoritarianism, and get New Zealand going again.”  Chands words not ours!

Our ‘Ask an Expert’ column from the NZ Property Investor magazine

Q. I made a mistake and rented my house to a person who is a gang member and his partner.  I didn’t know that they were involved with gangs when I rented to them.  Soon after they moved in, they started causing problems with the neighbours and they have since caused damage at the property.  When I tried to speak to them about this, they threatened me.  Because they are gang members, I am scared to go to the property now.  Over the weekend the female partner sent me a text to say she was moving out because she had been beaten up by her partner.  She included a photo of a police safety order which says she was assaulted.  I’m happy for them to leave but what are my rights?

A.  Not surprisingly when gang members want a new rental property, they do all they can to hide their gang affiliations.  It’s not uncommon for them to use their female partners to do a lot or all of the initial application process.  In the case you have outlined the female tenant is able to remove herself from the tenancy by giving you 2 days’ notice (in the approved form) along with qualifying evidence of the violence.  The police documentation you have been provided will suffice in this case provided it identifies the tenant and the fact that she has been the subject of violence, however a text is not an approved form of notification to a landlord. The notification must be in writing and sent to an email address, PO Box, or fax number if it is listed on the tenancy agreement as an additional address for service or sent to by post or delivered to the physical address for service listed on the tenancy agreement, or hand delivered (by anyone). I suggest that you contact the female tenant and advise her that you will accept her notice that she’s leaving the property provided you receive the notice in the approved form – you could even provide it to her in the approved form and just have her sign it.  With her gone it may be easier for you to convince her male partner to end the tenancy.  Previous behaviour is often a good indication of future behaviour, so you are best to cut your losses and try to have them end the tenancy by agreement.  Unfortunately, the law doesn’t allow you to end the tenancy due to the threats that have been made to you.  The law only allows you to end the tenancy if you or a member of your family or your agent has been physically assaulted by the tenant and the police have charged the tenant with the assault.

A snapshot of what’s driving house prices at present 

1. House prices are down.  Compared to last year the national average house price has fallen from $992,000 to below $900,000
2. OCR is up (presently at 4.25%) with the Reserve Bank saying more rises are on the cards.
3. Interest rates are up.
4. Building consents are up.
5. Mortgage approvals are down.  A total of 15,118 mortgages were issued in October 2022 down 27% on the previous October.
6. Rents are up.
7. Migration is up.    

Property owners have a duty of care and responsibility regarding building compliance  

The Tenancy Tribunal has ruled in favour of tenants on numerous occasions regarding unconsented alterations to their properties.  In the most recent case reported in yet another Stuff article on ‘landlords behaving badly’ the owner of the property lived in the upstairs section of the South Auckland property and the tenant lived in one of the two downstairs converted areas.  The tenant requested a council rubbish bin which subsequently resulted in the council identifying that the downstairs dwellings had been converted without a building consent.  The landlord issued the tenant with a notice to terminate the tenancy on the basis that the property had to undergo extensive renovations.  Low and behold the tenant felt aggrieved sufficiently to take the landlord to the Tribunal for renting out an unlawful dwelling and for being issued with what they felt was a retaliatory notice.  Unsurprisingly the tenant was successful and was awarded $11,840 in compensation. 

The result in this case should come as no surprise to anyone involved in property letting.  Tenants know their rights now and landlords can’t bury their heads in the sand and use the excuse that the ‘alterations’ were completed before they purchased the property.  Property owners have an obligation to ensure that their properties are able to be lawfully tenanted and that obligation extends to ensuring that property managers they engage to act on their behalf aren’t put at risk of inadvertently renting unlawful properties.

Property Investor Insights care of Tony Alexander and Crockers  

Key points from this month’s investor insights are:  

• Following recent interest rate rises investors’ net intentions of purchasing property have declined.
• There is no sign of investors exiting the market; in fact, the proportion considering selling is the lowest since our series began.
• Investor interest in buying a new property is waning while interest in purchasing an existing property is relatively rising.
• Despite rising interest rates, there is no clear sign that investors plan to accelerate their debt repayments.
• Investors have become more concerned about interest rates rising and property prices falling. But there is a slow decline in concerns about the loss of interest expense deductibility.

End of an era

Some of you will be aware that this newsletter is currently written by Milton Weir.  Milton is the co-founder of Propertyscouts.  Well, the ‘true’ founder is actually a lady by the name of Jeanette Aspin.  Jeanette started Propertyscouts as a ‘property finding’ business in Dunedin back in the late 1990’s.  Milton had started his own property management business and was slowly growing his client base when he ran into Jeanette at a Real Estate training course.  Jeanette was finding that some of her clients wanted her to manage the properties she found for them, but she didn’t know quite how to go about it.  The two of them decided that they would combine their respective skills, and the rest, as they say, is history. 

Of course, like any business it wasn’t all plain sailing.  Jeanette and Milton had different talents.  For Jeanette, that was networking and for Milton that was business development.  Milton soon realised that networking involved a lot of lunches and drinking whereas business development involved, well a lot of …. Business development – and trying to keep track of where Jeanette was. It would be fair to say that Jeanette and Milton were different people, but the skills they both brought to the business saw it thrive and become very successful.  When Milton’s wife Nicola was diagnosed with terminal cancer in 2012 (Nicola was the senior property manager in the business at that time) it had a profound effect on Jeanette and played a part in her deciding to sell her share of the business and move to Nelson where she could grow vegetables and herbs.  Nicola passed away in 2014 so Milton started putting together a franchise model for the business and sold his first franchise the following year.  He sold the Dunedin Propertyscouts business to the very competent Invercargill franchisees (Brad and Rebecca Harris) in 2017 and continued to run and sell Propertyscouts franchises up until he sold the franchise business in 2020 .  By that time there were 16 franchises operating around NZ and 1 in Australia. 

Since selling the business to his son Ryan Weir, Milton has written this newsletter but has now decided that the time is right to call it quits.  He recently caught up with Jeanette when she came to stay with him in Akaroa and the two reminisced about the old days.  How they flew by the seat of their pants and created a business that would go on to create businesses for a host of great people – the Propertyscouts franchise owners who between them now manage 1000’s of properties around NZ and Australia.  Along the way, Jeanette and Milton made lots of friends, landlords and tenants alike.

Milton would like to end this by saying   – “property management is a hard gig.  It’s sometimes equally as hard as being a front-line police officer which I did for 20 years so if you’re a landlord reading this newsletter cut your property manager some slack, they work hard for the money they make.  The life cycle of a property manager can be very short because of the stress involved so if you think your property manager is doing a good job let them know before it’s too late, and if you don’t think they are doing a good job for you let them know that as well.  But be nice.  To all the landlords whose properties I looked after and whose properties the Propertyscouts franchisees and their staff now look after, thank you for your trust and belief that Propertyscouts will always do the best job that they can for you”.  It’s been a great ride, I wouldn’t have had it any other way.  Bonne chance!

Ponder this  

Price is what you pay.  Value is what you get -Warren Buffet.    

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.

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.    

Disclaimer 

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.   

Propertyscouts NZ (2020) Limited, trading as Propertyscouts, and its associated parties (including directors, agents, employees, officers or otherwise) have attempted to provide   this information to the best of their ability but do not make any representations or warranties of any nature (intended or implied) as to the accuracy of the information on this communication. All recipients of this communication should conduct and rely on their own enquiries in relation to the information on this communication.

The information available on the properties listed for sale, rent or otherwise, has been obtained from the vendor or landlord of the property and the appropriate professional service providers. We do not and cannot verify or guarantee the accuracy of the information obtained in relation to the properties.

The information and/or materials available in this communication are intended to be general information only and may be changed at any time, without notice to you. The information and/or materials in this communication should not be relied on under any circumstances as a substitute for legal, financial, real estate, or other professional and/or expert advice. To the maximum extent permitted by law, Propertyscouts and its associated parties disclaim all liability, responsibility, and negligence for any direct or indirect loss or damage suffered by any person arising from the information and/or materials presented in this communication or any information and/or materials that arise from it.