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Monthly Landlord Newsletters

February 2022

Propertyscouts Monthly Landlord Newsletter - February 2022

Happy 2022 

You don’t have to be a pandemic expert to know that 2022 is possibly going to be as challenging as 2021. The arrival of Covid has seen some devastating impacts on local business such as hospitality and tourism. Generally speaking, landlords have not been impacted too badly, so fingers crossed that remains the case for 2022. Of course, as landlords, our saving grace has been the Government’s financial assistance to businesses and workers affected by Covid. With the anticipated spread of Omicron here’s hoping the Government maintains their financial assistance packages, which to date have certainly helped tenants keep up to date with their rent payments. Spare a thought though for your Property Manager, who as well as having to deal with their own personal Covid issues, must ensure compliance with the traffic light system (nuh that’s not confusing at all!) and all that it entails when dealing with tenants and contractors. It can sometimes be a very finely tuned balancing act keeping all parties happy. However, Covid impacts on you and your family this year, stay strong and stay calm. 

Here are some tips around building mental resilience from Vanessa Cooper a Mental Health Work Specialist at WorkSafe New Zealand:

“Don’t get overwhelmed by all of the things you ‘should’ be doing for your mental health. Sometimes less is more, so pick one or two things that interest you and try them.”

For instance, if you think breathing exercises might help, just do that.

Or you might be keen to expand your network. Options to choose from include:

  • Organising a regular coffee catch-up with another business owner
  • Seeing what events your local Chamber of Commerce has coming up
  • Tapping into your industry association or professional body

This will help combat social isolation as well as keep you up to date on new developments and put you in touch with your peers.

Commercial Landlords hit hard by Covid lockdowns and legislation changes  

NZ Property Council chief executive Leonie Freemen says there has been some poor behavior by both commercial landlords and tenants as a result of Covid lockdowns.  Some large international tenants have used the Government’s interventions to stop paying all rent and some well-to-do landlords have refused to compromise she said.  As a result, the Government rushed through legislation amending the Property Law Act 2007 by inserting a retrospective clause into all commercial leases requiring a “fair proportion of rent and outgoings relief to be negotiated between landlord and tenant where a tenant has been unable to fully conduct their business in their premises due to pandemic lockdowns”.  The change was dropped on commercial landlords with no consultation and only a few days were allowed for submissions before the legislation passed into law under urgency.  The problem with the law change according to Joanna Pidgeon, principal at Pidgeon Judd-Law is what constitutes a “fair proportion of rent” as it hasn’t been defined by the Government.  It’s sad to see that our commercial landlord ‘cousins’ are having the same sort of frustrations we residential investors have experienced from time to time over the last few years with poorly conceived law changes.   

Changes at PSHQ (Propertyscouts HQ) 

Most of you will be aware that Milton developed the Propertyscouts franchise system based on the success of the Dunedin Propertyscouts business. That was way back in 2015 and since then there are now 16 franchise businesses in NZ and one in Australia. Milton’s son Ryan, an experienced property manager in his own right, joined PSHQ in 2020. Milton’s been around for a while now and is a bit of a dinosaur in the property management industry so at the end of 2021 he decided to move aside and let the ‘young Turk’ take the reins of PSHQ completely. Ryan has built an excellent support team around him, which in turn provides great support to all the franchise businesses. Milton hasn’t been put out to pasture completely however, as he will be available to PSHQ on a consulting basis and will continue to write industry content for PSHQ – which includes this landlord newsletter, so you know who to blame when you have a gripe with the content. 

Property Investor Insights care of Tony Alexander and Crockers  

Key points from this month’s investor insights are: 

  • Investors are shortening the average term over which they take a fixed-rate mortgage.
  • Banks have become less willing to advance extra funds.
  • The preference of investors in new dwellings has shifted away from detached houses towards apartments and townhouses.
  • Despite rising interest rates, there is only a slight trend towards accelerating debt repayment or moving from interest-only to principal and interest payments.
  • Tax legislation changes are becoming a more important driver of decisions to sell.
  • Investors show little concern about the multi-year property price boom seemingly coming to an end.

The Seven Steps to Property Wealth according to Andrew Armstrong of Lighthouse Financial

  1. Take the first step. You need to get on the ladder to be on the ladder, so Armstrong suggests utilising the bank of Mum and Dad, family or friends, and forgoing Kiwisaver as a deposit to purchase an investment property instead of a first home.  And for those starting out, he suggests getting in front of a professional to ensure the right structuring and advice at the beginning of the process. 
  2. Add value for capital growth.  Renovating is a great way to add value according to Armstrong and although he doesn’t say this renovating also helps protect you from a negative correction in the property market.
  3. Find lenders that work for you.  Consider using a mortgage broker to split your lending across more than one bank.
  4. Go second tier.  Second tier lenders can give you access to equity that mainstream banks don’t consider suitable. 
  5. Climb the complexity ladder.  Consider developing a site, a new build or subdivision. 
  6. Go commercial.  Although commercial has its own challenges, don’t discount commercial investments.
  7. Time in the market.  Don’t wait for the market to drop so that you can buy a ‘better’ property.  Investment is about time in the market rather than timing the market.   

Is this what’s called a flip-flop? 

In response to ‘industry concerns’ the Government has agreed to amend the Healthy Homes Standards and its heating requirements for rental properties to reflect the higher thermal performance of new homes built to the 2008 building code requirements for insulation and glazing and apartments.  Never saw that coming – actually yes, we did, because we wrote about what the joke the Health Homes Heating Standards were in our November newsletter.  The heating assessment tool on the Tenancy Services website will be updated to reflect these changes once they become law.  Buildings which are not apartments and are not built to the 2008 building code requirements will still need to comply with the current Healthy Homes Standards heating requirements.  The changes to the heating standard will generally enable smaller heating devices to be installed in new homes built to the 2008 building code.   To assist in transitioning to these new arrangements, private landlords of new homes built to the 2008 building code will benefit from a revised deadline to meet the heating standard. Their 90-day compliance period will not start until 6 months after the changes come into effect, providing a grace period of up to 9 months.

As well, the Government has signalled its intention to update the moisture ingress and drainage standard to clarify that landlords are not required to install alternative moisture barriers where it is not reasonably practicable to install a polythene barrier.

Ask an Expert

Q:  "My tenant is moving out and refuses to pay one week's rent that was due. He insists it is deducted from the bond. Can he do this? There is only three weeks' worth of rent in the bond - with one week in rent arrears, there is only two weeks' bond left. With the house in a mess (which I repetitively asked to be cleaned), I am uncomfortable with only having two weeks bond. Can I request for the rent to be paid? Is it true that having rent arrears deducted from bond is not good for rent history?"

A:  This can be a common problem, especially towards the end of a tenancy.  You need to reply to the tenant advising them that you don’t hold the bond – Tenancy Services do so you don’t have access to it.  At the same time advise the tenant that it is a breach of the Residential Tenancies Act for them to not pay rent.  If they continue to request that you take the rent arrears from the bond you should serve a 14-day notice for the rent arrears on them as soon as possible.  Do not agree to take the rent arrears from the bond before the tenancy has ended and you have completed a final inspection.  As you have rightly pointed out, by doing that there may not be enough bond left to cover any other issues that come to light. 

Thinking of selling your investment property? 

We hope not, but if you are please get in touch as we may know of an investor who would be keen.  If you do decide to sell, then there are a couple of things to bear in mind.  If the property is tenanted on a fixed term tenancy, then the property must be sold with the fixed term tenancy in place – unless you can negotiate an early end to the fixed term tenancy with the tenant.  If the tenancy is a periodic tenancy, then you need to decide whether the property should be marketed with the tenant in place or vacant.  Often this decision will come down to how good the tenant is at looking after the property.  Regardless, the tenant will need to be given written notice of your intention to sell.  If you decide to sell the house while it’s tenanted and the new buyer wants the tenant to leave, you’ll need to give the tenant at least 90 days’ notice.  Consider this when you agree with the buyer on the settlement date. If the new buyer wants to retain the tenant, then the tenancy details will need to be included in the sale and purchase agreement.

A reminder on repairs and damage and who’s responsible for what

If something is damaged or needs repairing at a rental property then regardless of how it happened or who caused the damage the tenant must notify the landlord.  Tenants are not responsible for damage arising from burglaries, natural events – flooding and the like, or fair wear and tear.  If the tenant or their guest intentionally damages the landlord’s property then the tenant is responsible for the cost of the repair.  If the damage is not intentional but is careless then the tenant is liable for the cost of the damage up to the equivalent of 4 weeks rent or the landlord’s insurance excess, whichever is the lesser.  Landlords can’t ask for more!  Where damage has occurred it’s for the landlord to prove that it’s not fair wear and tear following which the tenant must prove that the damage was not careless and not intentional or that it was neither. 

We are not alone 

If you think God’s own is the only place on earth that’s experienced a housing boom – think again.  In fact, according to a Stuff news article, most countries have experienced similar issues.  High demand for housing coupled with limited supply, rapidly escalating prices, and affordability issues are causing concern around the world. According to a Knight Frank global house price index, 48% of the countries monitored had annual price increases of over 10% and the top 10 ranked countries (of which NZ is one) had annual increases in excess of 15%.  If this is a worry then you can relax – well kind of, because according to the ANZ they expect house prices to fall by about 7% this year, primarily as a result of housing shortages reducing by around 6000 homes a quarter. 

What’s a sunset clause in a sale and purchase agreement? 

Sunset clauses are often included into sale and purchase agreements for new builds or purchases off the plan to cover situations when things may go wrong or there may be delays.  They are intended to prevent the parties from being locked into a contract for what could be a long period of time.  Sunset clauses can be for the benefit of either the purchaser or seller or both but generally, for a new build, they are inserted to allow the purchaser to cancel the agreement.     

Rent-vesting explained

There’s a (kind of) new buzz term going around called rent-vesting.  Think about it hard enough and you’ll probably be able to work out what it means.  Rent-vestors rent the main home they live in but own one or more investment properties, often at a different location.   It allows people to get onto the property ladder without having to make big lifestyle changes by allowing the rent-vestors to live where they want instead of at a location where the house prices are more affordable.  And here’s the real advantage rent-vesting offers Propertyscouts customers.  Because of our NZ wide coverage, you can pretty much pick any location to own a rental property and know that you’ll receive the same amazing Propertyscouts service regardless of where your investment properties are.  We call that a no-brainer and win/win!     

Getting a mortgage just got a whole lot harder 

On the 2nd of December 2021, the Government made law changes to protect vulnerable borrowers.  Now, not only do borrowers have to deal with mortgage affordability they have to face increased scrutiny of their living expenses and by default – their lifestyles. Banks and other lenders are now being forced to trawl through bank statements in detail looking into every aspect of a borrower's lifestyle so that they can assess the way they live, shop and buy.  Failure to carry out the required due-diligence could result in the lender being fined up to $200,000!  According to John Bolton from Squirrel, it's poorly designed legislation which has been bulldozed through without the proper consultation or market feedback.  Where have we heard that before?  Further, John says it's effectively another form of taxation on the economy and a big dose of red tape.  First home buyers he said will struggle to meet the criteria, as will older borrowers and it will negatively impact small business owners who often borrow against their home. 

Methamphetamine and insurance 

The issue of methamphetamine (meth) use in the community isn’t diminishing and if the number of properties we are finding contaminated around NZ is any indication the use of meth is rife and becoming much more mainstream.  Insurance companies are heartily sick of footing the big remediation bills for meth contamination and are now adding clauses to policies to make it harder for landlords to lodge successful claims.  We have heard of one company that now requires lab-based testing at the beginning and end of every tenancy in order to be able to lodge a successful claim.  So, check your insurance policy!  

Before we go – a reminder on the bright-line tax 

As of 27 March 2021 anyone selling an existing residential property within 10 years will be required to pay tax on any gain.  However new builds will remain under the five year bright-line test.  Exceptions apply to the ‘main home’, an inherited property, or a property subject to a formal relationship settlement.  And how long does a house remain a ‘new build’ we hear you say?  Twenty years regardless of the number of times it’s sold.    

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.  We suggest that in all cases independent legal and financial advice is sought.