Monthly Landlord Newsletters

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I now have the enviable record of having received my second complaint (in eight years) about the content of the landlord newsletter.  The aggrieved party didn’t like the apparent political nature of my newsletters. I can safely and truthfully say that I have no real political leaning at present and in any case, I’m not that naive to think that people would be interested in my political views. The problem seems to be that from time to time I have been critical of the present Government’s response to issues concerning housing – remember KiwiBuild?  Well, we are after all, property investors so one would think that issues around housing would be of interest.  I have however given the present Government kudos where it’s deserved with the likes of the Healthy Homes legislation (most, not all) and their intention to regulate Property Managers – that can’t come soon enough.  The newsletter content is written with property investors in mind – not tenants and goes out to 1000’s of property investors every month.  If I was writing it for tenants then most, if not all the content would be completely different. More often than not the content of the newsletter is a ‘collaboration’ of views from various property-related commentaries. For example, I follow economist Tony Alexander and property commentator Ashley Church and quite often use some of their content in the newsletter, so the views and ‘flavour’ isn’t always my own. I try to make the content as interesting as possible while staying on topic. In these days of social media, we are inundated with newsletters and the like, so the odd newsletter article that maybe pushes the boundaries a little to add a bit of flavour and interest can’t be all bad, can it? 

Is the Bach you rent out from time to time subject to the Residential Tenancies Act?

Turns out that’s a question private bach owner Jonathan Black wanted answers to so he sought a determination from the Tenancy Tribunal to ask if his bach could be excluded from the RTA.  Normally the Tenancy Tribunal only deals with disputes between parties so to be asked for a determination such as this was quite novel – and hats off to the Tribunal they obliged. 

Section 5(1)(k) of the RTA excludes premises that are intended to provide transient or temporary accommodation normally for periods of less than 28 days at a time and that are subject to an agreement for the purposes of providing temporary or transient accommodation.  It seems Mr. Black wanted to advertise his property on the likes of Airbnb and Trade Me for short term stays when he and his family weren’t using it.  The Tribunal found that the premises were excluded from the RTA provided they were used for temporary or transient accommodation and that there is some agreement entered into beforehand for the purpose of providing the accommodation. 

While the Tribunal’s decision clarified the situation regarding short term bach rental it doesn’t mean that every bach rental will be excluded and in fact parties can ‘contract in’ to the RTA or if the arrangements for their accommodation are materially different to what Black was describing they may inadvertently contract into the RTA by the circumstance of the agreement the parties make.   

Investment ‘biases’ to watch out for

These apparent investment biases came from an article relating to investing in the share market but they seem almost as pertinent to property investment.  By all accounts the five biases to watch out for are:

1. Bandwagon effect.  We’ve talked about FOMO (fear of missing out) in our newsletters before and the idea of ‘going along with the crowd are doing’ can be a sound strategy but good property investors are able to think independently and put things into perspective even though it may feel uncomfortable at the time. 
2. Loss Aversion. As humans we feel more pain from a loss than we feel pleasure from a gain. Property normally tends to outperform other investment strategies over the long term but if you have a property that’s not performing as you want or expect it to then perhaps you’d be better off selling it and looking for a better performing investment, whether that be another property, shares or some other form of investment.
3. Recency bias. Obviously, we recall events happening now or in the recent past better than we do events that have happened some time ago. What’s happening in the property market at present won’t always be the case. Don’t make long term decisions based on current headlines. 
4. Confirmation bias. We place more weight on information that agrees with our view, and less on information that doesn’t.  Keeping an open mind and admitting that you might not know all the facts is a wise strategy. But remember – always try to get all the information you possibly can before making a big property decision. Talk to any avid property investor and I’m sure they will tell you some of the worst property deals they have done are simply the ones they sold and should have held.    
5. Anchoring bias. This is where investors rely on one particular piece of information, and they base their buying or selling decisions on that information. A classic example of this is our media’s appetite for predicting a property market crash.      

Region Roundup

This month we hear from Nick Kemplen the owner of Propertyscouts Nelson. 

Nelson/Tasman continues to hold its own with properties renting out very quickly with very low vacancy. There is high demand for properties with multiple enquiries coming through once they are listed. This means that there is always a great pool of applicants to choose from giving certainty and peace of mind to investors.

The Nelson/Tasman population continues to grow with many new people coming in from the larger centers looking for a better quality of life. We’ve also seen many expats arriving back from overseas looking for a rental property whilst they find their feet. Nelson is expected to see 11.97% growth over the next 25 years by contrast Marlborough district is expected to expand by just 2.61%.

The median house price in Nelson is now at an all-time high at $802K. This is up from $335k 10 years ago. The median house price in Nelson has increased in value 9.12% each year since 2011 or $46,700 on average per annum. So given those increases, property continues to be a sound investment.

The most expensive suburb in Nelson is Brittania Heights, which has a median house price of $1,367,450.  The least expensive suburb is Toi Toi, which has a median house price of $551,150.  As of July 2021, Nelson’s median house price was 90.19% of NZ’s median house price. That is 4.46% below its long-term ratio, which suggests that there may be a buying opportunity in Nelson relative to the rest of the country.

In terms of rents, the median rent is $500 per week.  Perhaps notably - a 3 bedroom home in the upper quartile is up around $865p/w while the median sits at around $653 p/w. Rents have increased dramatically in the last 12 months providing great returns for our investors.

Propertyscouts Nelson continues to achieve very good results for investors with quick turn arounds between listing and securing tenants.  Of course none of this takes into account the fact that Nelson has arguably the best climate in NZ and it’s just a damned good place to live and play! 

For more information please contact Nick Kemplen at nelson@propertyscouts.co.nz or  0274 112 012 or check out some of their reviews.

Heating standards for rental properties are a joke

The methodology used to set heating capacity standards under MBIE’s Healthy Homes standards has been called into question and labelled as a ‘joke’ by some.  But let’s be clear – we agree that all rental properties should have an adequate heating source in the living area.  We don’t agree that new or near new rental properties should have to have additional heating installed or heatpumps replaced with larger heatpumps because the property has failed to meet the MBIE heating formula. 

One expert we are aware of has claimed that the required formula pushes the capacity requirements about 30% above industry standards.  So, what’s all the fuss about?  Landlords are now required to provide at least one fixed heater that can heat the main living room of a rental property to 18°C  (minimum) at the coldest time of the year.  The minimum external temperature varies by location around NZ.  Using Christchurch for example the minimum external temperature is defined as being -4°C (which only occurs on a few days of the year and normally very early in the morning when most people are still tucked up in their beds).  Therefore, a heater in Christchurch must be capable of increasing the internal temperature by 22c.  Wellington on the other hand has had its minimum temperature accessed at 2°C  meaning that a heater there only has to be capable of increasing the temperature by 16°C.  On this basis a heater in Christchurch needs to have 1.3 times the capacity of a heater in Wellington.  And here’s the kicker - a lot of heaters just won’t be capable of meeting the standard which forces landlords into more expensive options – such as heatpumps which aren’t necessarily a cost-effective option for smaller spaces.  In a number of cases, we are aware of heatpumps installed on the advice of experts which have had to be replaced with larger units or additional heaters installed because the existing unit didn’t meet the standard. 

Like we said, we totally agree with the overall standard that rentals should have a form of heating (and we agree with the other Healthy Homes Standards) but MBIE could have done a better job when they developed the heating formula tool, and don’t just take our word for it.  Public Housing Minister Poto Williams has admitted that she isn’t sure the settings in the heating formula are correct and was advised by officials that there were significant issues with it – but landlords will still need to comply using the MBIE heating formula.  They know it’s probably broken but landlords still have to use it and comply with it.  Go figure!       

Landlords can be their own worst enemies

In a recent Stuff article a Health Homes assessor, Allan Harris talked about his experiences assessing properties for Healthy Homes compliance.  Like it or hate it the Healthy Homes standards are here to stay so as landlords we should all be jumping on board.  Better properties mean better tenants, more rent, and less tenancy issues.  It’s a no brainer.  But some landlords just don’t get it. 

Harris talked about his experience over 18 months which involved bribery (landlords trying to get HHS compliance certificates when their homes clearly weren’t compliant), rats, mould, people sleeping in garages and properties that were unsafe to live in.  Some tenants he said were living in “absolutely awful conditions.  There are some landlords who are just 100 per cent ‘scumlords’, and they should never be allowed to own property to rent” he said. 

We sincerely hope that no Propertyscouts office would ever work for a private landlord who didn’t maintain their rental property adequately or who tried to knowingly circumvent any of the Healthy Homes standards. 

Build To Rent (BTR) the future of rentals in NZ

Build To Rent or BTR as it’s better known is big overseas.  From a start in 2011 the UK now has nearly 50,000 BTR homes and Australia is on track to have 15,000 completed in the next few years.  About 35% of New Zealand households live in rental accommodation and the numbers are expected to double in the next few years!  Based on those predictions ‘mum and dad’ landlords owning standalone rental properties probably won’t ‘cut the mustard’ in terms of supplying a sufficient number of adequate properties. 

BTR offers tenants certainty of tenure with a long-term landlord in a fit for purpose, quality, functional place to live.  So surely, it’s a no brainer for Kiwi property investors?  Well not quite.  There are a lot of roadblocks to building a successful BTR by all accounts. Finding the right land at the right price in the right area is a major hurdle in NZ.  Then there’s the design challenges, NZ renters aren’t accustomed to living in large tower style buildings.  And we haven’t even mentioned getting designs past local councils, build costs and increasing supply chain frustrations. 

The biggest hurdle though is the Government’s recent announcement of their intention to phase out tax deductibility.  You all know our thoughts on that which we don’t share on our own.  In fact, they are widely shared across the residential property investment industry.  Property Council advocacy head Denise Lee says that losing the tax deductibility is “the ultimate handbrake” for BTR in NZ.         

Ask an Expert

As most of you know 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: What are the steps to ensure that an attached 'granny flat' is in an adequate state for rental? Is there a government department that undertakes checks? How do I identify whether any building consents are required if the granny flat was constructed prior to my purchasing the house?

Answer:  There is no Government department that undertakes checks on behalf of landlords to confirm that a property can legally be rented.  The onus for ensuring this rests solely on the landlord’s shoulders. Councils around the country have different rules around what may be permitted for the likes of adding a ‘granny flat’ onto a residential site.  I would suggest in the first instance that you make enquiries with your local council to ensure that the granny flat is permitted and that it has the necessary code of compliance (COC).  At the same time, it might pay to ensure that you will be allowed to rent it ‘on the open market’. I once owned a property with a granny flat in Christchurch.  When I enquired with the council, I found that it was only permitted for occupation by an immediate family member of the main residence. 

Once you have established that it has the necessary consents, you will need to ensure that you comply with Section 45 of the Residential Tenancies Act 1986 (RTA) which relates to landlord responsibilities.  If a property is found to be non-compliant it may result in a tenant receiving all, or a partial refund of any rent they have paid.

Also, pay particular attention to your responsibilities relating to the Healthy Homes Standards – insulation, heating, ventilation, moisture ingress & drainage and draught stopping.   

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.