Property Management News & Information
The new health homes regulations (Released)
While the regulations will become law by mid-2019, landlords will have until 1 July 2024 to get their rental properties compliant with the new standards.
The compliance timeline for the new standards is as follows:
• 1 July 2021 – From this date, private landlords must ensure that their rental properties comply with the healthy home standards within 90 days of any new tenancy.
• 1 July 2021 – All boarding houses must comply with the healthy home standards.
• 1 July 2023 – All Housing New Zealand houses and registered Community Housing Providers houses must comply with the healthy home standards.
• 1 July 2024 – All rental homes must comply with the healthy home standards.
The new required standards
• Heating: Rental homes must have a fixed heating device that can heat the living room to 18C.
• Insulation: Ceiling and underfloor insulation must either meeting the 2008 building code, or have a minimum thickness of 120mm
• Ventilation: Windows in the living room, dining room, kitchen and bedrooms must be operable and extractor fans must be in rooms with a bath or shower, on indoor cooktop.
• Moisture and drainage: If a rental property has an enclosed subfloor, it must have a ground moisture barrier if it's possible to install one.
• Draughts: Landlords must stop any unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked.
The Gluckman Report
There has been a big discussion on the subject of meth contamination of houses recently with the release of the Gluckman report.
Peter Gluckman is the government’s chief science advisor who undertook extensive research into meth contamination and at what levels of contamination could make people sick. Mr Gluckman could not find any evidence of people becoming sick from low levels of contamination in houses and suggested New Zealand’s very low legal level of 1.5 µg/100 cm2 should be lifted to 15 µg/100 cm2 . This has sent shock waves through the industry and created allot of uncertainty that has left people wondering how to proceed.
Moving forward our system hasn’t changed we still recommend testing before and after each tenancy as it doesn’t matter what the safe levels are deemed to be as we want all of our properties to remain at zero. If any house shows meth contamination at any level we need to be able to hold that tenant accountable for the costs to clean, the only way of doing that is to have the track record of an independent test.
IonizationType Smoke Alarms
Ionization alarms give much less warning of smoldering fires, such as those caused by faulty electrical wiring, curtains draped over a heater, or a hot ember igniting upholstery foam, making it less likely you can get out of your home safely. Consumer NZ head of testing Dr Paul Smith recommends people buy photoelectric alarms. Fire and Emergency New Zealand also recommends photoelectric alarms. The Residential Tenancies Act requires all new alarms landlords install to be photoelectric with a long-life battery.
Bright Line Test Is Now In Force
Landlord Costs Set To Rise
Changing regulations in the residential property space will mean the costs of owning rental properties will rise. Many landlords especially at the poorer end of the chain will decide to sell as the costs become unbearable. This selling out effect will however result in fewer rental properties on the market which will force rents up for those remaining and of course the tenants. It is important to keep in mind that these cost rises will be offset by rental price rises so owners need not fear the changes too much.
1/ The healthy homes guarantee act (Not law yet)
The new government are proposing new legislation that will form a set of minimum standards for offering a rental property to a tenant, such as insulation, heating, drainage etc.
2/ Ring fence tax losses (Not law yet)
If your portfolio makes a loss for tax purposes you will no longer be able to offset those losses against other income.
3/ Rates & Insurance prices rises
These costs will continue to rise.
4/ Bright line test increase from 2 years to 5
If an investor / trader buys and sells a property within 2 years the capital gain becomes taxable. The new rule will see that 2 year period extend to 5 years. We do not see how this change will be positive for tenants or create a dampening of values as people who buy and sell property for profit are doing so via a quick turn around and are liable for tax anyway.
New Meth Testing Standards Released
Standards New Zealand have released their report
on the “industry” surrounding methamphetamine contamination. They have reviewed
and released a much clearer set of standards that the industry must work to.
This includes rules on how to test, what and where to test and the level of
contamination that is now acceptable. The new industry standard “safe” level
has been determined to be 1.5ug/100 cm2. The previous level was .5ug/cm2 which
means they have lifted the threshold. There is further change coming to which
looks good… Nick Smith has a bill before parliament for amendments to the
residential tenancies act that will allow landlords to carry out their own
testing… this is great news and will save us landlords allot of money, more
information on this as it comes to hand.
Labour Party Want To Abolish Tax Breaks
Andrew Little said the Labour Party will abolish negative gearing for property investors, he says the change will create an even playing field with first home buyers. This proposed change will have a negative impact on investor cash flow that will also have a negative impact on the state of rental house presentation as the shortage of cash flow will make it hard for investors to maintain the properties. In addition to that some investors will sell out of the business that will reduce the supply of rentals putting more pressure on rents and putting more people on the street. Andrew little said labour will close the tax loophole that allows speculators to claim tax payer subsidies for their rental portfolio claiming It gives them an unfair advantage over kiwi families.
What Mr Little fails to note or realise is It is not a tax loophole it is a legitimate part of tax law that is available to all businesses and investments. It allows rental prices to be lower than they would without the law meaning tenants get a better deal and also adds to the supply of rental houses. The ability to claim tax losses does not give investors an unfair advantage over kiwi families, I think the labour party don’t seem to be aware of the costs of supplying rental houses. First of all there is a 40% deposit required and then ongoing cash flow to maintain the property. People have the impression that an investor can pay more for a property because they claim the extra amount they pay as a tax deduction which is completely wrong. The ability for an investor to claim mortgage loan interest does give the investor a slight advantage but nothing like what labour are leading people to believe. If an investor paid an extra 10k it would cost an extra $500 a year in mortgage interest cost at 5%. To pay this amount as an investor you can claim the interest cost as a tax deduction which equates to a net cost of $165 a year less than the home owner. So clearly not a significant advantage. What people don’t realise is there is a large cost to supply and maintain rental property to tenants clearly labour are looking for votes and are prepared to impart their ignorance or mislead people to obtain them.
Another renovation completed, the first tenants to view have signed up leaving many disappointed applicants... We need more houses desperately as we have long lines of tenants wanting good quality houses to call home... don’t forget we pay for referrals.
Budget 2017 News
The government has announced some big news for New Zealanders in this years budget, here are some highlights that relate to rental properties.
Family Tax Credit
Increases the maximum credit for the first child under 16 by $9 a week, and for each subsequent child under 16 by between $18 and $27 a week. Also increases the abatement rate to 25 per cent, and reduces the abatement threshold to $35,000.
Increases the maximum payment rates for a two person household by between $25 and $75 a week, and for larger households by between $40 and $80 a week. Changes to Accommodation Supplement areas will provide further gains for some families.
Increases weekly payments by up to $20 for students to reflect increasing housing costs for students.
If you are wondering how this will effect rental accomodation call us we can help.
Property Manager Boot Camp
Just completed another training course... the learning never stops... always looking for better ways to do things here at BPM. Training courses are a great way to keep on top of whats new. This course is the property manager bootcamp put on by RentIQ.
Accidents and Maintenance
This month we have had allot of projects on including standard repairs and maintenance, renovations and accident repair. The photos below show a house in Hillsborough that had an out of control car come sliding through the front fence smashing the garden shed and moving it off its foundations. Although this kind of issue is rare it does happen and having an emergency plan in place helps get the property secure and liveable for the tenants. Having a property manager on the ground to rectify these issues will insulate the owner from a very stressful situation especially if you are out of the country on holiday.
Maintaining a property is very often forgotten about or conveniently over looked by many landlords and property managers... the reason for this is the cost of the getting the work done and the time spent arranging the tradesman can be a drag if you’re not very interested.
However if you keep on top of the issues and follow a regular maintenance plan you can minimise all the downsides as stated above. The longer you leave that leaking pipe the higher the cost to repair, the longer you leave that re -paint the higher the cost of repair after a while the job gets too big and the owner will get disheartened and sell at a discount.
Here at BPM we follow a maintenance plan for each and every property... during inspections we note down every item that needs work with a strong focus on getting them repaired as soon as possible. By following these plans diligently we are able to keep the properties looking great which makes the tenancy change over process move more efficiently as there is not much maintenance work needed to present the house at its best.
Renovation Project 2017 2nd installment
It took 2 weeks to remove the rubbish and "Leftover items" before the real work could begin.
The sugar soaping and demolition has begun.
These images are from "The Young Ladies Journal" which was a fashion supplement printed by The International News Company Broadway New York from 1864 -1920... it was an illustrated periodical that was marketed specifically to a young, female, middle-class audience. We have found these pages stuck to the inside of this Grey Lynn villa I assume as a crude attempt at insulation. It seems Grey Lynn has always attracted the fashion conscious even back in those days.
Renovation Project 2017
At this time of the year there are many property commentators looking into the crystal ball and making predictions on what lies ahead for us all involved with the market. Conversations like this can be exciting or terrifying depending on who you listen to. We here at BPM believe it will be another great year for long term buy and hold investors, so there you go relax and enjoy.
So now we know all will be fine... what do we need to do to keep the portfolio in tip top shape in order to maximise our current investments.
Yes renovation is your key to a maximised rental property or portfolio. You will demand the highest rent, the highest value possible should you want / need to sell, and get the best calibre of tenant for your area... so all in all it is a painful exercise that ultimately sets the property up for years of pleasure, growth and profit.
We recently started a renovation for one of our long term clients, we will post the before during and after photos here and on Facebook so we can all follow the transformation of this old Auckland villa as it happens. The house is situated in Grey Lynn it is a 4 bedroom house with off street parking. The house has been rented to the same group for the past 20 years for $350 per week. We intend to paint the interior and exterior, add a new kitchen and bathroom, also some landscaping basically give it a good tidy up and facelift. The new target rent will be $850 per week approx.
The "Before Photos"
Smoke alarms in your rental property
All rental properties must have working smoke alarms installed and in working order.
Sounds easy enough doesn’t it... however the devil is well and truly in the detail of this recent law change. Smoke alarms can be purchased from any supermarket or hardware store and relatively easily installed by anyone capable enough to climb a ladder and use a screw driver. Once installed make sure the battery is working then test the alarm works by pushing the test button, all good.
The problems start to arise when you start thinking about the "what ifs". Like what if there is a fire or what if someone gets hurt or killed as a result of the fire. If the unthinkable does occur then whoever installed and tested the smoke alarm will become part of the investigation by work safe and the ministry of business innovation and employment (MBIE). If that smoke alarm was incorrectly fitted or was not working at the time of the fire, the landlord or tenant will have a degree of responsibility to answer for.
The tenant has a responsibility to maintain the smoke alarm by making sure it has a working battery installed, if the tenant does not have a battery installed or removes it they become liable also and can be held responsible for damage costs.
The best way to deal with these scenarios is to have a robust policy and procedure in place to make sure you comply with the law and are satisfactorily covered in case of a fire or someone getting hurt.
We here at BPM have recently over hauled our system to incorporate the new laws on smoke alarms to make sure our owner / landlord clients are covered.
LVR Changes, Sales market slows what about rents?
The new Loan to value ratios came into effect in October 2016 which is the second round of changes to this area we have had recently, the first round took effect in 2015.
The new LVR regime means people investing in property will need a 40% deposit in order to buy a new rental house and owner occupiers will need 20% to buy a house to live in, the difference this year is that the changes will apply for the whole of the country not just Auckland.
There are some exemptions such as:
Anyone building a new property
Owner occupiers needing bridging finance
Owner occupiers and investors refinancing existing loans (provided the new loan does not increase).
This is a major speed bump for the market and will dampen demand and slow prices over the summer months. The changes will affect the younger investors or the more highly geared individuals the most however the ones with allot of equity will be in a good position to take advantage of the slower market and grow their portfolio.
The slower sales market will have the opposite effect on the rental market and we will see this area firm as less people can afford to buy a house to live in and there will be less rental houses available.
I think we will see rents rise over 2017 with a strong start to the year which is the rental markets strongest months.
Congratulations Adrian NZPIF Landlord of the year competition.
The property investor’s federation of New Zealand held its national annual conference in October in New Plymouth, We here at BPM would like to congratulate Adrian the company principal on receiving the runner up award. The land lord of the year is a very prestigious award and national competition that includes owner landlords from right across the country, the criteria for the competition is based around customer service, portfolio presentation, record keeping and profitability.
To be recognized amongst your peers and the Investors federation for all the hard work put into the operation makes us extremely proud.
Bray Property Management Joins LPMNZ
It is with great excitement we advise we have joined the Leading Property Managers Of New Zealand.(LPMNZ) is an elite group of property managers from across New Zealand who have regular meetings to discuss the industry and are an awesome support network for its members. All members follow the same code of practise that guides us in running better operations.
We here at BPM would like to thank REINZ who are the support network we have been with previously and wish them all the very best.
Further to last months post (Tenant Damage Who Pays).
The topic of Holler versus Osaki has put the residential tenancy industry into a state of worry as the court of appeal decided that residential tenants should have the protection of the property law act (The PLA is legislation that is there for the protection of commercial tenants). For more information please see our post from last month below.
A new development on this issue... The New Zealand Property Investors Federation (NZPIF) has approached central government to amend the Residential Tenancy Act (RTA) to be amended so that it cannot be interpreted by courts that the (PLA) overrides the (RTA) and that tenants are responsible for any damage they cause. This is a very logical idea from NZPIF and we here at BPM support it 100% we would like to thank them and in particular Andrew King for their hard work they have put in on the matter.
Tenant Damage Who Pays
One of the biggest fears of renting houses is that of tenants damaging the house in a major way. Yes this can happen however fortunately it doesn't happen very often. Recently there was an appeal court case that involved Holler & Rouse (Landlords) and the Osakis (Tenants) that appears to have changed the landscape in this area somewhat. The courts ruled that the tenants were not liable for the costs to reinstate their rented house after a kitchen fire caused by the tenants. The court used the property law act 2007 to come to their conclusion. The confusing part for many is why the courts used the property law act 2007 as this legislation is weighted towards commercial property when the Osaki case is residential. There is a difference between commercial and residential rental properties regarding insurance and who pays the premiums and till date there was a difference in the liability of the tenant. In the past insurance companies could pursue the residential tenant for the costs to repair however not in the commercial one.
The ruling has confirmed that residential and commercial tenancies will be judged the same in this instance.
So the Osakis got off the hook and we have quite a large grey area to deal with moving forward that will need time to be tested through more similar court cases.
Back to the "fears" or land lording e.g Damage, regardless of the above court case. The tenants are still responsible for malicious and intentional damage, the grey area now is around the careless damage. The above ruling means that for damage caused by accident or carelessly by the tenant these costs will be borne by the insurance companies and if any shortfall between what the insurance pays out and the cost of the repair this will be covered by the owner and not recoverable from the tenant.
The best way to guard against damage of any description is by thoroughly vetting tenants and carrying out regular inspections, this will limit your risk on damage costs.
The reserve bank has announced new banking restrictions that will come into force on September 1st 2016. Residential property investors will now be required to have 40% deposits to purchase rental houses throughout New Zealand. This has come as a shock to some as the reserve bank previously stated that if any restrictions did get implemented they would come into force later in the year, it appears the bank has succumbed to pressure from central government and acted way earlier than was expected as the prime minister mentioned he wanted action sooner rather than later on the matter of the Auckland housing market this act puts the whole reason for the reserve bank into question as they are supposed to be fully independent of the government.
The reason for the change in lending policy is the banks way of trying to dampen the high demand for residential property in not only Auckland but now the whole of New Zealand (from 1.9.16) by insuring investors need higher cash or equity deposits. I believe the banks attempt to restrain the demand for housing will be short lived if at all (In general terms) as the base line fact remains people need a roof over their heads so they will demand one and that puts the pressure on the market. As long as we have high net migration we will have high demand for housing, by restricting the money supply may affect the prices people can pay however the demand will remain.
Interestingly new builds of houses are exempt from the LVR restrictions as this activity is adding to the supply of housing. This point amuses me a little as it is effectively subsidising property developers... property developers were the scurge of society in the past and were run out of town around the GFC for their flashy lifestyles and greed from their profiteering ways. I wondered how long it would take for the bureaucrats / people to realise their mistakes, it has now dawned on people that without developers there are no houses being built, when no houses are built the demand for existing houses will surge especially when you have huge migration, it wont be long before society will be begging for the return of the developers, which is comforting to me when I hear the bad sentiment being put out there about investors, with out investors to provide rental houses what will become of the people that need a rental house.
The Health and safety work act (HSWA)
The property industry has had yet another major change to the way we do business with the implementation of the new health and safety act. Be it residential land lording or renovation and development that you undertake the rules will affect you. According to this countries track record of work related injuries and deaths we do not fair to well compared to other countries. The Pike river tragedy was a catalyst for change and the new act is the government’s response.
The new law makes it clear that everyone involved has a role to play in keeping the work place safe and prevents people from passing the buck.
Each person or entity involved in a project / job has a title that of a Person Conducting a Business or Undertaking (PCBU). A (PCBU) has a duty to ensure the health and safety of workers and others affected by any work they carry out.
A landlord or property manager is considered a (PCBU) and has a duty to ensure the health and safety of everybody involved with or affected by work on site.
For property "Owners" there is a degree of exemption , the definition of a (PCBU) does not include the occupier of a property e.g if you own or rent your house and need to hire a tradesman to carry out a project you are exempt from the responsibility of a (PCBU) as far as the act is concerned.
At BPM we have adjusted our systems to incorporate our new responsibilities of the act so we are well equipped to undertake our responsibilities for our owners.
Some sanity with water rates
Aucklanders have had many years of frustration with our water supplier Watercare. In particular with the way they charge for water / waste water and the fact that they will not deal with tenants directly.
Today Watercare have made an attempt to improve their system by allowing property owners to pay the fixed charge portion of the water bill up front on an annual basis, this will mean the monthly bills will not have to be amended and sent to tenants... the tenants can receive the bill and pay the full invoice. This amendment doesn't change the archaic fact that the landlord is still ultimately responsible for the account.
Drug Testing and contaminated houses.
Residential properties are at risk from drug users and Methamphetamine cooks like never before. Recently there was yet another article on the front page of the Herald newspaper of yet another unsuspecting victim of these criminals who have contaminated a perfectly good house. the house is so contaminated that the first home buyers that purchased the property cannot live in the house until it has had substantial decontamination work carried out. We here at BPM feel total sympathy for these people however for a fee of a few hundred dollars of the cost of a drug test during their due diligence phase would have saved many many thousands of dollars’ worth of clean up and possibly a good reason to cancel the sales contract which would have saved them the heartache all together.
An Auckland company that carries out testing of properties for meth contamination claims that 40% of "Tested" houses are contaminated to some degree with meth amphetamine residue.
There are very real health threats of living in a contaminated house with mainly lung and skin issues from breathing in the contaminated air of a contaminated dwelling.
Here at BPM we test all houses for contamination free of charge to owners that sign up for our fully managed service. All of our tenancy agreements have clauses inserted that hold the tenants responsible for any contamination. We follow a process of testing before, during and after each tenancy that will identify any issues should they arise.
This time of year is a good time to review your insurance, it is a subject that makes allot of people cringe which can lead to a tardy attitude to this very important subject.
BPM's number one rule is double check your house is in fact insured, we lead very busy lives so it is possible to forget about insurance especially on a rental property. In many cases as the property manager we do not have contact with the insurance for the houses as the owners prefer to look after this area themselves.
We recommend landlord cover on any policy for a rental property, in many cases we recommend the Real Landlord add on policy for added cover.
Here are some statistics from the industry over the past year.
The number of claims increased significantly last year. The most claims made were for Defaulting Tenants at 33% (this was also the highest $ value of claims) compared to last year when Absconding tenants at 35% topped the charts. Building Gap Cover claims (Intentional and or Illegal Substance damage) rose significantly in $ value encompassing 33% of total claims paid. Whilst the number of claims under this section of the policy was only 11% of claims made, you can see how costly they are when the property is harmed in some way.
By looking at these stats some of the numbers are not surprising, however the one that should catch your eye is "Illegal substance damage" this area is a growing problem with the growth of methamphetamine use. We here at BPM saw this coming many years ago and have been proactive in testing our owners properties for contamination before during and after each tenancy we also have the correct clauses in our agreements that help protect our houses from these tenants. We believe this strategy has saved our owners a great deal of stress and money in helping to avoid tenants that intend on abusing properties in this way.
Towards the end of 2015 a raft of changes to the property industry have occurred.
The changes have all come from central government and the reserve bank by way of the "Bright Line Test" and the equity percentage threshold for investor loans.
The bright line test ( A clearly defined rule) is a tax law change which means anyone who buys and sells a property within two years is liable to pay income tax on the capital gains. This new or altered law has made it easier for the tax department to determine who should pay the tax as under the previous law the tax was always payable if the "Intention" was there to buy and sell at a profit, however it was difficult for the IRD to determine the intention hence the reason for the law change and the purpose for making it a "Bright line test" or a "Clearly defined rule".
The Auckland property market has seen very strong growth over the past few years, such growth has spooked many including the government and the reserve bank. The decision was made to rain in the market by implementing changes to the debt to equity ratios of first home buyers to 20/80 several years ago and 30/70 in October 2015 for investors.
The changes discussed above have dampened the market as expected and will continue to do so for the first part of 2016.
The rental market is strong and will continue to build as immigration is very strong, housing supply is tight also with the new tax and finance rules many people will be forced or choose to rent through this period.
For us here at BPM the year is off to a busy start as the early part of the year is when people are flooding back from holiday or getting ready for the new year at University, all wanting to get their accommodation sorted. This means premium rental prices and a good pool of quality tenants to choose from.
Insulation for rental properties
The government has announced that legislation would be developed making it compulsory to provide insulation in rental properties. Their reasoning behind this is to make housing healthier and safer for the occupants. The residential tenancy act will be amended as part of this law change.
1st July 2019 will be the date this legislation comes into effect if passed.
Again if passed into legislation from 1st July 2016 landlords / Managers will be required to state as part of the tenancy agreement the extent of insulation in the ceilings, walls and floors of the dwelling for all new tenancies. Currently this is still a proposed change with nothing confirmed as yet so watch this space.
Initially the changes will be implemented in the "Income related rent" and community housing suppliers sectors then through to all rentals at a later date.
This post will be updated with more details as they come to hand.
The property boom.
Those of you that have been clients, friends, family or anyone that I have met that like to discuss property have herd my commentary on the Auckland property market going way back. My position was to expect the biggest boom in history in the mid-2000s followed by the biggest correction, we had the same discussion in 2013 with several clients who said then that it was the time to sell as the market is to high, I urged them to hold as it was just the start of the biggest boom in history. So suffice to say the years since 2013 have been phenomenal in terms of growth of values and rents. The outlook has now changed in my view, especially since 1.10.15 the new finance rules for investors and especially the offshore investors have changed making it harder to obtain finance. In addition to that we are in year 7 of the cycle so we are right in the zone for the next correction. This event is nothing to fear on the face of it, it is something to look forward to as it is a time of great opportunity to purchase providing you have cash flow. The team here at BPM are very focused on building cash flow for this very reason (and retirement) so tread carefully in the coming months there is a change in the wind.
Auckland Properties are too expensive and its the governments fault.
This subject has been discussed in the media almost daily and almost everyone else for that matter, the prices of a house in Auckland are just crazy and far out of reach for more and more kiwis, its an absolute disgrace ... and... its the governments fault. This line of discussion has had me intrigued for some time especially the amount of time I hear "Crisis" "Too expensive" "Its the governments fault" "Rich Asians are the ones buying" "FAULT" "FAULT" "FAULT" what do you mean "FAULT" the fact that prices are growing is the best news we could hope for in so many many many ways, this is what we as property owners and investors hope and prey for, work hard for, take extreme risks for, the fact the house prices are growing is great news. Imagine what people would say if house prices were dropping who would they blame then... you guessed it the government and those greedy investors bailing out on New Zealanders. I remember when I started on my property investing journey house prices were so expensive then that I couldn't afford to live in the house I had just bought so I had to rent it out, I had spent my whole life working and saving for the deposit to eventually make a purchase. The moral of the story is that it has never been easy to buy a house and has never been cheap, to invest in property sacrifice is unfortunately needed.
Bray Property Management launches new website
After months of web development we launch our new look website today. We wanted to freshen up the look and feel of the site to better communicate our brand and product. We believe we have achieved a simple design that is easy to navigate and find the necessary information our customers need.
Thanks to the many clients for your on going support.