Innholdsfortegnelse for July 2019 i NZ Property Investor

Fevered anti-property investor emotions have been a prominent feature of this property cycle. At the peak of the market, investors were vilified as responsible for the sky-rocketing house prices which were keeping first home buyers out of the market. They were also widely maligned as slum landlords forcing tenants to live in unhealthy, overpriced properties. Despite the best efforts of investor advocates to rebut them – as well as the market slowdown – it appears these investor-hostile perceptions remain firmly in vogue. A recent NZ Herald report on the GRA Property Leader’s Event at the end of May is a striking example of this. The article covered the event in a determinedly negative fashion. Its intent seemed to be to present investors as money-grubbing and out to exploit tenants. It…

1 Don’t count on a market upturn It’s been a spectacular run for the market but this property cycle has done its dash and recent positive developments aren’t likely to cause a major upturn, one top economist says. 2 Riding out the cycle Fasten your seatbelts – the market is heading to the bottom of the cycle, but one property expert says that serious investors shouldn’t panic if prices fall. 3 What landlords can’t ask tenants Think you know what you can ask a prospective tenant? It might pay to check out the Privacy Commissioner’s new guidelines to see if what you are asking really is acceptable. 4 Gloomy expectations around super city Auckland house price expectations have turned negative for the first time since 2009 with a new ASB…

Our view is that mortgage rates will stay low for the foreseeable future, but they are unlikely to drop much further. It is reasonable to expect to see rates with a “3” in front of them out to a three-year term and short-term rates could go lower, but we see a natural floor around 3.50% no matter what happens to the OCR. The Reserve Bank recently reduced the official cash rate from 1.75% to 1.50% and there is the distinct possibility that rates could drop further. Banks didn’t pass on the full drop, with floating rates only reduced by 0.10%- 0.15%, and fixed housing rates fell in advance of the drop in the OCR, also by about 0.15%. In this article we’ll explore why the full rate decrease didn’t get…

After several months considering over 250 submissions, the Finance and Expenditure Committee has reported back to Parliament on the loss ring-fencing rules. Reflecting the fact that the original draft was somewhat of a shambles, they have thrown that out and started again from scratch. Readers may think that this would mean there are a raft of changes as a result. In fact, that is not the case and the substance of the proposals remains almost entirely intact – only this time the legislation is less of a shambles. To recap, the key aspects of the ring-fencing rules (that remain the same) are: • Date of application is still from the start of the 2020 income year, which for most means from April 1, 2019. • The rules apply to residential…

With so much development experience under their belt, Jessica Driver and Thomas Ward offer their top tips for completing a successful development. FEASIBILITY: Do some high level numbers on your potential development. What’s the cost of the development? What’s the return at the end? ASSESS YOUR SITE: Know what to look for when you’re assessing a site for development. There’s a whole lot of things to look out for: location of underground services; waste water; what’s the road boundary width? What are the zoning controls? Make sure you understand your height-to-boundaries. Are there street trees in the way? Is it a flat site or sloping site? “There are so many things to look out for, for example if you don’t realise that your stormwater connection is 50m up the road…

Tales of chaotic residential tenancies and destroyed rental properties abound. Given the supposed carnage, the average punter could (almost) be forgiven for thinking that tenants are simply plonked in rental properties without any oversight at all. In reality, that’s simply not true. In 2018, Stats NZ put the number of rented houses in New Zealand at 625,900 and the vast majority of the tenancies within them take place in relatively orderly fashion. That’s because any good landlord knows that purchasing a rental property is just the first step in the investment. After the initial purchase come the joys of running a rental property. This involves everything from tenant selection and management to regular maintenance and repairs. Key to the success of an investment is effective property management. But there are…

A great many New Zealanders are all too familiar with the experience of living in a cold, damp house. “Weeping” windows, clothes, bedding and upholstery that are moist to the touch, and air that simply never feels dry: these conditions have long been tolerated. But that’s changing now. There’s growing awareness of the havoc damp living environments can wreak on people’s health. One University of Otago study suggests that up to 1,600 New Zealanders die each year due to health conditions arising from cold, damp houses. This has played a big part in the drive towards warmer, drier homes and the introduction of the Government’s new Healthy Homes minimum standards for rental properties. Along with insulation and heating, ventilation is a key part of the standards. So in this article,…

The Government has recently floated its thoughts on the introduction of a digital services tax in New Zealand, and put a discussion document out for public submission. The tax is targeted at multinational organisations who derive revenue by selling digital services that are consumed in New Zealand. Because the entities deriving the revenue are headquartered overseas (and in low tax jurisdictions) very little tax on the revenue derived from New Zealand is paid here. The problem is not unique to New Zealand; countries around the world are recognising the issue and seeking ways to extract tax revenue from digital service providers. Digital services revenue will likely include advertising revenue and commissions derived on services sold in New Zealand. Of particular interest to property investors is the operation that derives commission…

It is an interesting time in the property cycle at the moment. So much so that some are saying things are going to crash and burn, while others like me think it is going to tick away pretty well sideways for the next one to two years with small ups and downs, but the downs are certainly nothing to get concerned about. Well not in my humble opinion anyway. Then I read an article that foresaw significant gains happening in property values over the next four years. So who do you listen to? Well, I am always wary of articles or in fact any media comments. I always think before I read an article: “What’s the writer’s agenda?” I don’t mean there’s always an agenda, but far too many times…

THE DATA Rental data is sourced from the Ministry of Building, Innovation and Employment (formerly the Department of Building and Housing) based on rental bonds lodged. This rental data is supplied to us, grouped into geographic areas based on statistical area units used by Statistics NZ for the census, and as a result do not always match well with common usage suburb names. The rental data for each area is matched to house price information from our database to determine property prices and therefore yield. The yield is calculated as the annualised rental income divided by the median house value calculated using our E-valuer. MARKET COMPOSITION The Mid and South Canterbury rental property market is dominated by houses, with a handful of flats but no apartments. Of the 432 properties…

As many of you will know, the Privacy Commission recently decided to design and publish what landlords could and couldn’t ask prospective tenants when looking to let out a property. Despite being just guidelines, it is likely that the Tenancy Tribunal will give the Commission’s ideas considerable standing. Some aspects are reasonable however many are not. It is unfortunate that they didn’t consult with the industry before coming up with their guidelines. The guidelines are divided into three sections: questions that are always justified; sometimes justified; and almost never justified - which will effectively mean you can’t ask the question. In the guidelines, while it was justified to ask if the tenant had pets, it was only sometimes justifiable to ask if they smoked. Why the difference? There are some…

REINZ HOUSE SALES: DOWN Sales volumes both nationwide and in Auckland were down year-on-year in May. However, both national and Auckland sales in May were up on April. INTEREST RATES: DOWN The Reserve Bank’s recent OCR cut continues to fuel the mortgage rate war and banks just keep cutting rates. Commentators say a long-term low rate environment is now at play. OCR: DOWN The Reserve Bank cut the OCR to a new record low of 1.5% in May, after shifting to an easing bias in March. Economists believe another cut will come in this cycle, but they remain divided as to when. IMMIGRATION: UP Migration data remains volatile. The data for April shows that the level of annual net migration remains high. But commentators still expect migration flows to trend lower over the…

MATTHEW GILLIGAN Matthew Gilligan is a property investor, developer and tax adviser. He is managing director of chartered accounting firm Gilligan Rowe & Associates, where he heads the specialist property and asset planning divisions. BERNARD PARKER Bernard is principal of Quinovic – Kapiti-Mana. Quinovic’s outstanding people and systems provide the most professional, effective and reliable residential property management service in the NZ market for over 26 years. www.quinovic.co.nz KRIS PEDERSEN Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. Phone 09 486 4719, www. krispedersenmortgages.co.nz JENNIFER SYKES Manager, Information & Education, Housing & Tenancy Services at Ministry of Business, Innovation and Employment (MBIE). MARK WITHERS Mark and his team specialise in advising on property-related transactions, valuation and restructure services, and…

Awesome! You’re ready to buy an investment property, either your first, or maybe in an area you haven’t purchased in before. You’ve done your homework, have your finance lined up, all the correct tax structures in place and the best possible property accountant/ lawyer on your side. After hours spent poring over location statistics and religiously opening all the property market related emails that come your way, you feel ready. You’ve read the books, been to the seminars and are ready to pounce on the first amazing deal that meets your goals. Or are you? It’s been said that property can bring out the best and worst in each of us, and while most of us know the nuts and bolts of getting ready to buy (finance, structures, etc), most…

I’ve been involved in property investment for about 25 years now and the property management industry since 2004. Back in 2004, property management hadn’t really taken off here in New Zealand like it had in the likes of Australia. It was a case of “flying by the seat of your pants” – but that’s all changed now. It would be fair to say that residential property investors and property managers have seen more change in the last couple of years than in all the time I’ve been involved in property management. Each month I write a short newsletter for the Propertyscouts offices throughout New Zealand to send out to our owners. There was a time when I struggled for content but the last couple of years have provided lots of…

JULY THE WINDOW OF OPPORTUNITY IS NOW  July 27 Doors open at 9:00am for a 9:30am start, finishing at 2pm, Five Knots, 30 Tamaki Drive, Mission Bay. Register at www.ronovationz.com PROPERTY INVESTOR NIGHT  July 1, Christchurch, July 2, Auckland, July 8, Napier, July 15, Tauranga, July 22, Auckland, July 23, Dunedin, July 29, Wellington and Hamilton.   Free to attend. Book at www.positiverealestate.co.nz/NZPI For more information about listing your event, please contact Lisa Wise lisa@tarawera.co.nz. Last date for entries for August 2019 issue, July 11.…

There’s plenty of horror stories about the chaos that can result from the Illegal sub-letting of a rental property by a tenant. And, in many of them, the landlord has little chance for recourse as their tenancy agreement didn’t prohibit it. If a tenancy agreement does feature a “no sub-letting” clause, the situation can be starkly different. A recent Tenancy Tribunal decision, Barfoot & Thompson v Syed [2019], provides a spectacular example of this. Acting for the landlord, Barfoot & Thompson rented a Mangere East property to Zain Syed from July 20, 2018 to January 20, 2019, at a weekly rent of $500. In the tenancy agreement it stated that the tenant couldn’t sub-let the property without the landlord’s permission. However, between August 16 and December 6, 2018, Syed sub-let…

The ring fencing of tax-losses and the prospect of lower capital growth brings us back to the importance of cash flow. Luckily mortgage rates are now at an all time low, making that job easier. What strategies can you pursue to improve your cash flow? One way is to renovate to increase rents. If you can get a yield of over 10% on every dollar you spend then you’re getting ahead and still keeping the bank happy. That could be something as small as spending $5,000 to increase the rent by $15 per week, through to a minor dwelling for $200,000, adding another $500 per week. Is it time to sell a property and repay debt to get your properties cash flow positive? Holding a negative cash flow property that…

Since the Reserve Bank cut the Official Cash Rate (OCR) last month by 25 basis points, we have seen further drops in interest rates – particularly the fixed one, two and three-year rates. It was only a couple of months ago when interest rates were sitting on the fence see-sawing either slightly below or slightly above the 4% mark. Interest rates are now sitting solid at sub 4%. This makes interest rates even lower than the ‘slashed’ rates during the Global Financial Crisis. And there is still plenty of room for the RBNZ to cut rates further and it won’t hesitate to do so if needed, to stimulate inflation. The general view is that central banks will continue to cut rates in several markets, including New Zealand, Australia and the…

Finding Properties: There are many ways you can find properties that are, or could be for sale. These range from the traditional newspaper ads and real estate agents to cold calling and placing ads yourself. Just because a property doesn’t have a ‘For Sale’ sign outside it doesn’t mean there won’t be a motivated vendor lurking within, or somewhere nearby. Successful property investor and mentor Ron Hoy Fong has built an impressive portfolio and has a wealth of investment strategies and wisdom to share with you. For information on his mentoring programmes call Ron today. Ron Hoy Fong | 021 888 298 | www.ronovationz.com…

With banks reluctant to lend on unusual properties, peer-to-peer lenders can often provide a solution. According to advisers and developers, P2P lenders including Squirrel and Harmoney have experience financing relocatable homes. John Bolton, chief executive of Squirrel, says the firm’s P2P arm has seen plenty of demand for relocatable home financing over the past few years. He says his firm treats tiny homes like vehicle loans and can lend close to full value. “We do tiny houses and can lend up to $70,000 on those. We treat them as a vehicle loan where the tiny house has wheels and is a legal trailer. They usually cost around $90,000 so buyers need to find some of the funds themselves.” Bolton says P2P providers can also fill the lending gap for non-standard…

As property owners, it is not uncommon to occasionally notice minor damage to our houses, such as cracking to exterior cladding or internal wall and ceiling linings. Most of the time this damage is cosmetic and is of no real concern, as a “lick of paint” can normally remedy the situation. However, there are times when observed damage to houses can be indicative of a more serious problem, such as on-going differential foundation movement. The damage associated with differential foundation movement can be extensive and can undermine the value of our assets. Tell-tale signs of foundation/floor movement may include the following: 1. Stepped cracking through brick veneer 2. Tapered cracking through concrete foundations 3. Cracks in concrete floor slabs 4. Significant cracking in ceiling and wall linings 5. Noticeable floor…