Innholdsfortegnelse for April 2020 i NZ Property Investor

This is not the editorial I thought I’d be writing. Once again. At this time last year, my editorial looked at the Christchurch mosque attacks, rather than the then present threat of a capital gains tax. This year, it will focus on the Covid-19 crisis, rather than the Government’s looming tenancy law reforms. In line with this, the magazine itself looks somewhat different to the one we had initially planned for April. As the Covid-19 outbreak spread and intensified, Government moves to contain it ramped up, and the serious economic impacts became obvious, we realised it had to be addressed. So, at the last minute, we changed our lead article to cover – as best we could, given the rapidly evolving situation – what Covid-19 might mean for the housing…

1 ASB slashes house price forecasts House price growth will drop away to zero over the coming year, according to ASB who have cut their forecasts in response to the coronavirus crisis. 2 What coronavirus means for property investors Welcome to Fortress New Zealand. The coronavirus crisis means that strict travel bans are now in force and a recession is expected. So what does that mean for property investors going forward? 3 On the brink of a crisis Proposed tenancy law changes, which come in an environment of rental shortage, are on the brink of creating a low socioeconomic rental crisis. 4 Removal of no-cause notice opposed by 45% of tenants It’s not just landlords who are opposed to the removal of the no-cause 90-day notice: a new REINZ survey…

In our evolving interconnected world, coronavirus has become the perfect tabloid media clickbait. It plays straight into our anxieties and fears. We are lemmings with an inherent magnetism towards mass hysteria. The unknown and the risk in what is happening, is human behaviour. Economies are driven by confidence. Here in New Zealand the early impact was on forestry - specifically logging. The Chinese simply don’t need logs right now and New Zealand forestry owners have had to stop harvesting and retrench their crews. Supply chains have broken down and it has become harder to export. The economic impact of Covid-19 quickly moved into tourism with a dramatic slow-down from China and then the whole tourism market. Nobody wants to jump on long haul flights and New Zealand is not a…

Readers will by now be well acquainted with the minimum standards under the Healthy Homes regulations. Rather than discuss what landlords need to do to adhere to these standards, this month I want to address the debate as to the tax treatment of costs incurred in doing so. In recent weeks the IRD have issued a draft statement for comment and discussion setting out their view. I am sure no reader will be surprised if I say that the IRD have proposed a relatively conservative viewpoint with a fairly narrow view of what costs will be deductible. By way of summary, the IRD see the following types of costs as deductible. • Repairing existing items that would otherwise meet the standards if operational or in reasonable condition. • Minor additions…

• Stick to your rules! Know your minimum profit. “My rule is a minimum $40,000 profit before tax on an easy flick.” • Stick to your team and keep your circle small – if you look after your agent they’re far less likely to sell you a lemon. • Lauren doesn’t like to own a basic trade for more than three months: “The reno needs to be $40,000 to me for every one month of reno time, so if it’s a straight-forward reno, one month is plenty.” • Lauren sticks to cosmetic trades – “but rules are made to be broken and I will try something else as these cosmetic ones get harder to find”. • She doesn’t do anything that needs council approval, due to the time delays on…

• Find undervalued properties, do your due diligence and, if there’s an upside you can utilise over the next two to three years, buy it. • A successful commercial investment is very much about its location. High yields are good but a great location is more important in the end. Because it means it is more likely to stay tenanted, the rent will keep coming in and that makes for a more peaceful sleep. • Check out new build properties. • It is critical to do extremely comprehensive due diligence which covers leases, tenants and their business, NBS rating, the area going forward, and so on. • Understand your finances. Remember with commercial it is harder to get finance and you need to renew loan terms more often. Also, be…

It has often been considered that the role of trustee of a trust is an onerous one, with trustees exposed to liability claims by beneficiaries if financial decisions don’t work out. This has led to increasing reluctance by professionals to offer themselves up as trustees, and as a consequence, the governance of trusts has deteriorated. The situation is set to worsen with the introduction of the new trustees’ act, which comes into force in January 2021. Trustees should now be considering the requirements of the new rules to ensure they can meet new obligations under the changes. The legislative changes are aimed at ensuring that trust administration is more transparent for beneficiaries. The cloak of secrecy that often surrounds trusts is set to be ripped off. In some cases, we…

Well what a few weeks we have had, even a day at the moment can make such an amazing change around the world, and even little old New Zealand is a part of it. So what does it mean to us investors reading this article? Well who knows, there are so many variables and twists that are yet to come, I am sure. Even between now, when I write this article, and when it is published there will be developments - I could be left with egg on my face! So the below is simply my take on things now, and I have tried to look at facts to base this on. As I write this article, there is a shortage of property in most parts of the country. Even…

The Wellington Property Investors’ Association (WPIA) also covers Lower Hutt. It holds meetings in the last week of every month from February to November. The WPIA meets at different venues around Wellington. Meetings are free to members, but non-members must pay a $30 door charge. For more information go to wellington.nzpif.org.nz or email wellington@nzpif.org.nz. The Capital Property Investors Association (CPIA) operates in Lower Hutt too. For more information on the CPIA and its events go to capitalpia.org.nz or email capital@nzpif.org.nz.…

1 AVALON An up-and-coming area, Avalon is close to Central Hutt and motorway access, while still being affordable. Investors can expect great returns from this area. Rents are currently averaging $495-$595, and have increased by 25% over the past three years. 2 STOKES VALLEY, NAENAE AND TAITA There’s money to be made here. Slightly further away from the Hutt centre, housing is significantly cheaper, making it an achievable area to start or continue growing your portfolio. These suburbs have great investment potential for investors willing to take the plunge. Rents are currently averaging between $450-$520, and have increased by 19%-26% over the past three years. 3 BOULCOTT Boulcott is one of Lower Hutt’s most prestigious suburbs. Proximity to the hospital places high demand on rentals in this area, which can’t…

NORTHLAND NEXT MEETING: Postponed due to Covid-19 lockdown. MEMBERSHIP: $180 single or $210 couple; includes subscription to NZ Property Investor and NZPIF discount card, plus local trade discounts. Please email npiacontact@gmail.com for more information. PO Box 1640, Whangarei. AUCKLAND NEXT MEETING: Postponed due to Covid-19 lockdown. MEMBERSHIP: APIA memberships start from $75 and can be purchased on www.apia.org.nz/join. Full memberships include a free subscription to NZ Property Investor, networking opportunities at over 100 events throughout the year, an excellent discount card, free subscription to APIA TV, and much more. For more information visit www.apia.org.nz or email admin@apia.org.nz. WAIKATO NEXT MEETING: Postponed due to Covid-19 lockdown. MEMBERSHIP: $260 for single and $350 for joint memberships. Includes subscription to the NZ Property Investor, plus NZPIF and local discounts. Ph 07 838 9201…

APRIL PROPERTY INVESTOR NIGHT Ellerslie, Auckland, April 1; North Auckland, April 2; Christchurch, April 7; Tauranga, April 8; Dunedin, April 21; Hamilton, April 28; Wellington, April 29. 6.30pm. Free to attend. Book at www.positiverealestate.co.nz/NZPI PROPERTY INVESTMENT & EDUCATION SEMINAR April 2 Newmarket, Auckland, 6.45pm. Hosted by Gilligan Rowe & Associates. Free to attend. For more information and to register: https://www.gra.co.nz/property-investment-seminars RONOVATIONZ PROPERTY SEMINAR April 29, 6pm-9pm. Free to attend, includes lunch. For more information visit https://ronovationz.co.nz/seminars/ INVESTING IN APARTMENTS May 17 9am - 5pm. Tickets $47 available at www.granthoey.co.nz. For more information about listing your event, please contact Lisa Wise lisa@tarawera.co.nz. Last date for entries for April 2020 issue, April 6.…

Q I’ve been advised by the local council that we have a water leak. This has been investigated by our plumber. The problem is that it’s under the concrete floor so it will be a major to fix. Can we give 90 days’ notice to our tenants? Or can the house be classed as unliveable to get the tenants to move out faster? Note that they will have no bathroom or kitchen while we find the leak and fix it. We are happy for the tenants to move back after the repairs and we will be asking them if they have a possible place to stay while the leak is being repaired. A You will need to confirm how much time you will need to have the repairs done. This will indicate…

Best House, Worst Street Strategy: Look at the best house in the street, establish its Market Value and Rental Value; then look for the worst house in the street (a property of similar nature) and negotiate on the basis for a discount. After a renovation, the value of the worst house will increase to a similar value as the best house. 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…

As I write this the Government has just announced a $12 billion aid package to help Kiwis and business owners through the economic impacts of Covid-19. On March 16, the RBNZ slashed the OCR to 0.25%, a historical low. 48 hours before that, it was announced that all international arrivals would need to self-isolate for 14 days, effectively ending international tourism in the immediate term. I don’t know what will have happened by the time this article is printed, of course. Things are moving fast. We now live in interesting times. I was on the 12th floor of a building in Tokyo when the March 11, 2011, earthquake struck off the coast of Japan and the feeling of tightness in the back of my neck while sitting at home watching…

Insulation has been a hot topic in the New Zealand rental market for years. But heating is another element of the Healthy Homes Standards that requires swift action from rental property owners. Although private rentals have until July 2021 to comply with the heating standard, in my experience, planning early can only be a positive. In 2019, the last-minute rush to meet insulation requirements resulted in a shortage of insulation materials and, for many, a failure to meet the deadline. Start your planning now so you can avoid unexpected drawbacks and consequent penalties. SETTING THE STANDARD Investment property owners across the country have felt that the new regulations paint them as the “bad guys” in the landlord-tenant relationship. In over a decade of property management, I’ve found that property owners…

NATIONAL RENTAL PRICE MOVEMENT This map represents change in the average rental price between the months of February 2019 and February 2020, based on figures from the Ministry of Business, Innovation & Employment. RENTAL SNAPSHOT Median house rents of the dominant dwelling type for the area EXPLANATION OF STATISTICAL TERMS No. of Properties: Total number of residential properties No. of Bonds: Total number of bonds lodged in last three months Median Rent: Weekly rent based on the bonds lodged in the latest three months Rent Quartile Range: Inter-quartile range of weekly rent based on the bonds lodged in the latest three months Median Value: The median value of properties in the group based on estimating the current market value of each property using our E-Valuer at the end of the…

Tenancies War spokesman Mike Butler says the Government should not push through its “radical changes” to tenancy law under the cover of the Covid-19 scare. “Not only do the measures penalise New Zealand’s 290,000 private landlords, many of whom might consequently sell, but they will immediately make it tougher for around one million renters.” That’s because fewer private rental properties will increase demand and raise rents further, getting rid of threatening, anti-social neighbours will take at least three months, and it will be harder for tenants with a tarnished credit or rental history to get a private rental property The Government should put the legislation on hold but, in the meantime, it was critical for landlords to speak out, he says. There was some political support for halting the progress…

REINZ HOUSE SALES: UP In February, sales volumes nationwide were up by nearly 10% year-on-year while in Auckland they were up by over 40% year-on-year. Nationally, sales numbers were the highest for a February in four years and in Auckland they were the highest in five years. INTEREST RATES: DOWN The Reserve Bank’s emergency OCR cut in March was passed on by the banks. Rates are now dropping to unprecedented new lows and the situation is unlikely to change in the near future. OCR: DOWN Prompted by the Covid-19 crisis, the Reserve Bank made an emergency 75 basis point cut to the OCR in March. This took it to a new record low of 0.25% - and it’s set to stay there for at least 12 months. IMMIGRATION: DOWN In a bid to…

What a time to be a borrower, with the lowest rates the country has ever seen. March was the most interesting month in the interest rate market in recent years. We saw a reduction in the OCR on March 16, from 1% down to 0.25%, which is a drop of 0.75%. This is the largest drop since 2009, and was outside of the usual cycle of OCR reviews – it was supposed to occur on the March 25, and was expected to be between 0.25% and 0.50%. This new OCR level has been committed by the RBNZ for the next 12 months. Multiple lenders have come out with reduced rates – from floating rate drops (major banks dropped their floating rates accordingly by 0.75%), with most banks now around the…

• Get a good team of people around you – a good lawyer and accountant who are property investors themselves. “Lawyers can kill deals if they don’t know what you’re trying to achieve and they’re too cautious. Get someone who can keep you safe, while still moving you forward.” • Stop reading books and actually do something. “You will lose money, everyone loses money, especially if you do it for a long time.” • Before you buy something, look at at least fifty properties in the same area – pick a small catchment area and a certain type of house, “say, three bedrooms with a garage. And then go and see as many of those as possible – then you’ll know what a deal looks like”. • Do as much…

• A multi-unit, retail block in the Waikato. It has 670m2 floor area and four tenancies. Purchased in 2016 in the low $600,000s. It was Mehra’s first commercial property investment and remains his favourite. After renegotiating the leases and doing some fix-up work, it has recently been revalued. It is now worth well over $1.1million and has a net yield of 10%+ (on the original purchase price). • Two retail shops in the Waikato, which Mehra purchased with a friend. They have a combined floor area of approximately 190m2 and two tenancies. Mehra bought them in 2018 for a price in the low $500,000s. They are now worth over $600,000. Current yield based on the purchase price is over 6%. • A 229m2 retail property in Mt Albert in Auckland.…

The anticipated economic fall-out from the coronavirus will likely cause structural change in many industries. Property investment will not be exempt. However, over the medium-term, property investment will likely become more attractive to the average Kiwi. Why? Because lower and lower interest rates make some asset types more profitable and others less lucrative. As interest rates decrease, keeping cash in a term deposit becomes less attractive. In contrast, leveraged income-producing assets become more profitable. LET’S DIG INTO THE NUMBERS In mid-March, the Reserve Bank of New Zealand cut the official cash from 1.0% to 0.25%. That’s a massive 75% cut. Two days later, ANZ cut their one-year fixed interest rate on lending to 3.05% and decreased their one-year deposit rate from 2.6% to 2.35%. Not satisfied with the level of…

New Zealand is blessed with stunning natural beauty, and being an island, a large proportion of our country is coastal. Some of the prime sites in the major centres and other holiday areas are sites that are close to the sea. This coastal land, because of its location, is typically very sought after (and therefore expensive!). However, there are geotechnical hazards that are normally associated with coastal land, which purchasers need to be aware of. The land is continually being battered by erosional forces, such as wind, rain and ice. These forces have been eroding the land for millions of years, and have resulted in the formation of many of the soils in New Zealand. The erosion process for steep sites is often accelerated by land slippage, typically caused by…

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 Lower Hutt’s rental property market is dominated by houses, with only a handful of flats and apartments in a few selected suburbs. Of the…

‘If these proposed changes to the Residential Tenancies Act are implemented, these people will have no hope of making a go of things and will always be put in the bracket of a marginal tenant’ Currently landlords and rental property managers often use a fixed-term tenancy as a trial period for a tenant. If the tenant is suitable, they then let this roll over to another fixed term of usually a year or a periodic tenancy, where there is no end date. However proposed changes to the Residential Tenancies Act Amendment Bill 2020 will mean that a fixed term automatically rolls over to a periodic tenancy. The requirements for removing the tenant after the end of a fixed-term tenancy are itemised in the Bill and are not as flexible as…