Blog: The Landlord says...

They say a week is a long time in politics, but clearly the same can be said for the property market. On Sunday one of the papers had another doom and gloom story with one of the most stupid suggestions imaginable.

If you’re selling your house, drop the price 20% and you will get a flood of buyers. Yeah – no doubt you will, but why give away 20% of its value? If it’s priced appropriately you don’t need to.

Next it went on to extol the virtues of tenders as the buyer has to nominate a price.

Well, tenders and auctions are fine. My experience here is that the theory is great but the reality is that it doesn’t work. Having watched quite a few auctions in recent months it is clear bugger-all is sold under the hammer. The most likely to sell are mortgagee properties as the bank just wants whatever money it can get.

Tenders are an alternative. Again it seems to me potential buyers just don’t like this method of selling. Unless they absolutely fall in love with a place and are prepared to pay a silly price then the likelihood of selling this way is low.

My take on the market at the moment is that if you want to sell a property, put a price on it. The market is far too skittish at the moment and vendors are too uncertain on what the value of a property is to make up prices themselves.

The other piece in the papers which caught my attention was the lead story in the Herald: Now’s the time to buy a house.

I loved it, not just because it echoed what I have been saying, but because it is right. If you have some money and are happy to invest in property, rather than shares, corporate bonds, bank deposits or something else, then consider property.

The market is near the bottom, money doesn’t get much cheaper than this, and over time prices will recover.

I’ll be watching this weekend’s media to see if they all get on the bandwagon and start preaching now is the time to buy.

In one of the more significant moves for property investors, the government is planning to change to Residential Tenancies Act (RTA). This act is considered the bible of property management and affects everyone, investors, landlords and tenants. What do you think of the proposed RTA amendments?

I have read about the proposed changes to the act and am relieved that the present government is considering amending some of those proposed changes that were unfair to landlords…

Just one thing that I believe the government is now thankfully considering to leave as the status quo: letting fees charged by agents. I endorse the status quo for a number of significant reasons, especially the huge implications it could have on the letting market with regard to landlords, especially in a tenant’s market. The issue runs far deeper that a new financial cost to landlords.

Without going into lengthy detail..quite simply, it would dramatically skew the residential rental market and empower letting agents and property managers at the expense of landlords, especially those private landlords such as myself who do all their own letting.

I wish the status quo to remain, without me being ‘forced’ to enlist the services of a letting agent during a ‘rental downturn’ in order to find a tenant. Quite simply I would not be able to compete with letting agents and the increasing numbers of private landlords like myself who have come to the realisation that they have to now enlist their services.

I have excellent, stable long-term (fixed-term) tenants and through my selection processes want it to remain that way. That has frequently not been the case when I have enlisted the services of letting agents (and property managers) and I want the freedom of choice to remain.

Were landlords required to pay the letting fee, I would envisage a number of them would exit the market, once the full implications of this change was apparent in the marketplace.

Let’s hope the NZPIF is strongly supporting the status quo, and its largely private landlord base, with regard to this proposed amendment..
Regards,
RAG

I do not agree with the idea that letting agents cannot charge a fee for their services rather than the current situation where tenants usually pay.

Having to pay another letting fee should deter tenants from just up and leaving one place and moving to another one especially if the rental is furnished. In theory people could keep moving round as often as they liked, just transferring their bond as they go.

However, having said that, I believe market conditions will determine whether the tenant or the landlord pays the letting fee. I rely on my letting agent to advise on the response to advertisements for any vacant properties and whether the fee should be negotiable.
BKD

Having seen the goal posts move rapidly because of Tenancy Tribunal clerks’ differing interpretations of the tenancy act, prompts me to advocate a standard set of rulings for common disputes.

There needs to be standardisation of decisions. From our experience, one clerk will require the tenant to honour the signed contract between the tenant and the landlord, another will require the landlord to carry the weight of costs with tenant being obviously favoured.

A common experience for us has been the condition of a property at the final inspection. Generally the tenant is expected to leave the property in the condition it was in when taking up the tenancy, minus fair wear and tear (the accepted amount of fair wear and tear can be subjective of course dependent on the property manager’s experience).

One tenancy clerk advocated the tenant honour the signed tenancy contract as required under the Contracts Act, the next took the position that the RTA took precedence over all other acts and that the landlord had to bear the majority of costs to bring the property up to the expected condition for new tenancy.

The landlord also had to put in the equivalent of six hours of cleaning per property. We were not sure where this interpretation came from, however that was just one example.

I’m sure there are other investors and property managers out there who have many more and differing examples to share.
DB

I think the law should be changed to make the landlords less disadvantaged than they are now. Some more equality please.

Ie, max four weeks’ bond, but the tenant has to be three weeks behind before any approach to the tribunal for eviction, and then how long does that take? Maybe the tribunal should pay the weekly rent from the three weeks until the property is re-tenanted, or at least until the current tenant departs.

With four weeks bond, if the tenant is one week behind, then the landlord should be able to give three weeks notice to evict.

Similarly, if damage has been done to the premises, then the tenant should be able to be evicted quickly so that the bond left can cover repairs.
David

I think tenants who do a runner without paying their rent should be charged with theft – they are in effect stealing the landlord’s money.
Alan

Landlords should pay for agent finder fees. This means that more renters will go through agents, and landlords can get better quality tenants faster/sooner. Renters are scared off by agent fees.

If a tenant damages property directly/indirectly (or anyone else they allow in the house damages property) the tenant is responsible for the damage and should pay for damages (they can reclaim damages from the person who did it).

What humane system would not want this to happen. Landlords should ensure their houses, tenants should ensure any contents they own. If tenant damages the house, the insurance company pays for it to be fixed and claims it back from the tenant (tenant pays excess).

If the damage does not involve an insurance company, the tenant must pay the landlord.
KT

In France, tenants have to give a three-month bond, which is closer to covering potential repair costs than the meagre NZ legal bonds.

On the flip (cohesive) side, I would argue that landlords not be allowed to install cheap inefficient appliances into their property under the pretext that tenants will pay the bill.

The country’s energy supply is too stretched for that kind of short-sighted nonsense to be tolerated any longer. And for the solar water heating installation grant to be bumped up, for the same reason.
This would actually be a great economy-boosting “infrastructure” item (infrastructure as in: equipment that will be benefiting the country for many years).
CG

Hope Sue Bradford has a tenant or two to manage, and she has to go through what some of us have been through. Then she’ll realise what is fair.
R

Tenants do a runner, this could be time-consuming and frustrating to chase the money.

From the current system, you can get an order from the Tenancy Tribunal for more than one month. To enforce the order, you need the service address, while if the tenants is a beneficiary or tax payer, you need another one month to find the address.

Since the Department of Justice, the department of Work and Income and Inland Revenue are all government agencies, can’t they exchange the necessary information to enforce the law?
Charles from Howick

As a tenant in Dunedin and a landlord in Auckland, my experience of property managers has been quite an eye opener.

There is a strong case for a legally enforceable code of conduct for property managers.

I might add I have never been in default in either sector so there is no chip on the shoulder. My view is purely driven from the quality of service provided which could be summed up as the old “she’ll be right” maxim and really abysmal.
Peter

In my discussions with banks and lenders there are some very contrary things going on at the moment.

The key theme which seems to be coming up is that there is a growing number of “problem” lenders at all the banks. There have been reports that default rates have been increasing, as you would expect in this market, and that mortgagee sales are also rising.

While there are no official figures it will be interesting to see how bad this gets. What I do know is that many lenders are actively trying to encourage borrowers to act early if they start getting into trouble and can’t make repayments. If you act early the banks can help, but if you leave it too late then don’t be surprised if you become one of these mortgagee sale statistics.

On the other side, I am hearing stories that lenders are getting significant volumes of applications for pre-approved loans. If you can read into this it means that people with a bit of equity are gearing up to start buying property.

Having your finance in place is a good thing to do if you want to do a deal and going unconditional early is part of your strategy to lock a good price in.

No doubt these two observations fit together and the people with the finance will be the ones buying at the mortgagee sales.

My observations of the market is much of the stock being sold, particularly at auction, are the properties put up for sale by the banks.

While this isn’t great news for the vendor, I suspect it is another good sign for purchasers wanting to pick up a good deal in the market.

I had to laugh at this headline in New Zealand’s only national newspaper the other day. The story was about the frightening increase in the number of mortgagee sales.

According to the report there was a huge increase in the number of properties going to mortgagee sale and this was a sign that banks were worrying about the market.

The reality is measure was totally unscientific – searching two big property websites for the word mortgagee. Secondly in terms of the actual number of mortgagee sales, compared to number of houses on the market, the figure was quite small.

For a good response to the story it’s worth reading Alistair Helm’s response at Unconditional.

The story is even more stunning as it was bylined to one of the most experienced and awarded business journalists in the country. I do have to wonder whether the editors and sub-editors got hold of the copy, realised they didn’t have a lead for the paper and did a beat up on this.

What concerns me is that some of the mainstream media are having a field day going out and writing headline grabbing stories bagging the property market.

Readers will know I am more positive about the market, or pockets of the market, and try to put a balanced view out there.

I continue my quest to put some reality checks on the property market and what is happening. This week seems to have been dominated by news which I would mainly catergorise as positive.

Yesterday we had some migration numbers. Now you may wonder what is the relevance. Simple – immigration flows and house prices are strongly correlated. When they are strong, house prices are up as these people need somewhere to live.

While the numbers weren’t mind-blowingly positive (a small inflow in December of 300 and 3,800 for the year) at least they were positive. One comment I read somewhere was that there was an expectation fewer people would leave New Zealand because of the credit crunch and the difficulty finding work in countries like the UK.

One could also argue the government’s changes to the RMA are good for the market. No doubt they are not negative. However, I have a view that the RMA isn’t a big deal for mum and dad property investors. Sure it is for the big guys and the developers, but for the average property owner? I don’t think so.

If I am wrong and you have stories about how the RMA has hurt your investments, I’d love to hear them.

The other positive news is the continuing fall in home loan rates. While some don’t think that is a driver of the market, investors I know see it as being a big plus.

While this week’s news has some goodness about it, I suspect the same won’t be said next week when the QV stats are released. My prediction is that you will see house prices continue to soften and the 12-month drop will be around the 10% mark for many places. But if the Barfoot numbers this week are an indicator, then we may see a slight firming in prices starting to appear.