Blog: The Landlord says...

There is a lot of head scratching going on over the future of home loan rates this week. As I said last week the Reserve Bank is saying its base official cash rate is likely to stay around the 2.5% mark until 2010 and home loan rates should stay down.

However, the market is disagreeing with the central bank, and saying that rate increases will start early in 2010. A wrap of what the economists are saying, now they have had some time to digest the RBNZ announcement and review the market reaction, is here.

This split in opinion is quite critical for borrowers. Most experts, whether they are economists or mortgage brokers, are saying the best strategy at the moment is short-term rates. Go for six-month or one-year terms and look to roll them at maturity.

However, many comments to the previous Blog suggested going long makes the most sense at the moment. A couple things to consider are that long-term rates, particularly five-year rates, are sitting at their historical average and are very close to where they were a year ago.

Short-term rates are some of the lowest on record, and as this graph shows, are significantly lower than a year ago. Indeed the six-month rate is more than 400 basis points lower than this time last year.

A little reported piece of news in the past week is something which looks good for landlords, and maybe not so good for tenants.

That is the reporting back of the Residential Tenancies Bill to Parliament. Now this bill is the bible which both sides of the housing market have to obey. The current act is more than two decades old and there has been lots of talk of changes to it in recent years.

I suspect many tenants will have wished Labour had made more haste with this project as they would have ended up with a better outcome than they are now facing.

Landlords on the other hand are pretty happy that National is now running the show on this one, as the bill put back in the house over the past week shifts the balance of power more towards property investors and landlords.

Both the NZ Property Investors Federation and the Real Estate Institute are happy with the direction it is going.

Indeed, Richard Evans from REINZ’s property management group says in the past the rules tended to favour the tenants, but now they “restore the balance”.

His view is that in the past people were put off property investment because of the difficulties around tenant management, but this new set of rules (if passed) will “encourage  people  to invest in property again”.

A key issue is if the bill gets through Parliament. I suspect it will, but I wouldn’t be against a wager that Labour and the Greens will kick up a big fuss about some of the changes.

Their fault though for not moving on the changes when they had the chance. After all they began the “reform” process early on in their nine years in power.

I’ve always been a bit of an advocate for property management – as long as it’s well done. However, sometimes I think my view isn’t shared by other property investors.

There is definitely a group of investors, the ones I would call landlords, who enjoy managing their properties, whether it is the repairs and maintenance or dealing with tenants.

However, for the other group, who I call investors, getting a manager to look after things makes sense.

There’s always been friction between the two groups of managers. With the licensed ones being highly critical of the other group.

However, this whole sector is about to get a bit of a shake-up; both from a regulatory angle and from competition.

As part of the real estate agents reform bill the Department of Justice is looking at how the sector operates and could well put a bigger set of rules on managers. Maybe it would even force the two groups together?

On the competition front www.landlords.co.nz, ran an interesting story this week on a new crowd who are offering flat fee management services.

Instead of charging a percentage of the rent (around 8%) they are offering to do the job for just under $900 a year.

No doubt people will compare this to the flat-rate real estate service, tried unsuccessfully by The Joneses. I’m not sure the two are directly comparable because of the way sales and property management operate.

I’m finding investors are showing a lot more interest in having their property managed and no doubt the flat rate option will be appealing.