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The politics of houses

Monday, July 14, 2014

With the General Election merely weeks away and housing being the epicentre of the political battlefield, it is time for property investors to understand the positions of each of the major political parties and how our investments are likely to be affected.  

Below is a summary table of the four major political parties and their policy positions for the seven hot button issues for investors: 

  National  Labour Greens New Zealand First
Rental Warrant of Fitness  Targeting state houses and those receiving accommodation supplement Mandatory for all rental properties  Mandatory for all rental properties  
Capital Gains Tax   No Yes 15% (excluding family homes) Yes (excluding family homes)  
Ring Fencing Losses "Bach tax precedent"  Yes Yes  
Heating and Insulation   Healthy Homes Guarantee Bill Energy Efficiency Conservation Bill  
Residential Tenancies Act  No Yes Yes Yes
Rent Freeze   Yes With Limits Yes
Regulation for Foreign Investors  No Overseas Investment Bill Yes Yes

Source: New Zealand Property Investors' Federation 


How to stop tenants from 'breaking-bad'?

Tuesday, July 08, 2014

It was one of those shows that is entertaining on the telly but an absolute nightmare in real life.  It goes without saying that Breaking Bad has hit a raw nerve in the landlord community.  Residential rental properties are considered prime locations for clandestine meth labs.  The high risks of fire, explosion, and toxic fumes make weekly rental payments almost negligible.  More troubling still is the seemingly incoherent fashion meth labs are entrenched in our community.  While there are pockets of meth lab hot-spots, not one suburb is entirely without risk.  If an innocent enough looking high school teacher can conceivably moonlight as a meth-cook, anything can happen. 

In the end, landlords are the ones picking up the pieces.  Not only is your property almost irreversibly damaged, in many instances the damages may not even be covered by insurance.  

The best way to handle of risk of meth labs is to manage it while it is still just a risk.  Here are some tips to help you identify early signs of trouble.  Next week we will share tips on what you should do when you seriously suspect that your property has been used as a clandestine lab.

  1. Meticulous tenant screening - Reference check your tenant thoroughly.  Watch the How to reference check tenants properly video on APIA TV now.  Or consider having your property professionally managed, meth-cooks are known to target self-managing landlord on the basis that they are seemingly less professional and rigorous in their management; 
  2. Regular inspections - Stick to a regular property inspection schedule.  You are legally entitled to inspect your property once every four weeks.  Meth-cooks know that the more present their landlords are the more likely they will get discovered; 
  3. Inspect throughly or don't inspect at all - Go through every room and outdoor areas (such as garage and shed), be mindful of the items around the place as well as the smell of the room.  Refer to this list of ingredients commonly associated with cooking meth and look out for them; 
  4. Look for tell-tale signs - such as large quantities of plastic sheetings, patches of dead grass outside the front door (may indicate toxic dumping), white powdery residue littered around the corners of the house, ammonia or cat urine smells, boarded-up or blackened windows, as well as stained sheets or coffee filters; 
  5. Establish a good rapport with the neighbours - By maintain a good relationship with the neighbours of your rental, you are more likely to have a real understanding of how the property is being treated in your absence.  Neighbours are excellent sources of information to raise the alarm bell if there is an abnormally large amount of foot traffic through your property or if there is any other suspicious activities;  
  6. Pay attention to changes in behaviour - Do not discount changes in your tenant's behaviours.  If you are suddenly getting rents paid in cash rather than direct debit then it may be worthwhile to schedule an inspection. 

How have you been handling the risk of meth labs in your property?  Meth labs pose a real risk of residential property investment that are often detrimental to the value of the entire property.  Comment respond below to share your experience.  



Alistair Helm: Is NZ in a Housing Bubble?

Monday, June 30, 2014

Last week, we asked the EO of the NZPIF, Andrew King, for his take on whether NZ is in a housing bubble.  This week we are pleased to have the founder and CEO of Properazzi, Alistair Helm, sharing with us his views on the housing market.  

We asked Alistair

1. What are the warning signs of a growing house bubble? 

2. Do you believe New Zealand (and in particular, Auckland) to be experiencing a housing bubble?  

Alistair HelmAlistair Helm - Founder and CEO, Properazzi

The principle of a property bubble is created when the value of properties being bought and sold reaches a level that is out of context with the principles of affordability coupled with the underlying financial structure of debt that is funding these property purchases is out of line with rationale financial decisions and backed by rampant speculation. In my view the financial markets are acting entirely rationally in supporting the debt of the property market. There is more prudence in the banking industry than there has been, certainly as compared to the middle of the last decade. Certainly there continues to be strong demand for property that is located in areas of the country that  are proximate to the economic growth, but that demand is not irrational and prices are being paid based on buyers ability to pay and service the debt.

I do not believe that NZ generally nor Auckland in particular is experiencing a housing bubble. I believe that we have already seen enough signs that the heated property market experienced last year has eased considerably with the lead indicator of property sales trend peaking in October of last year. That weakness in sales has already cut the growth rate in prices right across the country and in Auckland. The next 12 months will see further slowing of sales and property price inflation falingl to below 5%.

Underlying the property market though is a demand fuelled by immigration and coupled with that economic growth that will likely for many years continue to see strong demand placed on the Auckland market as it will continue to be the magnet for economic migration domestically and internationally. As a result of this it is likely that through 2015 the rate of sales will turn around and trend upward and as a consequence prices will, having found a new more stable base, begin to pick up again.

Over to you now.  Do you think we are in the middle of a housing bubble?  Comment reply below.

 

Andrew King: Is NZ in a Housing Bubble?

Monday, June 23, 2014

Last week, we asked financial journalist, Bernard Hickey, to address key market indicators and discuss whether New Zealand is heading right into a housing bubble.  This week, we put the same questions to NZPIF Executive Officer, Andrew King.  

We asked Andrew

1. What are the warning signs of a growing house bubble? 

2. Do you believe New Zealand (and in particular, Auckland) to be experiencing a housing bubble?  

Andrew King Andrew King - Executive Officer, NZPIF

A bubble situation is not just house prices getting high, it is where fundamentals have got so out of whack that there is a high probability of large price falls. 

In the years leading up to 2008, this occurred in the US when they pumped the market full of cheap mortgage funds and removed requirements for deposits, which dramatically increased demand and prices. Too many houses were then built than was required.  When the cheap interest rates increased to market levels, demand plummeted and there were large amounts of new homes with no buyers.

Do I believe Auckland to be experiencing a bubble?  No.  Auckland house prices are going a typical cycle. We have had low interest rates for a number of years and high levels of migration causing high demand for property.  At the same time we have had low levels of homes being built.  This is a classic case of excess demand over supply and property prices are reacting appropriately. 

The Reserve Bank has implemented LVR restrictions and interest rate rises to protect the market. At this stage we still have a shortage of new building, so there is no over supply.  The Massey University Home Affordability index is increasing, but it is still considerably lower than it was in 2007.

There is nothing to suggest a bubble. In fact there is everything to suggest prices will continue to increase over the next year or two.  Economic conditions are constantly changing, so we will need to monitor the market to make sure the fundamentals are not getting too far out of kilter.

Stay tuned for the next instalment of this series as we put the same questions to Alistair Helm of Properazzi.co.nz.  

What is a 'sunset clause'?

Friday, June 20, 2014


Simply put, a sunset clause stipulates the date by which the sun sets on the agreement allowing the property contract to be voided and the deposit be returned to the buyer.  It is commonly inserted into agreements over properties that are not yet capable of being conveyed - i.e. in the absence of a title (new development or subdivision).  

If your sale and purchase agreement contains a sunset clause, irrespective of whether you are the buyer or seller, make sure you speak to your conveyancing lawyer to understand the operation and the implications of the clause fully.  

Typically for a property without a title, settlement will be set for 5 working days after the issue of title.  However, unforeseen delays can freeze the buyer's deposit indefinitely while still putting him under the obligation to complete the purchase.  Putting in a sunset date in these situations give the buyer a safety net to fall back on.  The seller is pressured to complete all necessary work in order to transact the property by the sunset date.  When it has come and gone, both parties still have the option to continue with the (amended) contract.  

In a hot market however, buyers should be aware of the potential loophole a sunset clause affords sellers.  Consider this: 

You have been enticed into purchasing a $500K property still at the blue print stage by putting down a $100K deposit, the agreement comes with a sunset date of six months from today so you figured you have nothing to lose.  The sunset date came along and you were told by the developers due to overwhelming construction delays, they are not able to complete the construction in time and obtain title.  They are very sorry but here is your money back.  A month later you found out that the said property has been fully constructed and is now selling at the market price of $650K.  W@#$#%^!  You just missed out on $150K of capital growth while the developers essentially enjoyed an interest free loan from you (ok, maybe not a loan but your deposit and commitment to purchase would have allowed them to obtain further finance).  Additionally, you are also facing with having to enter a market 6 months late that has appreciated by 30%. 

So how do you set an appropriate sunset date and ensure that the above does not happen to you?

  • Research the developer/seller - find out as much as you can about the seller, their backgrounds, their past projects (in particular the scope of the projects), talk to past buyers to find out what their experiences had been like; 
  • Set ground rules for transparency - make sure the seller is accountable to you all the way through the construction/consenting process so that you know the state of play at all times, that way come sunset date you can make an informed judgment whether to void the contract completely; and 
  • Talk to the experts - if you feel uneasy about buying a property before title has been issued, always talk to your lawyer about the effects of a sunset clause and what your options are.  
Have you had much experience with sunset clauses?  Share them below to help our community of investors!





How do successful investors negotiate with liars?

Thursday, June 19, 2014

“It is hard to believe that a man is telling the truth when you know that you would lie if you were in his place.”  

H L Mencken 

Lies (or perceived lies), half-truths, bluffs, and omissions are necessary evils in the property market.  How many dinner conversations have you been part of that painted all real estate agents with the same Pinocchio brush?  It is almost irrelevant these days whether the person sitting at the other side of the negotiation table is in fact a liar, as you probably already perceive him/her to be.  

Be that as it may, property investment is a game that is built on deals.  From financing to purchasing, from remedial work to full on construction, from tenanting to dispute resolution, all aspects of a property investor's life are driven by negotiated deals.  Successful investors do not let a lie (or a liar) get in the way of a great deal.  So ask yourself this, are you prepared to embrace the moral high ground wholeheartedly at the cost of sitting on the sideline and passing up on great deals? 

Deals come about once parties establish a connection of some kind.  Connection is why many negotiators tell lies/half-truths.  Because they believe lying is the only way to build a connection in the first place.  So how do you build connections in order to seal a great deal?  By looking at lies differently, dealing with them cleverly, and leveraging them to your advantage.  Here are some tips 

  1. Know the immoral from the illegal - Have a good general understand of the laws relating to real estate agents, contracts, disclosures and representations.  These laws outline the boundary within which all property players must operate.  Once the playing field is levelled, it really is about your preferred shade of grey.  
  2. Know your end goal - Understand that you are in negotiation to get yourself a great deal.  You are not there to make friends.  Let go of your emotion and the moral high ground you would normally judge yourself against.  
  3. Look at lies differently - Why do people lie during negotiation?  Because they believe this is their way of establishing that connection with you.  Instead of fixating on the lies, focus on their motivators - a willingness to do business/strike a deal with you.  Would you rather negotiate with a willing vendor who tells the occasional porky or a truth telling cold fish who is not at all motivated to sell?  
  4. Prepare, prepare, prepare - Before you head into a negotiation, find out as much as you can about the other party and try to work out their motivators.  When all is said and done, your own well-informed judgement is intrinsically more reliable and comforting than what someone else tells you to be true.  
  5.  Ask for proof - For big ticket items such as leaky homes, insist on citing official documentations such as the LIM report. 
  6. Learn to ask questions in different ways - People who set out to deceive generally do not resort to outright lies.  Instead they dive and duck and bluff their ways through the entire conversation in the hope that you will forget about your question in the first place.  Well, don't.  If you do not get a satisfactory answer, ask the question again in another way.  
  7. Take notes during negotiation - Make a habit of jotting down what was said during negotiation and send it to the other party afterwards as confirmation.  
  8. Ask the other party a catch-all question - Questions such as 'Is there anything else you know about this deal that you haven't already told me?' not only give the other party the opportunity to come clean but also signals that you take full and frank disclosure seriously.  

One of the enduring nature of mankind is that we lie - frequently and sometimes quite casually.  It is not surprising then that commercial (property) negotiations are often clouded with falsehoods and deceptions.  This is by no means an endorsement for untruthful behaviour, but rather an acceptance that lies are a reality in the commercial sphere within which all property investors operate.  Learn to look beyond the right and wrong of a lie and understand that it is our reactions to it, rather than the initial lie itself that ultimately determines the degree of damage it does to us.  


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