phil-twyford

Let it be: How to cope with the letting fee ban

  • We explore the best options for dealing with the Letting Fee Ban
  • Labour signal that there will be radical changes to the Residential Tenancies Act

We have been warning you now for nearly two years that this was coming and now the day of reckoning is nearly upon us. The new Residential Tenancies (Prohibiting Letting Fees) Amendment Bill is now at the Select Committee stage with public submissions on the bill open until the 23rd May. Expect this to be law by Christmas with a further three months before the fee is banned completely.

For all you people who are thinking of calling the letting fee something else or looking for an alternative fee to charge tenants, save your time and energy, that isn't going to work. The best thing we can do as an industry is to accept this, figure out if and how we can recover this and adapt to the situation.

Make a submission to the Government

We would recommend that you submit your opinion to the Government. It is our democratic right to do so and there is no point in whinging from the sidelines if you are not prepared to put pen to paper (or type on your keyboard) and make a submission. You have until midnight on the 23rd May to do so.

History of the letting fee

If we are being absolutely brutally honest, Labour is right to ban it. Is there anywhere else where a contract is signed between one party and another and a third party has to pay the fee? It is dated and goes back to the original act where only REINZ members and Real Estate Agents could charge the fee. This was pre-Real Estate Agents Act 2008. Property Management was left out of the REAA and in 2010 the new National Government amended the RTA allowing anyone acting as a letting agent or a solicitor the ability to charge a fee (see section 17 of the RTA).

Where we, as an industry has failed, is to justify what the fee is actually for. How can a property rent in Ponsonby for $950 and a similar property rent for $300 in Levin yet the fee remains one week's rent?

The reality is that it has been coming for some time and even if National had formed a Government in the last election, it was going to go at some stage when Labour eventually got in. This happened sooner than many anticipated so now we will just have to deal with the fallout. The chances of the next National lead Government reversing it are probably close to zero.

What next? We explore the options

Well, there are plenty of options open to the industry but unless you are prepared to wipe out on average about 15% of your total revenue, the landlord is going to have to pay it somehow or other. What this will mean is that where possible, there will be a further squeeze on rents as Property Management companies will try to increase rents where they can so their landlords are not out of pocket.

It is a complex issue however after to talking to many companies across New Zealand both large and small, we think we have discussed almost every possible option there is. So, without further ado, we will look at what you can do to soften the impact of this blow.

Option one: Sell your rent roll

If you are a relatively small operator then I have no doubt that you would have considered this option as the prospect of approaching your owners for more money must be harrowing. Especially as many a small operator has used price as a point of difference as they have run the business out of their own property so to reduce overheads. If you have approximately 200 properties and your average fee is not great, you will be concerned.

Originally, we predicted that the multipliers of rent rolls would decrease as supply would outweigh demand. However, this does not appear to be the case. Yes, activity has been quiet, particularly post-election as everyone has waited to see what will happen. However, we have all of a sudden become busy with people getting rent rolls appraised and our latest sale in provincial New Zealand went for a multiplier of 2.6 for every dollar in management fees.

We have long held the belief that the natural evolution of the Property Management industry will see more properties managed by fewer companies. Most companies that we see are struggling to grow organically as the investors leave the market, leaving acquisition as the main source of business development. To put it simply, the big will get bigger as they gobble up the smaller companies. There will still be room for smaller companies but they have to charge accordingly. In January 2017, I predicted that cheap, boutique property management will simply disappear and nothing has changed my mind from that viewpoint.

If you are genuinely worried about the future, now may be the time to man the lifeboats and head towards the escape route.

Option two: Absorb it

Obviously, this one would be most popular with the landlords. The option here is that you take a hit on your profit margin, try to trim some fat from your business and maybe implement a strong rent increase to try make more money out of the tenants.

However, I struggle to see how anyone can do this. Even if they could, it would send a very negative message to your clients that you have been ripping them off for years.

"15% cut in revenue? Don't worry about it, we'll wear it!" This would leave me thinking that I have been paying you too much for too long.

The only companies I believe this is a realistic option for is for large offices who's overheads become a smaller proportion due to the size of their income or to good operators who are charging a high fee already. They may be able to absorb some of the cost but I firmly believe that these operators will be few and far between.

Zenplace is a Property Management business in California that uses AI through Chatbots to improve productivity, communication and efficiency. They charge the landlord 50% of the first months rent and 4.9% ongoing.

Others may take a serious look at the P&L and look at what fat they can cut out of their business as well as look at ways to make the business become more efficient and productive. This is where technology can help play its part. I have long argued that in the future we will see a new brand of automated Property Management evolve and this may speed up the process as Proptech companies continually introduce software that will improve efficiencies meaning Property Managers can manage more. We will also see a move to Artifical Intelligence as there are many tasks in Property Management which can be automated such as arrears and inspection notifications.

Option three: Increase your management fee

This to me, is probably the most obvious one to do for owners and Property Managers alike. We have sat down now with a number of companies and examined how much fees would have to increase by to ensure you recover the lost revenue.

This table shows different ways of recovering the lost income through increasing fees and rent. We accept that some locations such as Christchurch may not be able to increase rents as there is an oversupply of property.

If your letting fee makes up approximately 12% of your total revenue then a fee increase of about 1.3% should enable you to recover the cost. The obvious request of landlords will be that you increase your rents so our recommendation would be a combination of both were possible.

However, some landlords with long-standing tenants may find this unfair. 'Why are you increasing my fee when my tenant has been living in the property for 7 years?' this is a fair call.  The decisions for companies is when do you implement this. Do you do it when the fee ban comes into effect or wait until there is a change of tenant?

The other added benefit to companies who do increase their fee is that they are adding value to their business. Multipliers on rent rolls take into account contract fees such as the management fee and inspection fees. By increasing the management fee by 1% you could be increasing the capital value of your business by approximately 15%.

Option four: Charge the landlord fee

Probably the most obvious option will be to just charge the fee directly to the landlord. It is unlikely that owners in more expensive suburbs will be willing to accept a full weeks rent and what we may see evolve from this is an increase in Landlord paid advertising.

If you are considering this as a way of recovering the fee, our recommendation will be to introduce a variety of marketing packages. Dependant on how the landlord wants to market the property, this will determine what fee they will be charged. If you are going to do this you also need to take into account the time and costs involved in letting the property.

Promoted landlord paid advertising may become more prominent.

One of the benefits of this option is that landlords may become more motivated to retain their tenants and we will see a greater spend on repairs and maintenance.

This is something that should become more of a focus for our industry. One company that we work with do this remarkably well. There average spend on repairs and maintenance is higher than any company that we work with. Then we look at the average length of a tenancy. The correlation between maintenance spend and happy secure tenants is obvious. With this company, the average length of a tenancy is approximately three and a half years and the letting fee makes up less than 8% of total revenue. They run at an average occupancy rate in excess of 98% and there average arrears for the month is under 1%. This company has nothing to worry about.

Option five: Ancillary fees

The final option we will look at is to increase ancillary fees such as disbursements on maintenance and inspections. This is often an overlooked area where companies miss out on revenue.

The maintenance fee is a prime example of companies missing out yet sometimes it is a fee that owners struggle with. Many owners will have the mindset that their Property Manager is getting maintenance done purely as a means of generating extra revenue. This, in my opinion, is untrue yet it is a perception many landlords may have and we cannot ignore what our consumer might think.

Many companies spend extra time and money arranging maintenance and some will even end up doing Project Management without being paid for it. This is again an area of missed opportunity and we only have ourselves to blame. It again all comes down to landlord education and spending quality time at the start of the relationship explaining what is involved. Project Management is an entirely different skill set and service and goes way beyond 7% management fee.

I am in no doubt that landlords whether they like it or not, are going to have to invest a considerable amount of money into their properties to ensure that they are compliant under the Healthy Homes Guarantee Bill. Companies can look at introducing a Project Management service or ensure that they are getting renumerated for the time they spend arranging repairs and maintenance.

This table shows what you can potentially earn through organising repairs and maintenance. The average spend on maintenance is likely to increase as compliance with the Healthy Homes Guarantee Bill impacts landlords.

Inspections is an other area where fees can be reviewed or introduced. You should be inspecting approximately 25% of your portfolio every month. By reviewing or even in some cases introducing an inspection fee you will be adding significant revenue that should go part of the way to compensate for this missed revenue in letting fees.

Inspection revenue is an other area that could be looked at as a way of recouping the letting fee. Here the table shows what extra revenue can be earned by tweaking your inspection fee.

Approach it sooner rather than later

The fact that Property Management has been in the media spotlight so much in recent times means that landlords will already be conditioned to the fact that they will have to pay more. In our opinion, it would be wiser to approach them now to start the discussion. Present them with a number of options and see which one they prefer. No one likes being told what to do so engaging in dialogue with them to get their feedback will help enhance your relationship.

I hold the belief that 90% of people are genuinely good to deal with and are understanding. Most landlords will realise that you are in business and you have to make a profit to survive. We may see some fallout as some landlords decide that they will do it themselves to save money. With all the legislation changes that they will have to deal with, good luck to them. They will need it!!

Kiri Barfoot is interviewed on the AM Show discussing the letting fee

Twyford admits that rents will increase

In a recent interview with online media portal The Spinoff, Minister for Housing Phil Twyford accepts that rents will go up because of the letting fee ban. Twyford says the following.  "I know that if you ban letting fees those costs will be passed on and ultimately they’ll end up being added to rent to some extent, but the point about letting fees for tenants is that they come at the worst possible moment when you’re being expected to find bond and rent in advance and so on."

This is after he has stated that there is no evidence to suggest rents will increase when this ban is introduced. Maybe he changed his tune after being in the same studio when Kiri Barfoot was being interviewed about the ban on the AM Show.

Phil Twyford is the keynote speaker at this years REINZ Property Management Conference in August which is a great coup for REINZ. It will be fascinating to hear what he has to say and expect a full house to turn up and listen to him.

The face of renting will change radically in New Zealand over the next 5 years. A lot of it is good but ultimately there will be a significant cost to all parties. As ever, here at Real iQ, we will keep you updated and give you our opinion.


Rising rents on the horizon as government policy kicks in

  • Rent increases inevitable as companies on charge the letting fee to landlords.
  • Criticism of companies who suggest increasing rents is unfair, we explain why.

Last week, one of Wellington’s largest Property Management companies made the headlines recommending to landlords that they increase rents by $6 a week to recover the cost of the letting fee as they are forced into on charging it to the landlord. Many criticised Oxygen Property Management for taking such an approach. However in our opinion, they were simply doing their job.

Is your company charging the landlord the letting fee?

To expect a company not to try and recoup losses that their clients may face due to landlords absorbing the letting fee is utterly naive and delusional. If you believe that a landlord is not going to recover the costs from tenants then you are simply in denial or have no understanding about how business works. Recently, Prime Minister Jacinda Arden stated that she ‘hopes’ rents wont increase as a result of the letting fee being passed onto landlords. Surely this Government must have foreseen that rent increases were an inevitable consequence following their hard stance on property investors. This has left the door ajar for National to land some blows as they blame Government policy for increasing rents. They have a point, but lets not forget that National’s record on housing and in particular state housing, was far from satisfactory.

When the price of crude oil sky rocketed in recent months, you didn’t see petrol companies absorb the cost, they simply passed it on to the consumer at the pump with petrol prices hitting nearly $2.50 a litre in some parts of New Zealand. As the price of crude oil dropped, so did the prices at the pump. Why would being a landlord be any different?

The reality is that when people make decisions and especially when it comes to money and housing, the vast majority will put their own interests first. Being a landlord is no exception. They are not social housing providers.

It is not our job to house state tenants

The Property Management industry has faced one of its toughest years and has come under intense scrutiny. Many referring them as leeches, sucking extra rent out of tenants by issuing rent increases way above market rent and booting tenants out so they can claim another fee. Utter rubbish!!!

If I started a Property Management company and ran an advertising campaign telling landlords that ‘We will keep rents affordable for tenants’ I would not expect to be in business for very long. Landlords want to earn a rent to reflect the capital value of their asset. This doesn’t make them greedy, they are just trying to make their investment work. If you took two Property Management companies offering the same service for the same fee yet one says that they will earn them an extra $20 a week in rent, nearly every landlord will pick that agent.

This is the simple reality of business that many tenant groups and their supporters don’t acknowledge. Instead, many of them would rather have a rental sector owned and controlled by the state and a housing policy akin to Eastern Europe in the 1960’s. I have seen this first hand after attending two Renters United meetings, one of which was their high profile ‘Fix Renting’ launch. On both of these occasions, they have had a guest speaker or members challenge property ownership rights saying that they are unfair.

Oxygen's approach a breath of fresh air

In regards to the letter by Oxygen Property Management that sparked headlines last week, Oxygen has done what any good business operation should have done. They have researched all the options, talked to their landlords and have come up with simple solution that will ensure that their main priority, their landlords, are not out of pocket whilst protecting their own business interests. This is something that many media commentators fail to understand.

A good Property Management company does have an obligation to look after their tenants and I would be one of the first to acknowledge that too many in our industry do not do enough. Yes, it makes good business sense to look after your tenant but not to the detriment of your landlord. This doesn’t mean that you do what the landlord wants every time and simply ignore the tenant. If the a tenant makes a reasonable request for a repair and the landlord disagrees, you would strongly recommend to the landlord that they have the repair done as they may face sanctions if they neglect their responsibilities under the Residential Tenancies Act.

This again is something that some commentators either don’t understand or do not realise. Although we have a relationship with both tenant and landlord, we ultimately are employed by the landlord.

It is the landlord who hires and you and the landlord who fires you if you do not deliver results and provide value for money. All that Oxygen have done is look at the average length of a tenancy and worked out what rents will have to go up by to ensure what needs to be done to recover the letting fee. They feel as though they have come up with the best solutions for their landlords. They have been transparent, open and honest without trying to put unnecessary spin on the announcement. In my opinion, they should be applauded for their approach.

Most companies make their move with regards to the letting fee

The announcement to bring forward the date of the letting fee ban to the 12th of December took many companies by surprise. Now, as reality has set in, the industry has finally made its move with many companies now writing to their landlords explaining that they have to on charge the fee as they simply cannot absorb it.

It has been like sitting at a table of a high stake poker game. Companies big and small have been waiting to see what cards have been dealt, trying to work out what each other company may or may not do. Do I raise, call or fold?

At some point though, you have to make a call and most companies have now done this after careful consideration. Quinovic were the first to make the headlines with their ‘Tenant Fee’ being on charged to landlords but many companies had already made their move prior to this.

Some companies will undoubtedly try to absorb it to give them a market advantage but this would mean they would likely have to ‘trim fat’ out of their business. Maybe outsourcing automated tasks overseas where labour costs are cheap or compromising service levels by reducing what they offer or by overloading staff with more properties.

In order to avoid lower returns some landlords may bypass property management companies and self manage.

Online self management tools such as MyRent may see an increase in users. There will always be that human element to the business and if you cannot handle conflict and the ongoing changes to legislation, Property Management is still the best solution.

Letting fee is only part of the issue of the issue for rising rents

From what we have seen across the industry, there has been a level of ‘acceptance’ by landlords that they will have to pay the fee, though many now want their rents reviewed and increased to compensate. This is just a small part of the added costs our Coalition Government is putting on landlords.

Back in February this year, we wrote a blog warning New Zealand that everyone will have to pay for the ‘Utopian vision’ that the Government has for our country.

“Removing the speculators’ tax loophole will save taxpayers around $150 million a year once fully implemented. Total savings in the first ten years will be $1.2 billion. Labour will use this money to help 600,000 families heat and insulate their homes to modern standards.

— Labour policy on their website with regards to ring fencing losses before the 2017 election

In this article we highlighted the extra costs landlords would face which included cost of compliance with the Healthy Homes Guarantee Bill.

There is a realistic risk of a reduced rental stock in New Zealand and this will drive up rents even further. The brilliant Chief Economist of BNZ Tony Alexander, recently summed up our concerns in an interview with NZME property website OneRoof.co.nz.

Alexander identifies that the Government is creating diminishing returns due to increased costs around compliance and reducing deductibility for expenses. As it gets more and more expensive to own a rental property, investors are forced to increase rents to compensate the added costs.

Alexander also states that if there is a reduced rental pool, landlords will have a much larger pool of tenants to choose from and will become more careful around who they pick.

This will be exasperated if rental reforms are pushed through and the banning of 90 day ‘no cause eviction’ is implemented. Then, not only will you have a reduced rental stock, you will have Property Managers and landlords taking real care in who they put into a property as getting this wrong could be disastrous as the ability to remove a tenant will become far more labour intensive with added risk of litigation by the tenant and lengthy delays in Tenancy Tribunal.

It is ironic yet also somewhat predictable, that the policies created by the Government could end up hurting the people they were designed to help the most. The poor and vulnerable.

In our opinion, the best thing the Government can do is remove their policy to ring fence losses that a rental property will generate. This means that if a landlord runs a rental property at a loss in the financial year, as many small investors do, they can offset that loss against their own personal income. So, if your rental property runs at a net loss of say $10,000, you offset that against your wages, giving you a tax rebate because you would have paid too much tax. Our coalition friends, want to remove this. The result of this means that as landlords are forced into investing more money into their rental property, the ability to offset the losses will be removed exasperating the problem.

Of the thousand of properties that we see, the average property to landlord ration is about 1.4 properties per landlord. About 90% of landlords in New Zealand own one or two properties.

Naturally, this all adds to the expense of owning a rental property. This policy was aimed at high stake speculators but in fact the people who it hurts the most are ‘Mum and Dad’ investors who own no more than one or two properties and these make up about 90% of all landlords in New Zealand.

One senses that this Government is trying to ‘bully’ landlords away from property and release more stock to first home buyers, in an attempt lower house prices. However, this may well backfire as rents look set to increase further which is not good for the economy long term as there will be less disposable income. Government should revaluate what they are trying to achieve as New Zealand, like any other capitalist country, needs a strong private rental sector.

As we stated back in our article in February, everyone will have to pay more. Landlords will pay more in expenses and operating costs, tenants will pay more in rent increases and the taxpayer will pay more in subsidising housing benefits.

In conclusion, many of the reforms such as healthy homes, we have always supported yet some of the policies are starting to impact negatively as rents start to increase meaning a tougher times for landlords and tenants. In my opinion, this Government is trying to do too much too soon. Slow down and listen to people at the coalface as to what the likely impact of their policies will be. You can always ignore them and hope that things work out fine. However, ‘hope’ is not a strategy I would like to see any minister take, let alone our leader.


2017 The good the bad and the ugly

  • A year of unprecedented upheaval comes to an end
  • We review the last 12 months picking out the good, the bad and the ugly

It is hard to know where to start in a year where property and in particular renting, has featured so much in the limelight. In our final blog of 2017, we summarise what we believe is the good, the bad and of course, downright ugly.

The list we provide comes in no particular order and is purely our opinion, however, we would love to hear your feedback on what has been without a doubt, an intriguing year. First of all, lets keep it positive and start with the good.

The good

The Announcement of Banning the Letting Fee: Some of you will be amazed to hear me say this, however after the initial shock of the impact of the change of Government, I honestly believe that the removal of the fee will be of long-term benefit to the industry as a whole.
In my opinion, we have become complacent in charging this and you simply cannot justify charging a tenant a fee for $800 in one region and $300 in another just because the rent is different. The removal of the fee will make us innovate and look to develop new income streams. A great focus will be on maintaining properties and improving their capital value. Evidence has shown that the more companies spend on maintenance the longer the tenants stay on in the property. A marketing or administration fee will be charged to the landlord who will subsequently increase the rent.
The other impact this will have is that we'll see less of an incentive for more startup Property Management companies. I do not want to be the person to stifle ambition, but the reality is we have far too many companies undercutting each other and the removal of the fee should put a massive slowdown in the number of startups.
The Relaunch of the NZRPM Level 4 Qualification: Ok, we have an interest in this as a company, but nobody can deny the benefits of being qualified and early evidence suggests the take up will be big.
For me personally and the team at Real-iQ, being involved in the roll out of this has been the highlight of the year and it is much improved from version 1 which was largely irrelevant. We expect a busy 2018 getting the industry qualified.
The Healthy Homes Guarantee Bill: Regardless of what your political stance is, I have no doubt that long-term, this bill will benefit the country as a whole. Many properties around New Zealand are of poor standards and this contributes to ill health, a strain on the healthcare system and a lack of productivity. A country as progressive as ours should not have the most vulnerable living in third world property. Unfortunately, it still happens. My only concern is that the standards that will be set will be too draconian with the new Government rushing through legislation without proper consultation.

The bad

Tribunal Crazy Decisions: This is in recognition to Dunedin adjudicator J Wilson who awarded the tenant over $10,000 claiming that the landlord had rented out a non-complaint property. The decision caused a sense of panic that we had gone way too far in beating up landlords. Vic Inglis, the landlord, did not know that the converted kitchenette did not have consent and only when the tenant subleased the property the issue became a problem. The tenant had the nerve to claim a full refund in rent even though they had subleased the property without consent. Fortunately, the landlord appealed and it was overturned by the Judge at District Court. The reason being that the tenant did not suffer due to the lack of consent and it was only a technical breach. The property received its necessary compliance and commonsense prevailed.
I would have loved to see the landlord take the tenant back to Tribunal to receive damages for the removal of smoke alarms and subleasing without consent. I wonder how the adjudicator would have ruled it. I also wonder if the tenant has paid back all the rent!
A knock on effect of this case has been the increase in opportunistic tenants seeking rent refunds for non compliant properties.

Vic Inglis had an eventful 2017 as a landlord.

Not to be outdone, I was witness to a remarkable decision by an adjudicator in Lower Hutt. A client had been advised that a tenant was allegedly doing drugs on the property after a composite drug test result came back in excess of 65 micrograms from seven swabs for a small two bedroom unit. When the Property Manager gave the tenant notice under s.59a (7 days property badly damaged not habitable) the tenant refused to leave. An application was made but was subsequently dismissed as the adjudicator needed to see discrete individual samples so he could ascertain that the rooms were over the 1.5 micrograms guidelines. Surely basic maths comes into the equation. 65 divided by 7 leaves an average of 9.3 meaning it is a mathematical impossibility that the property was safe.
Not according to the adjudicator. Case dismissed!
Too Many Landlords in Denial: I fear that many landlords falsely believe that their properties are compliant and as the 2019 deadline for insulation comes closer, many of them could be in for a rude awakening, especially now that tenants are becoming way more aware of their rights.
A number of landlords will be up to speed as to what is required but many still are oblivious as to what they need to do to ensure their properties are compliant. Throw into the mix the fact that tenants will need to have the means to maintain their rental properties to a particular temperature as part of the Healthy Homes Guarantee Bill, I can picture many landlords rushing to find Heatpump and Insulation installers at the eleventh hour. Don't put it off guys, get in done now or risk Exemplary Damages up to $4,000. I suspect that adjudicators up and down the country will be more than happy to make examples of people.
It is also a good time to be in the heating and insulation business.

The ugly

The Undercutting of Fees: Everywhere I go I hear complaints of companies undercutting fees to simply win the business, many going as low as 5% to secure business. By doing this, we are slowly damaging the quality of service that we are providing to the consumer and doing no good for the reputation of the industry.
This is a sign of desperation from many companies. With over 50% of Property Management companies managing less than 200 properties, profit margins will be all but non-existent.
If ever there was a time to regulate the industry it is now. Increased legislation should kill off many of these small cowboy operators. At the start of the year, I predicted more properties would be managed by fewer companies and budget boutique Property Management would die. You can still do boutique management, but you must charge accordingly.
The Northland Shooting: This was the low point of the year. A mother and daughter heading off with a contractor to a property in a remote rural location and being gunned down and murdered. What, if anything, has changed?
The risks are still apparent yet many people put it down to just 'being in the wrong place at the wrong time'. I do not subscribe to this view. Better training for Property Managers will help go a long way to prevent incidents such as this from happening. It may have been unavoidable but it simply cannot be brushed under the carpet.
What is good to know is that WorkSafe is investigating the events and I for one am glad to hear this. They will no doubt release their findings in 2018 and we sincerely hope that changes are made to ensure that all Property Managers are safe. Assaults and threats to Property Managers are common as highlighted in our 2017 study. Many are martyrs to the demands of their landlords and put themselves unnecessarily in harm's way. Let's hope lessons are learned from the tragic events and do not happen again.

Other notable mentions

The Rental Warrant of Fitness: Right intentions but needs work. Expect to see this become mandatory as part of the Healthy Homes Guarantee Bill.
Labour and new Housing Minister Phil Twyford: Delusional or visionary? Only time will tell but I for one, have my doubts.
Tenant Power: Tenants are becoming a lot more demanding as their rights have been broadcasted across the media. This is one thing which is apparent from our 2017 Property Management Survey.
New Meth Guidelines: 0.5 to 1.5. Why wasn't Dr. Nick Kim part of the committee? He appears to be the only voice of reason on this matter as the gravy train continues to run. Labour has made some worrying comments around rent abatements if tenants cannot be held responsible for contaminated properties. More $$$$$ for the Meth testing and cleaning companies!!

The Rise and Rise of the LPMNZ Conference: Out of all the conferences I attended this year, this one has become the stand out for the Property Management industry. Well marketed, great speaker line up, stunning venue and great to see the awards as part of the conference. Well done to Bob Walters and team.

It would be great to hear your choices for the Good, Bad and Ugly of 2017. In the meantime, take care of yourselves over the Christmas holidays. Look after your families and we wish you an enjoyable and relaxing break. We look forward to connecting with you in 2018 with our predictions for the year ahead.


labour-party-billboard

Lets ban this! The letting fee gone if Labour win

  • Letting fees days are numbered as radical reforms announced
  • Decision could obliterate small property management companies
  • Uberisation of property management inevitable

Who would have thought six weeks ago that we were facing the prospect of a change of government?

Lifeless Labour was limping to an election defeat with its worst poll rating in modern history and the prospect of a Labour lead government seemed like a huge improbability. Then all of a sudden, Andrew Little resigns and Jacindamania was born, replicating trends we have seen in the U.K. and Canada where there has been a huge swing to the left, particularly amongst younger voters. This has evolved due of inequality and the widening gap between the haves and the have nots, largely demonstrated in rising house prices.
A change of government is now a real possibility.

Housing was always going to be the main battle ground for this election with Ardern making no secret that she was taking the side of the tenants. In her campaign launch, Ms Ardern stipulated that ‘Climate change’ is the nuclear free moment of our generation. Here at Real iQ, we translate this as a statement of intent to improve the efficiency and quality of housing in New Zealand, particularly for the under privileged and vulnerable. Where better to start than targeting rental properties. No doubt we will also see the introduction of a capital gains tax in an attempt to reign in property speculators and control house prices.

Bye bye letting fee!

On Sunday September 3rd the Labour party made a major announcement with reforms to tenancy legislation in New Zealand. With nearly 50% of the country now renting, a change was inevitable. The Labour party announced the following.

  • Increase 42-day notice periods for landlords to 90 days to give tenants more time to find somewhere else to live.
  • Abolish “no-cause” terminations of tenancies.
  • Retain the ability of landlords to get rid of tenants who are in breach of the tenancy agreement with 90 days’ notice, or more quickly by order of the Tenancy Tribunal
  • Limit rent increases to once per year and require the formula for rental increases to be specified in the rental agreement.
  • Give tenants and landlords the ability to agree tenants on a fixed term lease of 12 months or more can make minor alterations.
  • Require all rentals to be warm, dry, and healthy for families to live in by passing the Healthy Homes Bill.
  • Give landlords access to grants of up to $2000 for upgrading insulation and heating.

Many of the proposals are progressive and will benefit the nation as a whole but one change could be catastrophic for many small to medium Property Management companies, and that was announcing the banning of the letting fee.

"Letting Agents charge the letting fee because they can"- Phil Twyford

Here at Real iQ, we have been warning that the days of the letting fee are numbered for over a year now when the former leader of the Green’s Metiria Turei submitted a reform bill that would remove letting fees. Also, earlier this year Housing Spokesperson for Labour Phil Twyford announced his disdain for the letting fee making the comment ‘Letting agents charge the letting fee simply because they can’. This was insulting and inaccurate as he implied that our industry was price gouging. Nothing could be further from the truth Mr Twyford.
By banning the fee, small companies will suffer the most.

Phil Twyford's comments that 'Letting Agents charge the fee because they can' is either grandstanding for votes or shows a lack of research and concern for the industry that it will impact.

As a percentage, their operating costs are generally higher than the larger operators and to many companies, the letting fee is the difference between being profitable and running at a loss.
Larger companies are in a more stronger position where they can absorb the costs and still retain a strong profit margin.
The obvious solution is to pass on the costs to the landlord. If the entire industry does this then there will be no problem. Landlords will absorb the costs and then demand rent increases and ultimately the tenants will eventually pay. However, trying to get an industry to agree to do this is highly unlikely, especially following some high-profile cases in front of the commerce commission that involved a number of large real estate operators.

Many smaller companies may sell

What we believe will happen is that the larger companies will absorb the costs putting pressure on smaller ones to follow suit to remain competitive. Once smaller companies do this they will be forced to review costs and this may result in job losses and outsourcing to remain profitable. The standard of service may drop as there is more pressure on Property Managers to manage more.

One positive aspect of the decision is that it will tidy up an industry where we already have too many companies competing over scraps.
At the start of the year, one of Real-iQ's predictions was that more properties would be managed by fewer companies and all the evidence is pointing in that direction. As more and more legislation is thrown at Property Management companies, with up to 15% of revenue being removed, many small to mid-size operators may decide that enough is enough and sell up. Who can blame them?

Automation and outstanding, the uberisation of property management

Innovative Property Management companies may see this as an opportunity to reform the industry by developing a low fee, low-cost model that relies on running the business lean with very few overheads.

Traditionally, maintenance is the one thing that has been outsourced. Other concepts such as Daily Reconciliation will head the same way. Potentially, overseas.

I am often asked my opinion on outsourcing, especially to overseas markets such as The Philippines. Although I can understand why a business owner may want to do this, I personally struggle with it. Real-iQ's vision has been to improve the industry in New Zealand through training and promoting it as a viable career option. Having your daily reconciliation run in Manilla may be creating jobs in The Philippines, but does little to promote the industry here.

However, I am not naïve enough to believe that this will not happen in some form or capacity and we are already starting to see the impact of it.

We believe that we will soon start to see a new budget form of Property Management where rent is entered into an interest-bearing account and is administered by a central hub without street presence. No office will be required for Property Managers as Tenancy Agreements will be signed digitally with remote tenant inductions taking place. The Property Managers will be mobile, working either from home or at low rent offices such as shared spaces, keeping overheads to a minimum.

Many tasks have already become automated and more will follow such as rent arrears, tenant selection, and inspection notification. The Property Manager will be managing in excess of 200 properties and will focus purely on letting, inspections and approving maintenance. All other tasks will be automated or outsourced. Chatbots will become the way landlords will communicate when they need assistance and eventually, artificial intelligence will predict when things will break down and need repairing.

For the rest, a new breed of Property Management must evolve, catering for the investor needs and helping them grow their portfolio. This service will become more personalised and will require a higher skill set offering pre-emptive service and unique insights to help investors make the right decisions to grow their wealth.

Never, have I seen so much change in our industry. It is hard to predict what will happen in the future but one thing is for sure, Real iQ will do our utmost to keep you informed.

Thanks for reading.