Archive for September, 2010

As the President of the Auckland Property Investors’ Association (“APIA” – a not for profit incorporated society that provides education, networking, lobbying and discounts for its members) I want to share with the readers of my blog about one of the key benefits of joining APIA.   Just a few months ago we entered into the anz@work initiative with our Principal Sponsor, the ANZ bank (part of ANZ National Bank – New Zealand’s largest financial institution).

ANZ@work

ANZ@work is an amazing banking package that is not widely available.  APIA is privileged to bring this to our members.  I apologise to readers who were at the July Keynote Meeting with depreciation expert Steve Tucker as the keynote speaker, and to those on APIA’s large email database, as you have to hear the basis of the ANZ@work package again:

• you must be a current APIA member
• 0.25% off your floating rate ANZ loans
• 0.25% savings off ANZ’s published fixed rates (when your loan comes to rollover the rate gets attached to it)
• For all new loans at least a $500 contribution towards your legal and valuation fees (and no loan application or loan establishment fees)
• Fee exemptions and much more – click this link here for full details.

Please note that ANZ@work only applies to APIA members with ANZ loans that are currently on the floating rate. You must wait until you fixed rate period expires at which time you can choose to refix and get the 0.25% discount off the term your choose to refix for, or get 0.25% off the floating rate.  Also the rates must be negotiated directly with ANZ rather than through your mortgage broker (owing to the higher distribution costs of mortgage brokers). If you are considering refinancing or purchasing a new property and your borrowings are too heavily weighted toward ANZ (avoid the one bank trap), then it is very worthwhile for you to consider the ANZ@work package due to the savings available.

If you are not yet an APIA member and own a property you should become an APIA member – APIA has an open door policy.  APIA membership is $347.50 (with one-off joining fee of $95 included) for individuals, $460 (with one-off joining fee of $95 included) for couples.  Register for your APIA membership here.

New properties and refinancing

Once you are an APIA member you can refinance your existing property if you consider it prudent to do so after investigating all financial scenarios and get the benefits of ANZ@work by calling an ANZ mobile mortgage manager.  Similarly you can purchase a new property by calling an ANZ mobile mortgage manager to get a mortgage pre-approval.  Call 0800 269 4663 (ext 1).

If you need help in this regard – drop me a quick email: david@davidwhitburn.com

Existing Properties with ANZ loans

If you have an existing property with an ANZ loan on it, you must pay special attention as not every staff member (ANZ have thousands of employees in New Zealand) at an organisation as large as ANZ knows about ANZ@work.  Your business banker, commercial banker, private client relationship manager, personal manager and branch manager may not know about APIA’s ANZ@work package.

There are three ways to get ANZ@work for members with ANZ loans that all involve you having your loan numbers handy and a current APIA membership where you give the number on your NZPIF membership card:

1. Ring 0800 722 524
2. Email specialistchannelsnz@anz.com
3. Go to any one of the hundreds of ANZ Bank branches in New Zealand and quote APIA’s ANZ@work Scheme ID as 831533, and prove your APIA membership is current by showing your membership card.

Can you please not try any other method.  Already the APIA Board has heard of members going to brokers who can’t find it, to tellers and even branch managers of ANZ branches without quoting a scheme ID, to their commercial/business/personal managers and it doesn’t work.  Some members even think ANZ@work is a con!  I can assure that this is not a con and already APIA members have collectively hundreds of loans registered to the ANZ@work package.  I tested this by ringing the 0800 number just now and the phone got answered within 4 rings and after introducing myself, I was told that on average there are currently 2 members a day still calling and moving their loans onto ANZ@work.

So please ensure that you follow the simple instructions, and if you are an APIA member having problems, I would like to personally know – so email me at president@apia.org.nz or on david@davidwhitburn.com.

Dr Alan Bollard, New Zealand’s Reserve Bank Governor stated earlier today that the Official Cash Rate will remain unchanged at 3.0%.  He said that had made this decision even before the September 4 Canterbury earthquake struck.  Here’s Dr Bollard’s full statement:

While the global and domestic economies continue to recover, the outlook has weakened since our June Statement. We consider it appropriate at this point to keep the OCR on hold.

The earthquake that struck Canterbury on 4 September has significantly disrupted economic activity and is likely to continue to do so for some time yet. Many homes and businesses have been damaged, as have significant parts of Canterbury’s public infrastructure. Eventual reconstruction and repairs will require considerable resources over the next year or two, particularly in the construction sector. If, in the aftermath of the earthquake, the prices of some goods and services increase temporarily, monetary policy would remain focused on the medium-term trend in inflation. The Policy Targets Agreement explicitly instructs the Bank to look through temporary price increases generated by a natural disaster.

Looking more generally at the domestic economy, the household sector remains cautious, with consumer spending soft, house sales falling and house prices remaining flat. With continued soft demand for credit, this suggests household spending will not increase to the extent previously projected.

The pace of expansion in the global economy appears to have slowed in recent months with forward indicators of US growth, in particular, deteriorating noticeably. Nevertheless, continued strong growth in Australia and China will support demand for New Zealand exports, reinforcing the continued contribution of high export commodity prices.

Overall, despite the weakened outlook, we still expect that growth will progressively absorb current surplus capacity over the next few years. In addition, changes to indirect taxes and earthquake impacts will cause headline inflation to spike higher over the coming year. Previous experience of GST increases, the fact that annual CPI inflation has been near 2 percent for the past year and a half, and the subdued state of domestic demand suggest this inflation spike will have little impact on medium-term inflation expectations.

Over time, it is likely that further removal of monetary policy support will be required. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement.”

The Forex markets treated this result strongly with the NZD:USD currency pair being slashed by 0.8 cents in the couple of hours post the announcement, before regaining a small part of this loss.  Dr Bollard went on to say that he thinks the peak of the OCR rises this interest rate cycle will be at 4.70%, and there are still a number of pressures on New Zealand’s economy so growth and our economic recovery are very slow. As a result we can interpret this by saying that with rising unemployment and other pressures in terms of more deleveraging to come, interest rates are likely to stay lower for a while to come, asset prices are likely to stay lower for a longer period of time, credit is still difficult to get, businesses, farms and individuals are still reluctant to borrow and spend money.

There will still be more mortgagee sales to come, and vendors in many areas need to get real and stop listing their properties for too high amounts (some agents are buying listings as they are desperate to get listing which such a low volume of sales) if they want them to sell anytime soon.  I know that there are people wanting to sell who are not able to as they would be in negative equity and unable to discharge their mortgages, or not wanting to sell as they believe (rightly so in my considered opinion) in the medium and long term that they will get a much better price.  Combined with the difficulty many purchasers have in raising finance with the current tough credit criteria, and probably more significantly a general reluctance to take on debt and instead choosing to ‘save and prosper’, we will have far less listings and sales, and many areas not getting much net migration will continue to go slightly backwards slowly but surely.

For property investors, the bad news is:

• depreciation cuts come in shortly on 1 April 2011,
• finance is harder to get (for many investors with larger property portfolios),
• GST rises kick in on 1 October affecting rates, repairs & maintenance and management fees, and
• house prices aren’t bolting up any time soon.

The good news for property investors is:

• rents are going up,
• surveys from the New Zealand Property Investors’ Federation state that tenants expect rents to go up,
• interest rates will stay lower for longer,
• interest rates are not expected to be where they were in 2008 (9.x% fixed, over 10.5% floating) in the foreseeable future,
• the sun will rise tomorrow, the day after tomorrow and every day after that – property values will rise in the long-term,
• there are some good positive cashflow properties available in main cities right now.

Source: Reserve Bank Website – http://rbnz.govt.nz/news/2010/4182378.html

The foundation document for the rights and obligations of Landlords and Tenants for residential properties is the Residential Tenancies Act 1986 (“RTA”). The RTA covers a huge variety of aspects to govern payments of rents, bonds, repairs, giving notice, dispute resolution and much more.  Since 1986 a lot has changed with new technologies, new demographics of tenants, more people renting rather than owning property and a trend for longer term tenancies.

The review includes providing a good balance between the needs of tenants for a decent home, and the needs of landlords to effectively manage their rental properties.

Residential Tenancies Amendment Act 2010

After a lengthy review process (some 8 or so years!!), the Residential Tenancies Amendment Act 2010 (“RTAA”) takes effect as the new law from 1 October 2010.  So you don’t have long to make the necessary changes.  Basically the changes are on the whole Landlord friendly.  I particularly like the ability to charge tenants’ penalties for unlawful acts (a new concept brought in).  As for the RTA, I would advise that you also print out the RTAA and put it into a folder or bind it.  After all it is an important document as it sets out the rules for you to manage your property portfolio.

Some of the key amendments include:

• letting fees – enabling all property managers to charge letting fee.
• fixed term tenancies – fixed term tenancies will revert to periodic tenancies on the tenancy expiry date, unless the tenant or landlord gives notice.
• addresses for service – landlords and tenants will be able to use an email address, PO Box or fax number as an alternate address for service.
• agent for landlords overseas – if a landlord is going to be overseas for more than 21 consecutive days, a New Zealand based agent must be appointed.
• body corporate rules – rules will be required to be attached to tenancy agreements when a property is part of a Unit Title complex.
• notices to remedy – previously a “10 working days notice”, this will change to a 14 consecutive days notice.
• terminating a tenancy – new rules have been added for termination of tenancy by notice, for example landlords will be required to set out the reason(s) when giving less than 90 days’ notice of termination.
• unlawful acts – a number of unlawful acts have been added, including interference with the supply of services (eg. water, electricity, gas), having inhabitants than the maximum number of persons the Tenancy Agreement prescribes
• abandoned goods – new rules have been added for landlords dealing with abandoned goods.

IN DETAIL

Below is a list of other changes coming from the RTAA to amend the RTA:

Section 4 – Letting Fees: All property managers (REINZ and Independents) are now called Letting Agents and they can all charge a letting fee (previously only REINZ Members and lawyers could)

Section 7 – Short Term Leases: Previously a rental property owner could take a new tenant on under a short term fixed tenancy, essentially as a trial period. The Tenancy Tribunal will now be able to over-rule trial tenancies of less than 90 days duration.

Section 13 – Address for Service: Addresses for service can also be a Post Office box number, email address or a facsimile number

Section 16A - Absentee landlord: If a landlord is going to be outside of NZ for more then 21 days they have to:

• Appoint a New Zealand based agent (can be family or relative);
• Notify tenant of agent’s name contact address and address for service;
• If a bond is held, notify the chief executive on the proscribed form

Section 16B – Body Corporate Rules: Tenancy agreements on Unit Title properties are now subject to the body corporate rules.

Section 32 – Collection costs: The debtor can now be required to reimburse the creditor for any reasonable expenses or commission incurred by the creditor in recovering or attempting to recover the debt.

Section 39 – Outgoings:

• The Landlord is responsible for outgoings that are incurred as if the premises were empty.
• The Tenant is responsible for all outgoings direct attributable to their occupancy

Section 40 – Tenants Responsibilities: The following become unlawful acts with exemplary damages to the landlord

• Tenants failure to comply with a Termination order ($1000)
• Using or permitting the premises to be used for unlawful purposes ($1000)
• Harassment of other tenants or neighbors ($2000)
• Assigning or subletting when prohibited to do so without landlords written consent($1000)
• Abandonment of the premises without reasonable excuse and while the rent is in arrears ($1000)
• Inference with the means of escape from fire ($3000)
• Intentional breach of a works order($3000)
• Exceeding the maximum number of residents($1000).

Section 45 – Landlords Responsibilities: The following become unlawful acts with exemplary damages to the Tenant:

• Unlawful discrimination ($4000).
• Landlord failing to appoint agent when outside NZ for more than 21 days ($1000)
• Requiring key money ($1000)
• Landlord requiring bond greater than amount permitted ($1000)
• Requiring unauthorised form of security ($1000)
• Landlord requiring rent more than 2 weeks in advance or before rent already paid expires ($1000)
• Failure of landlord to give receipts for rent ($200)
• Landlord seizing or disposing of tenant’s goods ($2000)
• Interference with privacy of tenant ($2000)
• Landlord’s failure to meet obligations in respect of cleanliness, maintenance, or building or health and safety requirements ($3000)
• Unlawful entry by landlord ($1000)
• Landlord interfering with supply of services ($1000)

Section 50A - Death of a Tenant: upon the death of a tenant the personal representative or the next of kin shall be able to give 21 days notice whether it is a fixed term or periodic tenancy.

Section 56 – Notice period: The 10 working day notice period is changed to 14 consecutive days.

Section 58 – Mortgagee gaining possession: both the tenant or the mortgagee can give the other party notice terminating as if it was a periodic tenancy.

Section 60 – Ending of a Fixed Term Tenancy: at the end of a fixed term tenancy it is proposed that it will become a periodic tenancy under the same terms and conditions as the previous fixed term. Either party with an intention not to continue with the tenancy at the end of the fixed term must give the other party written notice of their intentions no earlier than 90 days and no later than 21 days before the end of the fixed term. The tenant must advise the landlord (in writing) at least 21 days before the end of the fixed term.

Section 62 – Abandonned Goods: under the proposed changes, tenant’s goods left at the premises on termination of the tenancy (abandoned goods) can be disposed of in the following order;

• foodstuffs and other perishables can be disposed of;
• with other goods the landlord must make reasonable efforts to contact the previous tenant and come to an agreement upon a period within which the tenant can collect the goods;
• if unable to contact the tenant, agree on a period with the tenant or if the tenant fails to collect the goods within the agreed period the landlord may remove them to safe storage and apply to the tribunal for a disposal order (as at present) or he or she can get a market assessment of the goods, and if the market assessment value is less than the cost of storing, transporting and selling them then the landlord may immediately dispose of the goods. If the market assessment is greater than the cost of storage, transporting and selling them, the landlord must secure the goods for not less than 35 days and after that the goods can be sold for a reasonable market price (by auction or private treaty) with personal documents surrendered to the police. The landlord can then apply to the tribunal for an order specifying the amount owing to the landlord from the tenancy from the sale proceeds. The landlord is not liable in respect of the goods sold nor can the ex-tenant claim them back from the purchaser.

Section 66 - Boarding houses come under RTA: All Boarding Houses will come under the Residential Tenancies Act. A Boarding House is specified as 6 or more tenants at any one time when the landlord specified which tenant has which room – i.e. studio room.

Section 77 - Award against a tenant guarantor: the tribunal can now award against a guarantor of a tenant (previous this had to be taken to the disputes tribunal)

Section 102 - award costs of filing fee: if the applicant is wholly successful in his or her claim, the tribunal must order the respondent pay the filing fee paid or if partially successful the tribunal may order the respondent pay the applicant the filing fee.

Don’t worry too much if you don’t understand all of the changes.  APIA will be hosting at least one workshop on them, with the first one on 20 October 2010.  I am working with the Department of Building & Housing’s Troy Churton and Jessie Henderson and also Jan Galloway (a property manager with over 25 years of experience in Auckland, owner of Corinthian Limited – boutique property management company, APIA Board Secretary and runner-up with her husband Lyle Galloway in the 2009 NZPIF-DBH Landlord of the Year awards), and Andrew King (best selling author on property investment, APIA President from 2000 – 2007, current NZPIF Vice-President).

Sources: with huge acknowledgements to Jeff Montgomery and all of his hard-working team at the Department of Building & Housing, and the New Zealand Property Investors’ Federation, Auckland Property Investors Association and other Property Investor Associations around our country.

David Whitburn LL.B BSc

President – Auckland Property Investors’ Association (Incorporated)

Barrister & Solicitor of the High Court of New Zealand

Quotable Value, the Government Valuation agency released statistics today showing that we are still in the downturn phase of this current property cycle.  Property values have declined by 1.1% since 31 March of this year.  Values however are 3.1% above where they were on 31 August 2009, but this is 5.0% down from the peak of the last boom in 2007.

Lets take a look at the past 5 years to process the QV statistics graphically:

You can see the market growing relatively rapidly (and not just because the left hand axis starts at 70% and not 0%) from August 2005 to August 2007 and then reaching a plateau like Table Mountain in the Coromandel Ranges that I used to like tramping in.  Then in April 2008 to April 2009 the market retrenched nearly 10% from the peak.

I Love Auckland – New Zealand’s Super City

I feel it is important to focus on Auckland as I am an immensely proud born and bred Aucklander, and the fact that Auckland is our nations economic hub and New Zealand’s biggest city by far. Interestingly Mayor of Auckland City, and leading Super City (Auckland region) Mayoral Candidate John Banks said in his address to the Auckland Property Investors’ Association (APIA) last month that people are looking at migration decisions (both immigration – coming into Auckland or emigration – leaving it) as being an issue between cities and not countries.  Therefore it is important to know where we our leading city stands.  Mercer, an international recruitment and consultancy firm, publishes an annual survey of all the leading cities in the world.  In the 2010 Mercer Quality of Living Survey Auckland defended its 4th position (equal with Vancouver in Canada).  Wellington deserves an honourable mention at 12th this year too.

The statistics for the Auckland region show a fairly similar story to the rest of the country which is unsurprising since Auckland property sales make up over a third of the index, so it is most heavily weighted in Auckland’s favour. However the statistics do show that Auckland suffered a slightly deeper decline than the rest of the country in 2008 and into mid 2009 before an encouraging recovery to be at 31 August 2010, only 2.4% down from its late 2007 peak:

Is it right to lump all of Auckland together?

From a personal perspective the statistics need a little bit of fair review and criticism here, as it is perhaps unfair to lump a city of over 1.4 million people together as one market.  We could be more relevant and break Auckland down into the CBD to include our apartment market, into East Auckland, which is so different from South Auckland, yet united by being part of Manukau City, West Auckland, Central Auckland (again so large that this should be split up as the more affluent areas are so different from the middle of the road areas), the North Shore, Papakura etc.  I wish QV would break down the statistics in this fashion – after all these sub markets are far bigger than small cities like Dunedin and Hamilton, and both Auckland City and Manukau City (South & East Auckland) are bigger than both Wellington and Christchurch. Since I don’t have this data for these sub areas, or separate housing markets of Auckland, I will have to give you my own take on things.

Interestingly last year some self proclaimed Property Gurus and real estate agents mistook the mid to mid-late 2009 price increases as being a sign that we are in the boom.  They got it wrong.  This in actual fact was only a slight recovery after a severe decline in 2008 and early 2009 – the statistics from QV above clearly show this.  My mentor in 2003, Kieran Trass of the Hybrid Group, showed me that in each of the previous four property cycles that the slump (or what I like to call downturn) phase of the property cycle lasted longer than the boom immediately preceeding it.  APIA’s principal sponsor ANZ, had Craig Moffat stating at the NZPIF Conference in 2009 the very same thing. I currently believe that we will be in the downturn phase for at least another 2 years, before the recovery begins.

I want to share with you my story which comes from helping my younger sister purchase her first house. I have been to many centrally located auctions in Auckland over the past 12 months or so with Barfoot and Thompson’s Wednesday afternoon ‘mega’ auctions at their lovely Chancery Court building in the CBD, and onsite in homes in Epsom, Mt Eden, Ellerslie, Remuera, Parnell, Kingsland, Ponsonby, Westmere, and Grey Lynn.  There were many people going to auctions and some crazy prices bid, particularly towards the end of last year and early this year.  However now in these centrally located affluent suburbs of Auckland there seem to be fewer buyers than before and in general the bidding isn’t silly, but the prices achieved are often pretty good.  This is an interesting “market depth” issue as the volume of sales is very low (see graphs from Realestate.co.nz Limited below for 1. New Property Listings which are well down,  and 2. Inventory – the number of weeks to sell all of the listed property.  Note that Auckland has a 36 week inventory as a region, so we are not as bad as the 46 weeks graphed which is the NZ overall inventory):

So from around April 2009 onwards the Auckland prices had a slight recovery but there is downward pressure again without much wage inflation, with a necessary change in mindset to reduce debt and to get away from the I want it now mentality and going back to needs and not wants.  Also investors are shortly going to feel a bit of a pinch with depreciation changes and paying 2.5% more on rates, insurance, property management fees and repairs & maintenance costs.  That is counterbalanced somewhat by receiving some personal tax cuts, but the positive impact of tax cuts combined with the negative impact of depreciation expenses being decimated plus GST rises mainly provide a net benefit to investors with small portfolios (1 – 2 rental properties).   There will be a spin-off for houses in medium and higher value areas as they will have a vast number of people earning over $70,000 per year and having their personal tax rate slashed from a very high 38% to 33%.  More money will be spend on improving housing, new kitchens that were held out for the past two years, upgrading that cracked driveway, improving the gardens, and some more consumable spending like getting that new 55in LED TV will happen as well.  My sister is still looking for a home with her fiancee in central Auckland near her CBD office.

Increase Your Rents

I got called earlier this afternoon by the New Zealand Property Investor Magazine to talk about rents in Auckland.  I talked about splitting Auckland up into sub markets as above, and noted the performance in particular of the North Shore which has had strong rental demand in general.  The pressures to increase rents are present, but are stronger in the more affluent areas – the tax cuts tenants will be receiving, plus landlords facing increased expenditure from GST rises, the ill fated Emissions Trading Scheme and the slashing of our depreciation expenditure mean tenants acknowledge that they will be facing rent increases.  Since like the rest of New Zealand the Auckland Property Market is still in a downturn, waves of capital growth aren’t coming anytime soon as we have yet to even reach the recovery phase of the property cycle.  So lets not let our tenants down!  Give them the rent increases they expect.

Acknowledgements: www.realestate.co.nz and www.qv.co.nz for their excellent statistical collection and compilation

The past 8 days have been very interesting for me.  On Sunday 29th August I was walking on the new southern lanes of the Newmarket Viaduct that Transit New Zealand had opened for just a few hours.   Then after going to bed unfortunately late at 11:30pm or so, my wife and my sleep was interrupted at 2am on Monday, when she went into labour.  After one of those drives from hell with my wife having those painful contractions in the car on the swift 10minute drive into Auckland Hospital, we had great news that at 5:12am our beautiful baby girl was born – Emily, weighing 3.335kg and 54cm long (I will not use tall as she simply will not be standing for quite a while).

Newmarket Viaduct

Aucklanders reading this blog know how necessary this update is.  From Spaghetti junction going from 4 lanes into 3 was ridiculous, along with the falling debris issues from the aged structure with “concrete cancer”.  However for the non-Aucklanders reading this blog, the Newmarket Viaduct is one of the busiest stretches of motorway in New Zealand that services our nation’s economic powerhouse that is the Auckland CBD.  It was built in 1966 to link the Southern Motorway to the city, the Harbour Bridge and to Spaghetti Junction (as opposed to going up Great South Road and through Broadway in Newmarket Village itself).

Recently the bridge has come under criticism about the fact that debris flies off the viaduct to busy Newmarket below, seismic susceptibility (I wonder what would have happened had the Christchurch earthquake of 7.1 on the Richter scale hit Auckland), the bridge has been separating in sections to create big gaps and there was very little stopping space now the bridge contains the maximum amount of lanes.

In 2009 Government statistics reveal that the Newmarket Viaduct carried 161,490 vehicles per day with the split being; southbound at 83,117 VPD and 78,373 VPD for northbound.  The image below comprises a series of 5 moving renders to demonstrate how the viaduct project is happening – we are in the start of Stage 3 currently (images in this blog are with acknowledgements to Benjamin Paul, AucklandMotorways.co.nz, NZTA/Transit NZ).

I will leave you now with some photos I took from Newmarket Viaduct.  I have to say that the views of our beautiful city Auckland, are simply amazing:

View towards Sky Tower from the Newmarket Viaduct

View to Broadway, Newmarket

View North to Rangitoto Island above Remuera Road

My baby girl

I am delighted to let you know that our family has expanded to four with the arrival of baby Emily. Her brother is currently a shade jealous of her, as she gets a lot of attention, especially from Mummy, but he’s doing so well with a lot to take on board just before he turns 2 years old.

Here’s little Emily doing what she does best:

The sleep deprivation is proving a bit of a challenge, but not an insurmountable one.  I am looking forward to her being able to sleep through the night like her brother did reasonably early on – fingers crossed.  No matter though,  we are very happy to have her and the tiredness is so worthwhile when her little hand wraps partially around my finger and she looks with her dark blue eyes into mine.