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  • Legislation to ban letting fees

    Now that this is closer to being passed and possibly by end of 2018, what are the views on this?

    As is suggested it is likely that rents will go up to compensate for this.

  • #2
    Property management fees will go up to compensate for this or they will charge for marketing... but many properties (the majority) are self-managed. I think rents will go up in general because they always do and we have a lot of cost pressures, the biggest of which is probably minimum wage increases.

    There is also likely to be a productivity bump as technology lowers the cost of letting in some as-yet unforseen way. Investors are likely to be far more value-to-cost conscious than renters (who were over a barrel really).
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    • #3
      A lot of rentals are managed by a property manager, over half according to the April regulatory impact statement from MBIE on banning letting fees:

      In 2017, of the total 175,081 bonds lodged, 53.6 per cent were lodged by property management companies and it is likely that a large proportion of them charged a letting fee.

      I would expect PM companies to charge landlords directly and landlords look to recover the amount from rent increases over a year or so. Also to charge tenants for actual costs in terms of s44 of the RTA.

      (Interested to hear from any PMs.)

      Possible unforeseen circs -

      If half of new rentals have a rent increase solely for this purpose, then the market rent moves for all landlords, including privately managed.

      If aiming to recover in a year or so, tenants who stay longer will carry on paying. A buffer for landlords at the very least.

      PMs may start charging tenants under s45, and I'm guessing most currently don't.

      Landlords get a tax deduction if paying a lump sum, though somewhat offset by increased rent over time. However, fiscal impact could be significant. Say 60,000 pay the PM a $500 lump sum in December to March, next peak letting season, talking tax deduction of tax on $30 mill plus GST in one hit. More over a whole year.

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      • #4
        Originally posted by artemis View Post
        PMs may start charging tenants under s45, and I'm guessing most currently don't.
        We are starting to do that. The last one came in at over $845 for the tenant to break their lease. Now, tenants are definitely thinking twice about breaking leases. Three so far have enquired and changed their mind after the cost to break the contract is explained.
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        • #5
          Thanks for correcting me, I had thought about 30-35% were managed, can't remember where I heard that tho.

          Originally posted by artemis View Post
          A lot of rentals are managed by a property manager, over half according to the April regulatory impact statement from MBIE on banning letting fees:

          In 2017, of the total 175,081 bonds lodged, 53.6 per cent were lodged by property management companies and it is likely that a large proportion of them charged a letting fee.
          Free online Property Investment Course from iFindProperty, a residential investment property agency.

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          • #6
            Will this proposed legislation be separate? Or part of the proposed bundle of nefarious RTA reforms?
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            • #7
              ^^ Separate. Christmas present for tenants.
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              • #8
                It'll be interesting to see what other agencies do and whether owners will swallow it; I've got mixed views with whether owners will swallow it.

                The good thing that will come out of it though is that cut price agencies will be forced to start charging higher fees to remain in business and be profitable and those cut price agencies that continue to operate under their usual low cutting fee structure will be forced out of business.

                Rents will go up....yes, that is a natural thing
                Fraser Wilkinson
                www.managemyrental.co.nz
                Wellington / Lower Hutt / Upper Hutt / Porirua

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                • #9
                  Originally posted by FJW View Post
                  It'll be interesting to see what other agencies do and whether owners will swallow it; I've got mixed views with whether owners will swallow it.

                  The good thing that will come out of it though is that cut price agencies will be forced to start charging higher fees to remain in business and be profitable and those cut price agencies that continue to operate under their usual low cutting fee structure will be forced out of business.

                  Rents will go up....yes, that is a natural thing
                  If I was paying the letting fee I'd be taking a lot of notice of churn.
                  It would depend, I suspect, on how many properties you have with a PM as to how they will charge you.
                  Things are a lot more negotiable when you have a lot of properties with them.

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                  • #10
                    I would only be prepared to pay if the tenancy was for a fixed term, of say at least 1 year. Similar to commercial where you pay an agent a fee to find you a good and suitable tenant.

                    Ross
                    Book a free chat here
                    Ross Barnett - Property Accountant

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                    • #11
                      Originally posted by Rosco View Post
                      I would only be prepared to pay if the tenancy was for a fixed term, of say at least 1 year.
                      And if the proposed ban on fixed terms is also passed?

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                      • #12
                        Originally posted by Rosco View Post
                        I would only be prepared to pay if the tenancy was for a fixed term, of say at least 1 year. Similar to commercial where you pay an agent a fee to find you a good and suitable tenant.

                        Ross
                        And most commercial real estate do not expect a leasing fee on short term month by month leasing (as their normal fee is two months rental)
                        The coment re leases as Rosco explained is correct a commercial landlord would need a minimum one year and probably two years plus

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                        • #13
                          Originally posted by Learning View Post
                          And if the proposed ban on fixed terms is also passed?
                          Part of my submission was that no letting fee and no fixed terms didn't work! Or would force landlords to increase rent to cover extra costs, which wasn't good for tenants long term (i tried to write everything in a tenant friendly manner as that is clearly what the government is looking for)

                          Ross
                          Book a free chat here
                          Ross Barnett - Property Accountant

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                          • #14
                            Letting Fees Banned

                            Parliament bans letting fees on rentals
                            01 Nov 2018

                            Originally posted by Stuff
                            Tenants will no longer have to pay letting fees to agents and landlords, after Parliament voted to ban the practice. Housing and Urban Development Minister Phil Twyford estimated the change could prevent the handover of up to $47 million in a payments he said were "unfair" and had "no economic rationale".

                            But while the law change will now come as no surprise to the industry, it's unlikely to be welcomed. The Real Estate Institute of New Zealand (REINZ) said in August, it would like to see tighter regulation in the market but had concerns about how the costs of letting fees would be covered if they were abolished.

                            "Letting fees covered property inspections, advertising, viewings, background checks on tenants, liaison with landlords and processing the tenancy agreement," Bindi Norwell, REINZ chief executive, said.

                            "So actually, they do quite a lot of work. So someone has got to pay for that."
                            But, but, but, Bindi. Dhil said that letting fees had no economic rationale.
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                            • #15
                              Sorry but why are LL's complaining? Letting fee was a $450 one off so up rent by $10/wk to cover and take the win. Sorry tenants but someone has to pay for Labour's generosity and it's not going to be the people who decide who gets to rent the property.

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