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  1. #1
    Join Date
    Jun 2005
    Location
    Nelson NZ
    Posts
    3,863

    Default Nelson PIA November newsletter

    NELSON PROPERTY INVESTORS ASSOCIATION

    NOVEMBER 2014 NEWSLETTER

    PO Box 198 Nelson

    Our seventh meeting of the year is being held at the NelsonSuburban Club, Tahunanui Drive on Tuesday 25th November. We havePaul Davies an investigation officer from Tenancy Services MBIE Wellingtonspeaking. I recently heard Paul speak at a Property Managers Conference onwinning your case at tribunal and other interesting developments going on inour industry. Paul is himself a significant residential investor as well asbeing a tenant. Of course I did not agree with everything he said but I foundwhat he had to say was fascinating and full of good facts. The meeting propercommences at 7.30 pm with the ever popular meal at 6pm when you will have theopportunity to chat to other investors. If you are coming to the meal pleaseemail Glenn by return email. The Suburban Club reserves seats on the basis ofmy bookings.
    POLITICS
    The article below comes fromMuriel Newman’s NZCPR-Weekly. Muriel has spoken twice at our meetings and usedto be a politician. Frank her husband is a well-known and respected investor,writer, and speaker. FrankNewman: Regulation risks for property investors
    Labels: FrankNewman, Governmentregulation, NZ PropertyInvestors' Federation, PropertyIssues
    The ANZ Bank and the New Zealand Property Investors’ Federation (NZPIF)have released the findings of their annual property investors’ survey. It’s aninteresting insight into the thinking of residential property investors and howthat thinking has been shaped by government policy and market conditions.Members of the NZPIF tend to be larger investors who have been in the game fora number of years which is reflected in the results. 1156 propertyinvestors took part in the survey.

    The general themes to emerge are:

    • Concerns about government regulation,
    • Debt reduction, and
    • An expectation that property prices will continue to rise.


    Government regulation remains the key area of concern for propertyinvestors with 52% saying it is their greatest concern, up from 48% last year.In 2010 just 12% rated this as the greatest risk. The main areas of concern area proposed change to banking regulations by the Reserve Bank, and theintroduction of the building warrant of fitness regime for private rentalproperties.

    The Reserve Bank's proposal would require banks to treat loans toresidential property investors owning more than five properties as commerciallending. This is how the Reserve Bank describes it:

    "...if the bank has recourse to, or is aware of, more than fiveproperties owned and let by the borrower directly or through a companyor any other ownership structure of the borrower, and the loan ispredominantly [more than 50%] serviced fromthe rental income those properties generate, then the loan can no longer beclassified as a residential mortgage loan but should be classified as eitherincome producing real estate or SME [small and medium sizedenterprise] retail lending. The bank is required to verify whether thecustomer has any other rental properties or residential mortgage loans withanother lender or lenders as part of its credit origination process."

    SME bank lending is considered to be higher risk lending and is chargeda higher interest rate. To target larger residential property investorsis a truly absurd notion given the diversification of a large residentialproperty portfolio actually lowers risk - larger investors should pay lowerinterest rates than the single property owner.

    The true purpose of the regulation is obviously to put the brakes onhouse prices by targeting existing property investors, just as they targetedfirst home buyers when they changed the loan to value ratios last year.

    According to the ANZ survey the policy will cause investors to changetheir investment strategy – mostly by not buying new properties, or by selling. Two-thirds say they would be less likely to buy another property.

    Also high on the list of concerns is interest rate rises. Thirty-fivepercent stated this as their greatest concern, up from 28% last year.

    Other key points are:

    • Over the last year twice as many investors decreased their debt ratios than increased them. Rising property values was the main reason (40% of investors), followed by higher principal repayments being made (18%), while 11% had sold a property and reduced debt.
    • The average debt level has fallen slightly in the last year to 54% of the property value.

    - 34% had a debt to property value ratio of lessthan 50%
    - 36% a debt ratio between 50-74%
    - 22% between 75-89%, (24% last year), and
    - 6% had 90% or more (down from 8% last year).


    • Investors expect property values to keep rising faster than rents. Nationwide property values are expected to grow by 4.8%, and rents by 2.8%, in the next year. Over the next five years, Auckland property prices are expected to increase 12.8% annually and rents by 4.7%. In other words, Auckland's boom is expected to continue.
    • Those intending to buy another investment property within the next six months continues to rise, up to 23% from 17% in 2010.
    • Investors holding properties in a family trust has increased from 23% to 31% in four years.
    • One in five investors had not come to grips with the insurers’ move to sum insured (instead of replacement). This is particularly concern given members of the NZPIF are likely to be more informed about this issue than your average property owner. The reality is property owners are likely to be underinsured and will suffer serious financial risk in the event of a Christchurch type natural disaster happening in their area.

    NOT FOR PROFIT HOUSING PROVIDERS.
    The next article in NZCPR after Frank’s contribution dealt with the rise of charities in New Zealand and how there seems to be something terrible going on with a number of organisations who have squandered and misappropriated money they have been given by the Government. Naturally a number of Maori entities come in for some criticism on this account. However Wakatu incorporation and a few other highly successful Maori entities were mentioned and praised.This got me to thinking about how the National led government is pouring a fortune into Not For Profit social housing entities. These organisations have the potential to become significant players in the market with an aim to reduce the rent levels and control and restrict private investors in how they go about their business. Some well-known respected New Zealand organisations have been quoted as good people to be given the job of proving social housing, perhaps by selling Housing NZ houses to them and granting them a subsidy to carry out the management. The Salvation Army church is one such organisation that has been quoted. The main player in Nelson is the Nelson Tasman Housing trust. This trust is a charity alongside various other good organisations like many churches and for example Beneficiaries And Unwaged Workers Trust. The Charities commission requires all such organisations to make an annual return with is available for the public toview. As with all financial reporting there are various ways external people can analyse and interpret what limited information is published. However the Charities Commission is tightening up on the requirements of charities reporting. In the future more details will need to be reported. Cynics like myself do not think that this will stop misappropriation nor serious inefficiencies. So far NTHT have published five annual reports. It is not possible to see everything from their annual report. It appears that their average rent is $160 per week for their rentals the most of which are two bedroom connected flats. They report that they have close to $8 million worth of property which equates to an average book value of $250000 per property which is returning 2.5% gross. Their reports indicate that they have been funded by central government who paid them $1,077,900 last year. At the moment the idea of HNZ is to house those people in our society who are the neediest. Private landlords are supposed to pick up the remainder. Bearing in mind there at the 2013 census there were 428,000 private rentals in New Zealand of which 9000 arein Nelson Tasman it is not likely that 32 held by NTHT are going to make much of an impact. However the government seems intent on restricting and penalising the private sector whilst rewarding their pet projects. Close to an extra Billion $ of extra tax has been imposed on the private property investment sector whilst at the same time both central and local government are allowing the charities to avoid their share of taxes and levies. A number of private landlords house tenants who would never be permitted to rent NTHT nor HNZproperties. Some of those tenants are for instance groups of young people, those people between home ownership, foreign guest workers / students and other people who have made themselves unwelcome in the social sector. These tenants can range between very easy to rather difficult. The better tenants command better quality rentals and the others have to put up with what they can find.As investors one would reasonably expect to get a higher return from those tenancies that take more effort to manage. Much more could be said about thenot for profit sector and many of you know lots more than me. We all need to be wary of the creeping virus in our society. Over the centuries very significant social and political movements have been born out simple well-meaning embryonic ideas that have been able to tap into central government resources. Democracy is government by the people for the people. Who knows who is being held accountable for their actions and if anyone actually monitors their outcomes.Time will tell but when the scale of operations increases the management structure also needs to adapt. Who knows what those managers and organisations will mutate into? The bigger the organisation the bigger the risk. My small company has successfully managed close to 300 properties 10% of which are the most difficult in Nelson. This has been done without any special assistance from Central and Local government. I house a number of tenants who have been either rejected or evicted from the social housing sector. It is not easy and no acknowledgement is given nor expected from society. The plan of theGovernment is to pay the same income related rent subsidies to the private social housing providers as is currently paid to HNZ. That payment is 6 timesthe amount paid to tenants in the private sector. I guess the comment could bemade that if that level of generous subsidy was not paid to HNZ they would become insolvent. It will come as no surprise to most readers that Government enterprises are rarely as efficient as private enterprise. It is a mystery to me why the government thinks that the 10% of tenants in social housing in Nelson are more deserving than those in the private sector. This is even more alarming when it is considered that the private sector such as myself are often housing the most difficult, vulnerable and needy in our society. Of course the politicians and intellectuals blame the greedy landlords for providing lower standard housing to some people whilst ignoring the fact that significantlyless money is provided for privately housed tenants.The danger for the new boys on the social housing block growing strongly on the rich milk flowing from the government coffers is they will become dependent on this money. Does anyone remember the private not for profit housing for the elderly. Green Gables used to be operated by the Presbyterian Social services and Omaio by the Salvation Army. These fine organisations along with lots of others around the country have been sold to private operators. Why did they disappear? They couldnot adapt to changes in subsidies from Central Government despite many hundreds of thousands of local money along with strong local volunteer input being donated to them by our community. But wait life is not only about money. Go and have a walk through what is left of Omaio and then Earnest Rutherford. Get the point. Yes the not for profit facilities look horrible compared with the private sector. Cheaper housing is not better. The answer is not to get politicians to pull levers and push buttons in Wellington. The answer lies with you and me. Tenants prefer private landlords. They like to talk to the owners of their homes. Tenants behave much better when they can contact owners when problems occur. They prefer to deal with a person rather than an organisation. Sure an organisation might have vastly more resources than private mum and pop landlords. But most of the simple fixes at properties can be done quickly and cheaply by a local landlord. One of my long term tenants mentioned this kindly to me last week. She said she likes her landlord who will come the next day to put a new knob on her stove and a new set of pan screws on her toilet bowl. Cost to me a few dollars. Profit in good will was incalculable. Sorry Nick andBill you cannot compete with me. I can beat you hands down any day.
    Glenn
    This newsletter is publishedwith the Support of Summit Property management.

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  2. #2
    Join Date
    Mar 2007
    Location
    Auckland
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    2,979

    Default

    According to the ANZ survey the policy will cause investors to changetheir investment strategy – mostly by not buying new properties, or by selling. Two-thirds say they would be less likely to buy another property.

    Which is, of course, the aim of the policy.

  3. #3
    Join Date
    Jun 2005
    Location
    Nelson NZ
    Posts
    3,863

    Default

    Quote Originally Posted by flyernzl View Post
    According to the ANZ survey the policy will cause investors to changetheir investment strategy – mostly by not buying new properties, or by selling. Two-thirds say they would be less likely to buy another property.

    Which is, of course, the aim of the policy.
    Can you remind me. What is the aim of the policy. Is it to reduce the number of rentals. Now that is a cunning trick. Why didn't I or you think of that.
    If there are less rentals that must mean there will be more people in their own home. Surely any one who was a politician or senior civil servant would understand that principle.
    If the people are crying out for bread give them cake.


 

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