“Northies News” for October 2016

Property Traders vs Investors.

I think there is a big difference between someone who trades in property and someone who invests in it.

The biggest difference is probably time. A trader will be involved with a property for a short period of time, while the investor’s involvement will be for much longer. For the property trader it will be a business and involve the tax payments, business costs, property improvements and marketing costs associated. For the investor, the tax costs are not likely to be there, no marketing costs because they hang onto the property, but could have the improvements costs before they rent it out.

Each have their own effect on the market, and the business of trading will have a more immediate effect than the investor. The trader could be involved in several properties over a short period of time, but an investor is more likely to be interested in the long term value of the property, and as an asset to be used later.

The Scourge of P.

Something that is not only costly to a landlord, but to the community and our future as well.

To recognise the signs:

  • Unusual chemical smells.
  • Chemical containers in large quantities (labelled solvent, acid or flammable).
  • Glass cookware and utensils that are stained.
  • Chemical stains around the kitchen sink.
  • Cold and flu medication boxes in the rubbish bin.
  • Yellow/brown staining of the floor, walls and ceiling.
  • Missing or broken light bulbs.

If any of these are present, then a test for the dreaded stuff is likely to be necessary! I can refer you to testers if you need one.

The AML/CFT Act.

And what may this be – you might ask!

Our Real Estate Institute of NZ (REINZ) is dealing directly with the Ministry of Justice on the proposal of how Phase 2 of the “Anti-money Laundering and Countering Financing of Terrorism Act 2009” will apply to real estate agents.

Real estate has been highlighted as one of the areas of high risk for money laundering, as was pointed out in a NZ Herald article recently. Money launderers can use real estate transactions to introduce large amounts of illegally gained funds in the financial system, and then gain “clean” funds from a property on-sale or rental.

It is expected that real estate agents will have reporting obligations that will include an AML/CFT Compliance Officer and all the reporting and documentation requirements of an independent audit.

Boundaries on vacant land.

The Sale & Purchase of Real Estate agreement has a clause that says for vacant residential lots the vendor shall ensure that all required boundary markers are present in their correct positions, prior to settlement.  To overcome any misunderstandings and misinformation, it is advisable to have these in place at an early stage in the marketing of such a property. All prospective buyers can then see they are clearly defined, and will then be much more confident about the purchase of the property, and the vendor.

Back Up Offers.

Contracts can often fall over due to inspection and finance issues, so it can be a good idea to submit a back up offer. The timeframes involved need to be investigated and considered. For example, for a LIM report:

  1. There are five workings days for the application to be made to council.
  2. There are ten working days within which the council provide the report.
  3. There a five working days for the purchaser to give any notice to the vendor.
  4. There are five working days for the vendor to respond.

In reality, you could have a total of 25 days before a back up offer can be considered. That’s something to remember!

Signatories

The people who sign the documents, listing forms(Agency Agreements), contracts( Sale and Purchase of Real Estate) and other forms:

  • Trusts – all trustees must sign.
  • Partnership – all partners must sign unless specified otherwise in writing.
  • Company – all directors must sign unless specified otherwise in writing.
  • Authorised persons – verification will be asked for from their solicitor.
  • People must be capable to sign – “entirely” capable so as not to be taken advantage of.
  • Power of Attorney – a copy of the authority provided and verified with their solicitor.
  • If under anaesthetic – signature cannot be taken until 5 days after the anaesthetic was given.

Auckland Housing

Attended a seminar where Jamie-Lee Ross was speaking the other week.

He gave a very good, well prepared presentation of what we already know:

  • what hasn’t been done
  • what has been done
  • what changes they have made

but – and there is a BIG but – there was no long term plan!

[I see in the Herald that the Govt have decided on doing something – but it still seems like a plaster on a cut.]

“Northies News” for September 2016

A great start to a day.

Breakfast finished, so it was into the office and start the day. First daily task – check the emails and do the three D’s – delete/deal with/distribute.

Check the diary for appointments – looks like a quiet day today. Phone goes! Landline, so no number to identify the caller! Wonder who it is?

“Good morning!”

“Good morning. Am I speaking with Ian North?”

“Yes you are. How are you?”

“I’m good thanks. I see you have some properties to rent and we were wondering if you’d like another for your books!”

It turned out to be a property investor with a two bedroom townhouse they wanted a tenant for, had seen my advertising and decided they’d like me to help them.

Man, those are wonderful calls to get! When someone rings you to give you business! Wonderful! These kind of people are the ones you do more for!

The market

Is it too late! Has the market started its downward trend in the Eastern Beaches area, or is this just the “End of Winter Blues!”
The latest data is out from the Real Estate Institute of New Zealand and it shows a 2.27% drop in the median house price from June to July. This is after there was no change from May to June this year.
Have buyers said “Enough is enough!” and are starting to take their hands out of their pockets?
September data will tell us more! I will put an update on my web site and Facebook Business page on the 16th.

 An appraisal is not only a must..!

The reason, the method, and the need for an appraisal of your property has changed.

No longer is it just to get an idea of what it will sell for!

No longer is it given on the spot with a scratch of the head!

And no longer is it just to satisfy your curiosity!

Today, licensee’s in real estate must provide their client with a written appraisal, realistically reflecting the current market conditions, and supported by comparable information on sales of similar properties.

To do this, a licensee must exercise skill, care, competence, and diligence in carrying out that work.

And the advertised price must  then, clearly reflect your pricing expectations.

Being provided with an appraisal also means you have got a much better idea whether the price you are being offered, is a good one or not. There have been recent reports of properties selling several times during a month. If the first owner of the property had used a real estate licensee, they would have had to have been given an appraisal on their property, and would have then had a much better idea of the current market price.

 

 ‘Sleep out’: Take care when making representations.  

Making representations and advertised a property as having such things as a ‘sleep-out’ need to be correct and the legalities of them confirmed. A purchaser bought a property with a ‘sleep-out’ and carried out works on the property only for the Council to order the purchaser to stop work on the ‘sleep-out’ as it was said to be unconsented. The purchaser had not been told that the ‘sleep-out’ was unconsented, but his Licensee was able to show additional evidence to the decision makers, accompanied by an affidavit from the purchaser’s neighbours that Council consent was not required as the sleep-out was less than 10 metres in size. The Council’s order requiring that work be stopped was due to the purchaser’s subsequent construction on the ‘sleep-out’.

This decision highlights the importance of licensees and vendors ensuring that they take care when advertising a property as having a ‘sleep-out’ or making other positive representations, so they are able to substantiate any representations that they make.

 

“Northies News” for August 2016

 

Finance and Bank Rates.

Things have been changing quite quickly in finance circles recently. What the banks have been asked to abide by now is:

  • 60% max LVR(Loan to Value Ratio) for investment properties.
  • 80% for owner occupied properties (10% of the new lending can be for those with less than a 20% deposit).
  • ANZ and SBS max LVR for owner occupied properties is 85%.

There are other aspects to these that Alan Billington of Loan Market can explain for you – 021 800 105 – or you can contact your financial person.

 How some others see the market.

An investor – noticed an attitude change from Banks when loan renewals are being discussed. Investors now looking for longer terms and to maintain the cash flow.

A property valuer – working with some 1st Home buyers and new builds.

A trader – money becoming tighter and feels the market is likely to come back 5%.

A developer – recently spent $12M on land purchase and sees sales as being yield governed, moving into building bigger homes/higher value/higher specs and in better areas.

The “Unitary Plan”

There is plenty of information out now on the Auckland Council web site. For some people it might mean that you are now in an area where you can subdivide to a smaller land size, and so fit more homes on it. The homes will be smaller and so cost less, and you may therefore be doing your bit to provide “More Affordable” housing.

Residential Land Withholding Tax

When does the RLWT apply? If these criteria apply then RLWT will also apply ( unless there is an exemption).

How is it calculated? The amount of RLWT will be the lesser of (a) RLWT rate(33% individuals,28% companies) x vendors net gain on sale (b) 10% of purchase price or (c) Purchase price – security discharge amount (for mortgages etc) – outstanding rates.

The market

It is going to change – but it will do it slowly. There are still not enough products to meet demand, and the additional supplies are not going to happen over-night, the land is not going to become available over-night, and the infrastructure for new areas is not going to happen over-night.

What could happen more quickly is that owners who have properties that are big enough to subdivide could start building extra properties on their land. The infrastructure for these places is already there so enables homes to appear more quickly.

If you are thinking of selling, you should still be able to get a reasonable price while this market exists, and it may last for 6 months to a year.

But there are other introduced factors to quell the market flames that will start having their effect. The LVR rates, the increase of deposits required by different purchasers, the Bright Line test, Banks becoming less generous…will all cause prices to change, adjust, and start dropping.

Building Code Updates

The Government is proposing changes to 32 Building Code compliance documents to ensure standards keep pace with industry developments, best practice and new research, Building and Housing Minister Dr Nick Smith says.

The proposals involve adding two new Acceptable Solutions around waterproofing, and amending 32 existing Acceptable Solutions and Verification Methods. These include changes to the requirements for glass barriers, safety glass, foil insulation and slip resistance of walking surfaces.

Tenancy Tribunal: Practice Note issued re Tenants’ Liability for Damage

The Tenancy Tribunal has issued a Practice Note in relation to ‘Tenants’ Liability for Damage’ in response to the recent Osaki decision in the Court of Appeal. The Practice Note takes effect from 1 August 2016 and relates to applications where the landlord claims damages compensation for damage done to the premises that is more than ‘fair wear and tear.’

Salespeople Must Recognise ‘Issues’ with Titles

As Licensee’s we must make sure that we are aware of, and have some understanding of, the Certificate of Title for properties. This includes seeking clarification about significant issues with the title relating to several things like easements, rights, covenants, restrictions and right of ways. This is so that we are able to inform potential purchasers of the significant issues with a title, or draw their attention to items, so that they are able to seek professional advice if they require it.

This is just one of the very many things licensees need to know, be aware of, understand and inform people – both buyers and sellers – about.

 

“Northies News” for July 2016

Tenants & Landlords – There is now a new Tenancy Agreement.

Due to the amendments to the Residential Tenancies Act 1986 that come into force on 1 July 2016, Tenancy Services have updated their tenancy agreement which is now available on its website. The amendments require all residential rental properties to have smoke alarms installed by 1 July 2016, and for all tenancy agreements signed on or after 1 July 2016 to include a statement about the insulation status of the property.

Update to Sale and Purchase Agreement: Residential Land Withholding Tax (RLWT)

From 1 July 2016, RLWT will be payable on certain residential property sales by offshore persons. The Agreement for Sale and Purchase of Real Estate has been amended to provide protection for purchasers where the vendor does not have a conveyancer or is an ‘associated person’ to the purchaser.

The new RLWT clause for all Agreements for the Sale and Purchase of Real Estate will now be in all Sale & Purchase agreements prepared by Northies Real Estate.

Plaster built homes – Leaky Homes? Not always!

Heard some very interesting points at a seminar about plaster homes and being leaky or not! It was pointed out that all our homes leak. They are designed to allow water that does get in, to get out as well! It was also pointed out that many of our homes have water getting in around windows, maybe sliding doors, and where walls meet roof lines. And that the silicone and rubber joinery on aluminium windows has no guarantee and when they perish, water gets in. Replacement of windows and structure around them may be necessary, but not a complete re-clad of the whole house.

It may be a case of faulty products rather than a leaky home crisis needing re-cladding.

Finance and Bank Rates.

After reading an article in the local paper recently, I asked the Mortgage Broker – Alan Billington – for clarification. The question was – Does everyone have to have a 15% deposit when they purchase a home now? The reply was – “Yes, if it is with ANZ!” and here are some brief details:

ANZ – max LVR(Loan to Value Ratio) for Auckland 75%. Outside Auckland 90%. Max LVR where more than one property is held 70%. Applicants relying on overseas income max LVR 70%.

ASB – max LVR for NZ citizens or permanent residency 70%.Not using overseas income in loan assessments for non NZ citizens at present.

WESTPAC – max LVR 70% for NZ citizens, permanent residencies with overseas income.

BNZ – max LVR NZ citizens & permanent residencies outside NZ 60%.

There are other aspects to these that Alan can explain for you – 021 800 105 – or you can contact your financial person.

Housing Affordability

“Interest rates are absolutely relevant to the debate on housing affordability, particularly for first home buyers. People very rarely buy a home with upfront cash, instead paying for it over many years out of weekly earnings through a mortgage.

“The monthly repayments on a median home of $346,458 in 2008 would have cost $603 per week at the floating rate of 10.88 per cent, while a median home today, worth $506,000, would cost $538 a week at today’s floating rate of 5.64 per cent.” (Building & Housing Minister – Dr Nick Smith taken from his comments after the study by Massey University on 12 July 2016)

 The market.

The sales statistics from the Real Estate Institute NZ came out on Friday. In the Eastern Beaches there has been – no change! For the first time in at least three years the median sale price has stayed the same for two months in a row. May and June 2016 – $1,100,000 and there were 33 less sales but they sold 5 days quicker. Compare that with all of Auckland and there was an increase in the median price of 1.99% from $805,000 to $821,000. So what does that tell us? Whatever you would like to make of it!

And the Reserve Bank’s moves on LVR(Loan-to-Value Ratio) and Property Investors needing a 40 per cent deposit – what do you make of that? How are they going to tell a Property Investor from a Property Trader?

“Northies News” for June 2016

 

Building Reports

Building Reports are starting to have a marked effect on the outcome of a sale, as more traditional homes come on to the market. This makes the clause that is included in your Sale & Purchase Agreement all the more important and needs to refer to the buyer being satisfied with the general condition of the building and any other buildings on the property, their weather tightness and structural integrity.

Any other issues need specific clauses. Some reports may be used by a buyer to have cosmetic issues fixed by the owner. The owner has the option of whether they get these fixed, or have their solicitor convey to the buyers solicitor that they will not (if they are not part of the building report in the agreement). The broken tiles in the bathroom, the textured ceiling in the lounge, the paint flaking on a couple of window sills, the cracks in the concrete driveway, the worn edges of wall paper… are a few examples.

Building reports were initially intended to have buyers get a house or building that had no “building” issues, was structurally sound and had been “built properly”. In other words, that they had all their legal issues met, they had been built to the required standards, had inspections completed to show this. The clauses in every Sale and Purchase Agreement are there for the protection of both groups involved.

There have been agreements written and purchasers have settled where sellers have reluctantly agreed to fix this and fix that, because they did not want to create an issue that could cause the buyer to change their mind. They have become quite offended when the buyers solicitor informs their solicitor that they want the seller to fix the tiles in the bathroom, and to repaint the window sills and fix up the driveway!

Home owners are quite aware of the fact that their home is not new, has been lived in for 25 years, has suffered some wear and tear over that time – and they would expect buyers to understand this.

So depending on the clause in the agreement, home owners have the option of whether they accept buyers “fix this and fix that” requests, or reject them.

 
The market.

Judging by media reports last week where it was reported that the median Auckland price had reached $1M , Eastern Beaches is already ahead of Auckland. Remember this in last month’s Northies News – “That has put the median price for the Eastern Beaches area at $1,050,000!

Recent selling prices in the Edgewater area have been $900,000, $795,000, and $850,000.

Recent selling prices in the Udys Road area have been $836,000, $879,000 and $888,000.

Recent selling prices in the Marriott Rd area have been $780,000, and $1,052,000.

“Northies News” for May 2016

Residential Land Withholding Tax
The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill is due to be passed into law on 1 July 2016. From this date, Residential Land Withholding Tax (RLWT) will be applied to the sale of residential property where the property:

  • was acquired on or after 1 October 2015;
  • was owned for less than two years before selling; and
  • the seller is an “offshore person”.

It is anticipated that the RLWT provisions will only affect a small number of New Zealand property transactions. However, Real Estate Agents must be aware that when the payment of RLWT does apply, it will be paid in priority to agent’s commissions and lawyer’s fees.  This means that agent’s fees may not be able to be deducted from the deposit received from the purchaser. (REINZ)

 Residential Tenancies Regulations Finalised
Building and Housing Minister, Dr Nick Smith announced that the Residential Tenancies Act Regulations about smoke alarms and insulation have been finalised by Cabinet. The Regulations were developed in tandem with the other amendments to the Residential Tenancies Act 1986 that are due to commence on 1 July 2016. The RTA Amendment Bill is due to have its second reading in early May. The final Regulations include, but are not limited to:

Insulation

  • A requirement that rental properties managed by social housing providers must have appropriate insulation installed by 1 July 2016;
  • All other residential rental properties will need to have the appropriate insulation installed by 1 July 2019;
  • From 1 July 2016, installing conductive insulation will be banned; and
  • Landlords who retrofit or install insulation from 1 July 2016 must meet certain prescribed standards. This is to avoid Landlords installing poor quality insulation in their properties prior to 1 July 2019.

Smoke Alarms

  • A requirement that all residential rental properties have smoke alarms installed by 1 July 2016;
  • A requirement that there be a minimum of one working smoke alarm in the hall or similar, and within 3 metres of each bedroom door in accordance with the manufacturer’s instructions;
  • In a multi-level unit, there must be a minimum of one working smoke alarm on each level;
  • Self-contained caravans, sleep-outs or similar have a minimum of one working smoke alarm;
  • The landlord must ensure that the alarm is operational at the start of each tenancy, but the tenant will be responsible for changing batteries (if required) during the tenancy;
  • Where there are no smoke alarms, long-life photoelectric (or hardwired) smoke alarms will need to be installed; and
  • Smoke alarms already in place do not need to be replaced with long-life photo-electric (or hardwired) alarms immediately, but rather only when they reach the end of their life in accordance with the manufacturer’s recommended replacement date stated on the alarms. (REINZ)

 

What others have said about the market.    

I was at a very interesting seminar recently and noted the following comments:

Valuer – Median prices are up due to higher valued properties selling higher. Lower priced properties are remaining low.

Investor/landlord – Meth users in homes becoming more and more prevalent as well as some “bogus” testers in the market taking tests from the wrong parts of the property to get a clear reading.

Trader/buyer – Buying areas changed from south to centre to achieve a better result. Some concern about the continual rise in prices.

Property Manager – Less bad condition houses and better tenants appearing on the market. Still not enough properties to settle the rental demand.

Real Estate person – Developers striking some interesting situations involving getting consents, where an individual can be holding up consents for a number of developers.

Market researcher – Number of NZ’ers coming back from Aussie is higher than those going to Aussie. Even though the number of consents issued is higher, it shows no sign of catching up with what it needed.

 NZ Herald – “Property Sells Four Times in Three Months”

This item commented on the original seller not wanting to sell through an agency because of costs, and then being astounded at what happened after she sold it!

The lessons I would take from this are that (a) working with an agency means you will be given an appraisal so will not be astounded by what happens later, because you won’t have sold too low, and (b) the cost of commission can be covered in the realistic market price obtained by attracting more than one buyer.

The other eye opening fact was the number of buyers who were not investors but traders in the market, and that they were not overseas Chinese!

And for me, the Herald article on Wednesday 11 May about just which non-resident New Zealanders are buying homes, provides some balance to all the talk. From January to the end of April this year there were 9,657 homes sold in Auckland, 474 were to non-residents, that means 9,183 were bought by New Zealanders!

 

 

“Northies News” for April 2016

Northies News for April 2016.                                                   Mob: 021 486 045

“Selling special homes for special people”

For the investor – “Bright-line Test” Update.
Here is an update on that test (with the name that reminds me of a dentist in Pakuranga), the “Bright-line Test”, but certainly has nothing to do with teeth.

1. It has created a need for more time to be used by both buyers and sellers of property when:

(a) Two or more people are on the title as the trustees of a Trust – the Trust may need to get an IRD number.

(b) If two or more people are listed as purchasers and the property is to be owned in a Trust – the Trust may need to get an IRD number.

(c) Buyers need to provide details for their tax statement on settlement.

(d) For contemporaneous settlements (When properties are bought and sold on the same day – a buyer needs to sell their own home in time to settle on a new property. If the vendor agrees, the settlement date won’t be until the purchaser sells their home) time is needed to get the details required for the tax statement for both properties.

2. Your lawyer’s advice could be a good idea if you want to use the “Main Home” exception, but you own more than one property, have sold recently, or intend to subdivide.

3. Not having the information for the tax statement at settlement can result in a late settlement, which also means penalty interest must then be paid.

The market.

Comment from CoreLogic last week – “Auckland values have rebounded again after dropping for only two months according to the latest QV House Price Index release. The index had dropped in both January and February meaning that Auckland values had dropped very slightly by 0.8% from the December peak. However the latest results show that in March the index rebounded 0.6%”.(Jonno Ingerson, Head of Research, CoreLogic NZ Ltd.) So your $650,000 property in February rebounded to $657,150 in March with a 1.1% rebound.

Today, the results from the REINZ(Real Estate Institute NZ) show that Eastern Beaches median prices show a steady increase has continued with a rise of 2.06% in March from February, but the “rebound” mentioned by CoreLogic for the whole of Auckland has been much more that, with a 9.33% increase from February to March! Both places show an increase in the number of sales and a decrease in the time to sell.

Eastern Beaches - May 2016 Graph of market trends.
Eastern Beaches – May 2016 Graph of market trends.

As REINZ puts it, “Demonstrating that recent fears of the (all of) Auckland market cooling off were overstated, median prices across the city have rebounded and shot through $800k for the first time, to a new record high of $820,000.”

The last two years show a flattening off of prices in April followed by a drop, but the kind of interest being shown at present might mean that this will not happen and things will continue to go up in April.

(If you want more details for the area you live in – just email me a request at ian.north@northies.co.nz)

Establishing the legalities for “Home and Income” properties.
When a Licensee lists a property, which has separate upstairs and downstairs living areas, as suitable for “home and income”, and if the property has residential tenancies in place in both areas immediately prior to being marketed then the legality of this as a “Home & Income” needs to be checked. In the case of one such incident, after a conditional agreement to sell the property was signed, the Council informed the Licensee that the downstairs area was not legally established for a second dwelling. This information then needs to be passed onto the buyer so they can decide what they want to do. In reality, the licensee should determine the legalities of the property with the vendor before it is listed for sale.

Looking at Investing in Property.

Unless you have studied law, accounting, real estate, property valuing and finance you might want to have your own “Tight Five”.

Prop – A lawyer. Aside from just conveyancing, they can also advise you on issues in your deals that can make them work for you, saving you money and even possibly, making you money.

Hooker – An accountant. An accountant with property investment knowledge can help you create your property structure now, so that it is right for the future.

Prop – Real Estate agent. Someone who helps you build your investments by notifying you about potential buys, attends auctions for you, keeps you informed about what they know of the market in an area, can be of great benefit to you.

Lock – Property Valuer. The person who could ensure you are not spending more on a property than it is valued, and with third party values often being used by the financial people. Makes this all worthwhile.

Lock – Mortgage Broker or banker. The person who works with all the others to work through the process. If they understand investing and what you are trying to achieve, your investment has an added chance of being a successful one.

Interested! I can refer you to any one of these specialists should you need one!