December has arrived and while this article has a serious side, for a bit of fun we’ve included a couple of links we believe you’ll enjoy.
Landlords are nervous and some are wondering about the future of property investment in New Zealand and if it’s right for them in 2018. There’s definite cause for their concern too. Change makes us nervous and with so much it threatening to affect the profitability of property investment the question on many a landlord’s lips is “shall I stay or shall I go”. (Editor Note: here’s the link to the official video).
So what’s all the fuss about? Well, there’s increase in the bright line test from two to five years; extra costs and compliance and a perceived tenant bias with recent tenancy tribunal cases and also the loosening of tenancy conditions and this is a lot of change for anyone to cope with. So what is the future for this type of investment in 2018?
Depending on your perspective – the glass is either half full or half empty. Some investors whom are more of the persuasion: “prove me wrong” (Editor Note: click the link and watch the youtube video – the lyrics explain perfectly how some landlords are feeling right now), would say the future isn’t looking good and time to bail is now while others whom have been through many property cycles say ‘suck it up’ and carry on. A blog post on Pedersens property management website says their sources report the Auckland market has shrunk and competition will be tighter in 2018. Rent increases last year where just 2.9 percent however with the new Government comes no letting fee, and only annual rent rises, more costs, compliance and oh did I mention more costs? Therefore the Landlords in it for the long-haul will pass on the extra costs with steeper annual increases in 2018.
There’s been some good gains for tenants over the past year or so with the previous National Government and now more are on the way with the current Labour Government. There is no passing on of the letting fee, the increase in notice period from 42 days to 90 days and the talk of allowing pets. Plus the insulation requirement by July 2018 and maybe an actual property WOF. However it’s not free and the cost will be passed on to the tenant. Rents will rise and with many Landlords bailing there will be less rental stock to choose from. So is it all doom and gloom for Landlords?
As the saying goes: “In every adversity there’s a seed of equal or greater benefit” and there is a upside for landlords. The loosening of the LVR restrictions will see a return of many investors keen to purchase while they can take advantage of less competition from their peers. Hopefully over time rental stock will be replenished and the natural order of things restored so to speak with happy landlords and happy tenants.
How to Choose and Purchase a Suitable Property to Subdivide
With the demand for housing in Auckland at peak levels and even smaller-scale properties showing substantial profit margins when sold, subdividing a lot into two or more sections has huge earning potential. Those with the means and capabilities to purchase land for the purpose of subdividing are almost certain to see a large return-on-investment, that is of course, as long as it is done correctly.
Choosing a property to subdivide while exploring real estate options requires the assessment of a multitude of factors. Whether or not a property is capable of being subdivided will depend on its size, its location and the physical layout of the property. It’s not always as easy as choosing the biggest section out there and splitting it down the centre.
Considerations are not just restricted to feasibility either. Property investors taking this route should always keep profitability at front of mind. The effort put into the property needs to be reflected in resale value. At times, just because you can subdivide, doesn’t mean you should.
Factors to Consider When Looking to Purchase a Property with the Potential to be Subdivided
The Size of the Property
When it comes to subdividing, size definitely does matter. Generally, the larger the section the better the earning potential will be. On the other hand, it’s important to keep in mind that section size will also affect overheads. Larger sections typically incur higher costs while performing due diligence.
Level land is important, it will be easier to build on and will be more appealing when it’s back on the market. If a potential section is uneven or has landscape issues, it can make property development more difficult. Choosing a property that is already level will allow a smoother process.
Steps should also be taken to assess how easy it will be for multiple households to live on the lot. Consider issues like driveway creation, road and utility access, and street frontage. These factors will affect council consent and appeal once you’ve placed your subdivided property on the market.
The Zoning Rules of the Area
How the area the property is located in is zoned will restrict the type of housing you are able to create and can even cancel out any plans to subdivide. Before purchasing a property, it is crucial to research council zoning restrictions and consider how they will dictate your subdivision plans. Choosing to work with a subdivision consultant will help you navigate this process if you aren’t sure about taking it on yourself.
Subdividing is one of the most profitable actions a property owner can take. The ability to sell two lots from the purchase of one can exponentially boost your earnings from your investment. Council restrictions and market appeal will have an impact on how your subdivision journey will play out. However, with these considerations taken into account while you search, it is entirely possible to choose a property that will offer worthwhile returns.
Another date NZ property investors are dreading
How scary is the new ring-fencing legislation?
Well, just ask any property investor, most of whom are ma and pa investors with less than three rental properties and they’ll tell you it’s outright frightening.
They are the investors, most likely to be among the 116,000 already declaring a loss on their properties and times look set to get tougher for them where selling up may be the only way out.
Ma & Pa Investors Are Not Greedy Landlords
Ma and Pa investors are not your ‘greedy landlords’ with huge portfolios. They’re middle aged workers (GenX, Baby Boomers) and retirees, motivated by the need to provide their own financial security in retirement.
For years the message from those in the know has been: we’re living longer and the Government pension will not be enough to live on.
Taking matters into their own hands, ma and pa investors have heeded this advice and parked some savings in one or two rental properties. However times have been tough in recent years and the not so greedy landlords have seen any profits they had eroded.
Weekly rental increases have been modest for months. Some may balk at this but yes, the evidence is on the Trade Me Rental Price Index and on this blog too.
Property investors have been sideswiped with increases in running costs, which they have had no choice but to absorb initially, before passing them on in the form of incremental rent increases and now there’s another law to halt that with only one increase permitted every 12 months!
See this news item on Stuff, 116,000 rental property owners declared a loss for the year ending March 2017, and it was during the lead up to, and including, this financial year, that legislation changes really started to bite and property expenses started to far exceeded income.
On blogs, property accounting and finance professionals like GRA have provided their interpretation and opinion on legislation changes and forums like our PropertyTalk give a voice to investors and their sentiment.
The ring fencing law will stress out many property investors further, and some to the point of no return. Yes, landlords will sell, so more properties will come onto the market and many first home buyers will happily snap them up. For those amongst us that are politically motivative, they’ll only see the upside.
However there’s a downside too, that’s not been mentioned much.
Rentals typically house more people that first home buyer (FHB) homes. So for every rental property subsequently bought by a FHB, two people are left without somewhere to live.
Housing has been a hot political potato for so long it’s been one step forward and two steps back irrespective of which party or parties are in power and so there’s no end in sight to this housing crisis madness.
Not Just Local
Targeting the rental property owner has been popular not just locally, it’s been a justifiable fear for landlords in the UK, America, and Australia. Check out the links below.
So is there a country getting housing right? Let us know your opinion in the comments below or in a blog post on PropertyTalk or of course in our discussion forums.
Would You Be a Landlord in 2018?
Investing in residential property has well and truly lost it’s shine in 2018, especially in the state of Victoria and New Zealand.
In the UK, Landlords are more philosophical about changes to tenancy laws.
A recent survey suggested around half are actually positive about Land-lording even with the obvious challenges ahead namely Brexit and the political climate.
As aforementioned, can not be said down-under where landlords feel they’re wrongly in the line of sight of politicians for political gain and thus the law changes are not balanced and swing too far in tenants favour.
So the question is would you be a new Landlord in 2018?
Hindsight is a wonderful thing as the saying goes, and many property investors who have been in the property investment industry for some time still love it and already do well by the tenants which really is just commonsense.
However going in now with your eyes wide open and in the knowledge of the recent law changes, increases in everything from insurances to rates and the talk of tougher times ahead – is property investing a good move? For long term investment – why not?
Speculative property investing (though it’s hardly investing) has always been cyclical and when it’s grouped under ‘property investing’ it gives long term buy and hold Landlords a bad name.
Speculators will come and go as the property market moves through it’s cycle and their activity is considered a business and incurs Capital Gains Tax.
Long term buy and hold investors know it’s always been about the numbers and making sure they add up and there is some fat left in for the unexpected expenses.
However the constant politicising and changing of the rules to suit political agendas is disruptive and it’s hard not to think there’s a conspiracy against Landlords and it’s not just in Victoria our New Zealand, it’s more far reaching and this must be putting off would be investors which will be problematic since private landlords supply most of the rental stock.
The UK Landlords must be made of tougher stuff though as 64 percent say they’ll carry on regardless, keeping their rental properties, focusing on the potential of long term profit. The idiom “soldier on” holds firm on the land of the white cliffs of Dover.
Back down under the confidence is not so high among the local property investors. It’s one thing after another and there’s been a lot of change thrown at Landlords in recent months.
The bright line test, LVR rules, and more recently revision of the bright line test to five years and legislation around the quality of the properties.
Insulation, heating, moisture extraction, you name it New Zealand rental properties are getting a hammering from Government. But none more threatening than what might come from the Tax Working Group headed by Sir Michael Cullen.
There’s a lot on the table aimed at raising the tax grab, including Capital Gains Tax and more recently talk of a Property Value Income Tax. If you screwing up your eyes at this one, you’re not alone.
It’s creative for sure, and if implemented, it’s likely to be the tipping point for Landlords unsure if they’ll ‘soldier on’ or sell up and run for the hills.
What’s most perplexing Landlords, is why the sole focus on them and not a balanced effort to improve both the conditions of the suppliers of rental properties i.e. the landlords and it’s inhabitants, the tenants.
Surely the relationship is symbiotic and thus both are needed, now that ever before with homelessness increasing and home affordability out of reach for first home buyers everywhere you look.
Here are some great discussions on various topics affecting the viability of landlording today in New Zealand.
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