Property Market Update – Move Over 2020
With a week to go before Christmas, when most people are winding down, at Erskine + Owen and Point Property we find ourselves in one of our busiest business periods – at the end of a most unusual year.
Since the latest lockdown in Auckland, we have had a record number of people coming to us for buyers’ agent and mortgage services. That trend has been repeated around NZ with real estate agencies reporting record sales. Buyers are keen to purchase property in a market that has delivered significant capital gains over recent times while they can borrow at historically low interest rate levels.
Many of our new clients are living and investing in NZ. However we have noticed a steady stream of interest from expats who are living overseas but looking to secure a stake in the NZ property market, which they view as a global safe haven. Whilst many of the investors are new to our business, we are encouraged by the number of clients investing with us for a second or third time. We get a lot of referrals from these satisfied clients because they know we leave no stone unturned in our quest to deliver the best property buying and mortgage services in the market.
Our focus on purchasing quality properties and generating the maximum yield from each investment property we manage will become even more important in 2021. Increases in demand have increased prices and made auctions and negotiations highly competitive. In Auckland, the median sale price in November 2020 was $1,030,000 (+19.8% on November 2019), and in Hamilton, where we also source properties, the median price was $650,000 (+11.9% on November 2019). Finding good investment properties is getting harder and there is a high risk that inexperienced property investors will pay too much for the wrong property.
The ANZ Bank’s recent reduction of LVRs for property investors to 60% is an indication that the lending market will tighten in 2021. We note however, ANZ’s comments that the current lending market favours property investors. The ability for property investors to borrow money at rates lower than the expected rental yields on the property purchased, is highly unusual and this window of opportunity will be open for some time yet.
Any reduction in LVRs will reduce the purchasing capacity of property investors so buying the right property becomes even more important. Locking interest rates down at an appropriate time to capture the yield : interest rate margin over a longer term should also be on every property investor’s radar. Our team’s experience and market knowledge helps our clients navigate these issues, find the right properties at the right price, and manage their properties and mortgages to maximise their investment returns.
Our Syndication business has grown significantly over the last two years. The successful syndication of the Wattie’s National Distribution Centre in Hastings started this momentum. A projected annual return of 8% and a household name as our tenant created strong demand from investors. In 2020 we added further properties to our Syndication portfolio through two new offerings, our Daycare Syndicate and our Waterloo Syndicate.
The Daycare Syndicate brought together five fully tenanted ECE centres run by experienced operators with 10-15 year leases. This syndicate is paying a 7.0% per annum cash return for investors. The Waterloo Syndicate offered to the market at a projected cash return of 8.0% per annum, is an industrial property in Christchurch close to the CBD and airport, which is leased by a longstanding tenant with an ‘essential services’ client base.
Despite a challenging Covid-19 environment these syndicates have been fully sold down with some investors disappointed to have missed out on investing due to the strength of demand. We are currently considering several new syndication opportunities and hope to have another high-quality property available for syndicated investment early in 2021.
2020 has been a significant year for property management with amendments to the Residential Tenancies Act and the introduction of the Healthy Homes Act. The Property Managers at Point have been busy undertaking training and putting policies into place to ensure Landlords are compliant.
The Healthy Homes Act is a welcome addition to the Residential Tenancies Act, with the improvement of drier and warmer homes for all tenants. Unfortunately, this comes at a cost for most landlords. Fortunately most areas of the cost will improve the life of the asset, allowing for less moisture to enter/remain in the property. Tenants will also be more inclined to have longer tenure in a house if it is offering them a healthy environment. There are various stages of compliance under the Act with the first stage of compliance coming into effect 1 December 2020 and the final measure for all rental properties, is to be totally compliant by 1 July 2024. The five areas of Healthy Homes Compliance are;
- Insulation standard
- Heating standard
- Ventilation standard
- Moisture ingress and drainage standard
- Draught stopping standard
Many of the new amendments to the RTA are considerably onerous on property managers and owners. Apart from the time it takes to implement legislation under the Act, there’s a lot of legislation and process to get to grips with. By using a qualified property manager who is educated in the RTA, a landlord can be confident of not receiving the huge fines imposed by the courts for noncompliance. Following are the main areas of the 2020 RTA amendments that will affect you as a Landlord:
- From 12 August 2020, rent increases are limited to once every 12 months. This is a change from once every 180 days (six months).
- Security of rental tenure – Landlords will not be able to end a periodic tenancy without cause by providing 90 days’ notice.
- Changes for fixed-term tenancies – All fixed-term tenancy agreements will convert to periodic tenancies at the end of the fixed term, unless the parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice in accordance with the termination grounds for periodic tenancies.
- Making minor changes – Tenants can ask to make changes to the property and landlords must not decline if the change is minor. Landlords must respond to a tenant’s request to make a change within 21 days.
- Family violence – Tenants experiencing family violence will be able to terminate a tenancy without financial penalty.
The team here at Erskine + Owen & Point Property would like to wish you and your family a very safe and happy Christmas and thank you again for all your support.
Our office will be closed from Wednesday 23 December 2020 and will reopen again on Monday 5 January 2021. As usual we’ll have staff on standby over the break if any emergencies arise. Thank you again for your support. We look forward to working with you again in the new year!