December 2018 Newsletter

Contents

  • 2019 Property Price Predictions
  • Time to sell you rental
  • You are about to get Probed ( AML)

 

thank you

Diana and I would like to take the opportunity to thank you for your support over the last year and to wish you and all your loved ones a happy and safe holiday season. The many comments and notes of support we get makes the effort worthwhile. We love to share our combined 60 years of Real Estate knowledge with you.

2019 the year of the Bi-polar Bear.  

Its time for our annual prediction about property prices in Whangarei. We started these in 2015 and they have been scarily accurate so far, coming within a few percentage points of the predictions. We thought 2018 would end with prices 10-12% above last year and in November they are 11.3% above.

2019 is going to be the hardest year to predict because the market is surging on, so all the sales evidence is saying its going up, but the reality is that it probably shouldn’t be. We are overdue a full stop and 2019 is likely to be it. The market seems to have fragmented into two markets. Those properties above $600,000 have been moving slowly but steadily ahead. Influenced by the Aucklander’s relocating.

The lower under $600,000 sector has been going gangbusters.

So what’s going to happen in 2019.

thinking

Prediction#1

We are going to see the slowdown, but the market will have two tiers. Properties above $600,000 will continue to move upwards at a slowing pace while properties below $600,000 will almost stop moving. Over the full year we will see growth at around 5% by December 2019.

The evidence says the market is surging ahead but my gut instinct after over 35 years in the industry is that its time for a re-evaluation.

Prediction #2

The rental market has peaked and it’s time to sell.

 If you are owning a rental for the long term, then hold onto it, but if you are owning a rental for the short term then its time to sell it. The bottom end of the market (rentals especially) has moved more and faster than the rest of the market for two years now. The gap between the dearer properties and rentals has closed and right now, in my humble opinion, rentals are at their peak and probably overpriced.

Rents are moving upwards slowly but are not keeping pace with the investment value. There is a chronic shortage of rental properties so there is no problem with supply.  But the gap between rental house prices and the average family homes has closed to an unusual level.  The bottom end of the market has pushed up while the level above that ($600,000 plus) has moved a lot slower. This means the gap between the different quality of homes and the different areas has compressed. A bit like two tectonic plates moving. Something it going to give!

Either the prices above $600,000 are about to get an upwards adjustment or the prices below are about to stall.  Which is more likely? Listing are coming on at a faster rate, so I personally believe that its going to be the latter.

Prediction #3

The sharp rise in rental value homes will stall for a number of years and in certain scenarios could actually drop a bit.

One of those scenarios is currently happening. The government of the day makes it difficult for private landlords to own homes. The current legislation means landlords have to provide: -, insulation, heating in every room, building warrant of fitness’s, and draft stopping to name a few.

Changes to the Tenancy act are all in the tenant’s favour with: – less ability to adjust rents, harder to get bad tenants out, and possible taxes on capital gain to come.

All this envy thinking makes the hassle of owning a rental home too much of a problem for many and we will see a mass exodus of landlords from the market. This is not new, we see it after every upward property correction, but this one will be particularly strong as the new legislation is 100 percent tenant friendly and 100 percent landlord unfriendly.

For example, in the 2nd reform bill currently before parliament, if your tenant damages your property their liability will only be as high as their bond or your insurance excess.  Imagine how your insurance company is going to react if your tenant can damage your property but has very limited liability for their actions.  Your premiums are going up and so are the excess levels.

In the previous two years we have predicted a rise in homelessness through existing Reserve Bank activity. We now have unfriendly Landlord legislation and the homelessness level is going to skyrocket.

2019 and 2020 is going to be the years we see a surge of mum and pop investors getting out of rentals as an income. Anyone considering selling needs to be in the front of this exodus. Not in the middle or the later stages. You need to sell while there are still plenty of buyers and that is now while the market still has upward momentum. If you leave it too late you will be competing into a market where there are a surplus of rentals and a shortage of buyers.  If that imbalance gets out of whack you will see prices come down. It’s happened before.

If you are long term (5 years or more) then just hang in there. There are plenty of tenants, so you are not going to sitting on an empty house, but you will have to spend some money on it to meet the new legislation and you will see some of your rights eroded. For example, you may not be able to stop tenants doing minor alterations to the property, nor stop them having pets.

If you have your money in rentals for the capital gain, then it’s time to move on.

Keep in mind the Brightline test. If you purchased before 1 October 2015 then you had to own it for 2 years or pay tax on the profit. As we are now over three years from this time it doesn’t apply.  If you purchased it after 28th March 2018 you have to hold it for 5 years to avoid tax so you should look at riding this cycle out unless you are willing to donate a third of you capital gain to the Government.

There is one factor that could alter this prediction. Current first home buyers get a grant from the government of $5,000 each if they buy under $400,000 in Whangarei. If your property is worth $400,000 or less and is in in a reasonable area the First home buyers are waiting in droves.

If the government lifts the ceiling to say $500,000 then this will positively impact on all properties under $500,000.

Disclosure. I have sold my only remaining rental property for a number of reasons but definitely influence by the above.

Anti money laudering

Anti-Money Laundering and Counter Terrorism Act!

What an absolute nightmare this has become!!!! I can not see how this legislation slipped quietly by the civil libertarians without so much as a whisper.

Most would say “I don’t money launder and am not a Terrorist so what’s it got to do with me?’.  How very wrong you are. This will be the most comprehensive invasion of your privacy you will ever experience beside smear tests and digital prostate checks.

As of the first of January, this year the final phase will be in place.

The very next time you go to sell a house this is what is going to happen BY LAW.

The agent will be required BY LAW to risk assess you: –

  • Establish your identity (Passport, birth certificate, drivers’ licence, or Gun licence) AND the agent has to hold a copy of these documents on file in their system
  • Establish how you purchased your house.
  • Establish you correct living address
  • If your house is in a Trust, then the agent must complete this procedure for every member of that trust including the beneficiaries. This will include date of birth, source of wealth, where they live.
  • Your Agent can not enter a listing contract with you until that information has been verified by an authorised compliance officer.
  • If your agent thinks you are a suspicious character, they are obliged to report you to someone we don’t know yet. Probably Donald Trump!
  • If the agent fails to comply with the above, then they are liable to up to 2 years imprisonment and up to a $300,000 fine
  • A very similar criteria applies to buyers

If the agents haven’t bend you over the barrel enough, wait till you see your lawyer. They get the job of completing the personal probe. They have been doing it since July this year.

They will have to: –

  • Independently confirm all the above plus a whole heap more before they can act for you, including
  • Check that you don’t have Russian or North Korean connections.
  • Check that you have a NZ IRD number. No IRD number and the sale cannot proceed even if you have a signed contract. (most contracts have a penalty interest rate if the purchaser can’t settle on time. This also applies to the seller is they can’t settle on time)
  • Check that you have a NZ Bank account. No NZ bank account = no NZ IRD number.
  • Read this lawyer Guideline. “in many cases reporting entities will be unaware what the underlying criminal activity is. However, by screening transactions and activities for known indicators and typologies, a reasonable suspicion that the transaction or activity is relevant to criminal offending may arise. In these cases, a Suspicious Activity Report must be submitted to the Police Finance Intelligence Unit. “

 Already we have heard that many lawyers are adjusting their standard fees by adding one hour of their time to complete the basic check. It certainly makes quick settlements a thing of the past and if it’s complicated, you are billing goes up by hundreds if not thousands of dollars.

And just like the infamous “Y2K virus” and the “Great Meth Myth” we already have a plethora of opportunist service companies offering the” Complete Service Package” for a fee. A whole new industry has sprung up out of the legislative leaf litter like a fungus on the forest floor. If you have any doubt, just try Googling ‘Anti-money laundering “

We all have heard the saying that “the job that todays child will do as an adult, hasn’t been invented yet “.   I can see why.  Who would have thought a complete and separate compliance industry could grow out of you simply selling or buying a house.  I think I may be getting too old, it just seems like stupidity to me.  Like when they stopped us buying the very effective Pseudoephedrine based cold relief pills to stop the rise in “P’ manufacture. That worked …didn’t it?

We have been told that NZ is simply falling into line with other western countries, but really!!!! Why should this burden be placed on Agents? It shouldn’t be our job and you rightly shouldn’t have to be interrogated by your agent to this level to sell a house.

This is a classic case of the whole of society paying the price for the actions of less than 1/100,000 individuals. (I’ve tried verifying this figure, but not surprisingly no one knows how much money laundering and terrorism financing actually happens)

When I started in Real Estate in 1983, our listing form was one page long. A few years later it went to two. As of today, its 8 pages long and this legislation along with the health and safety stuff we must do will probably double that.

Prediction #4 (not really a prediction…more advice)

If you are planning to sell your rental, or your own home next year, get it listed before the 31st of December this year.  It doesn’t matter when you market it or actually sell it, just get the listing signed before the years end.

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