Over the past 12 months, residential property investors have been inundated with legislative changes, supply shortages, and Covid-19 challenges. As a result, the New Zealand property management landscape has changed rapidly.
For many private landlords, these new rules and regulations have meant seeking out professional property management support. While others have focused on up-skilling and adapting to the changing environment. We caught up with Bernard Parker, Principal of Quinovic Kapiti-Mana to talk about the eight most impactful changes in residential property management in 2021.
While the Healthy Homes Standards became law on 1 July 2019, 2021 saw a key date in the rollout of the Standards for owners of private rental properties.
As of July 2021, if you enter into a new tenancy agreement or if one is renewed, the compliance timeframe is 90 days from the date of the new or renewed tenancy. Although property investors were given notice ahead of the compliance deadline, several challenges have made this compliance date especially difficult for some property investors. There has been a nationwide shortage of heat pumps largely due to supply issues brought about by Covid-19, making it difficult to comply with the Heating Standard, with non-compliance carrying a possible fine of up to $7,200.
Although this rollout has been particularly challenging for many property investors, the long-term outcome for both property owners and tenants is positive. For instance, more comfortable homes mean tenants will want to stay longer and form strong, lasting relationships. In Bernard’s experience, the feedback from tenants has already been overwhelmingly positive. He says, “Tenants are delighted with the warmer, more comfortable homes.”
On the 3rd December the Government announced proposed changes to the Heating, Ventilation and Moisture Ingress & Drainage Standards categories of the current Healthy Homes Standards. Although, these changes have not been passed into law and are not scheduled to be in place till April 2022.
Another impactful law change in 2021 was the extension of The Bright -Line Property Rule. This affects anyone buying or selling property on or after 27 March 2021. The Government introduced this legislation to help first-home buyers into the property market. Under the new rules which came into action on 23 March 2021, any gains made from selling an investment property purchased on or after 27 March 2021 and sold within ten years of purchase will face a capital gains tax. If the purchase is a new property (code of compliance certificate issued on or after 27 March 2020), the existing five year capital gains tax rule applies.
This change in legislation is intended to slow down short-term property ownership and re-selling property for capital gains and mainly affects property investors, with the aim being to cool the market and reduce competition for first home buyers.
Bernard believes that property investment is a long-term investment, stating, “The temptation to look at a capital gain as a major purpose of being a landlord is viewing housing as a lottery rather than a business. The industry's primary purpose is to provide housing in return for steady cash flow over the longer term. This law highlights the need to consider your goals and talk to professionals before investing.“
From 1 October 2021, interest deductions on residential properties will be disallowed, with properties purchased before 27 March 2021 seeing the removal of tax deductibility being phased in over the next four years. An exception to this is any new build property purchased on or after 27 March 2021 or had a Code of Compliance Certificate issued on or after 27 March 2020.
Previously, deducting tax for mortgage interest payments made property investment more affordable for prospective investors.
This change in legislation was introduced to balance the market. Bernard’s advice to property investors is to “ensure you factor in the cost of borrowing without tax deductions on interest or consider investing in new builds, which still allows tax deductions on interest.” There is now an incentive to Invest in new builds, which helps tackle New Zealand’s housing crisis.
This fact sheet provides more complete information on the topic.
On 28 October 2021, the New Zealand Government passed a bill to restrict tenancy terminations during a public outbreak of Covid-19 if the Government chooses to turn it on. This allows the Government to move quickly if needed while a Health Emergency exists.
As a relatively new legislative change that has not yet been turned on and can be at the Government's discretion should Covid cases escalate, the effects of this have not yet been felt within the property management landscape. However, property investors should be prepared for the Government to stop tenancies ending or beginning at short notice.
The Covid-19 response is a practical change in legislation that protects those living in rental properties. Bernard noted that this affected the day-to-day of property management, stating, “Everybody will be in the same status of ‘Limbo’, waiting until the change of residence is again permitted. There is simply a freeze on all house moves while a health emergency exists.” If you have questions about how this law impacts your rental property situation, get in touch with your local Quinovic office.
Security of rental tenure came into effect on 11 February 2021 as part of phase two of The Residential Tenancies Amendment Act 2020. This new legislation prevents property owners from ending periodic tenancies without cause. Termination is only deemed to be reasonable if the situation aligns with specific termination grounds.
This legislation has significantly changed the way tenancies are viewed within the industry. Landlords are now required to provide a specific reason outlined in the Residential Tenancies Act to terminate a rental agreement. Bernard noted the positive impact for tenants, stating, “ Its intention is to give tenants greater security of tenure, which is sorely needed in the current volatile property market.”
In Bernard’s experience, property investors seem to be gradually adapting to these new rules. The biggest impact for property managers and investors is the significant shift towards the importance of finding the right tenant. Property investors can benefit greatly from engaging professional property managers like Quinovic, who have existing systems in place to find the right tenant for the right properties.
As of 11 February 2021, any fixed-term tenancy signed on or after 11 February 2021 will automatically change to a periodic tenancy when it expires unless otherwise agreed by both parties. This change was introduced as part of the second phase of the Residential Tenancies Amendment Act 2020.
The shift away from fixed-term tenancies provides tenants with more flexibility to move out without waiting for their lease to come to an end. Bernard noted the impact this legislation has had, stating, “ There is less movement, and the market is becoming more stable. We will no longer have the regular reminders that a tenancy can be ended on a specific date.”
When this change was announced, there was concern about a loss of security that fixed-term tenancies provided, as tenants can give notice at times when it is difficult to fill the vacant property. This change makes it even more important to build strong, trusting relationships with your tenants with frequent, open communication.
The assignment of tenancies was also introduced in the second phase of the Residential Tenancies Amendment Act 2020. This change enables tenants (with the landlord’s prior consent) to re-assign tenancy agreements to another person on a permanent basis.
This change in legislation offers more flexibility to those living in rental properties. They can enjoy peace of mind knowing if their circumstances change, they can seek a replacement to take over their lease.
Property owners are able to recover reasonable expenses that occur during the assignment process. As part of this process, a property owner must provide their tenant with an invoice of actual costs incurred rather than charging a flat fee. Bernard explains that invoicing costs ensures the process is fair as a flat fee could be too high in some cases and too low in others. Property owners should be as transparent as possible when seeking to recover expenses. Ideally, you should provide your tenant with an estimate of the costs so they know how much they can expect to pay.
The Privacy Act 2020 became law on 1 December 2020. Over the past 12 months, private landlords and property managers have been adapting to the new privacy guidelines. This framework outlines how a tenant's personal information should be collected and handled. Private landlords and property managers are required to only ask for the required personal information from prospective tenants. This legislative change protects the personal information of tenants and minimises the risk of discrimination.
In order to monitor compliance, the Privacy Commissioner has introduced audits of tenancy applications, and penalties for non-compliance have been imposed.
Enlisting the help of a reputable property manager ensures that the process set out in the Privacy Act is followed, and any of the necessary private information collected is handled in accordance with the legal requirements.
2021 has impacted the rental landscape greatly, and navigating the rapidly changing rental market is becoming increasingly complex. Over the last 12 months alone, new legislation has changed requirements for rental properties dramatically. Enlisting the help of a professional property manager ensures you’re keeping up with your responsibilities. No matter how big or small your question is, we’ll be happy to help. Ask Quinovic today.
