End of letting fees may help renters by putting bad property managers out of business: consultant

Tenants may no longer have to pay letting fees as early as December. Photo / Janna Dixon

Abolishing letting fees might not end up saving money for Kiwi renters, but it could help put bad property managers out of business, says an industry consultant.

Property managers can currently charge new renters letting fees as a way to recover the costs involved in looking for tenants.

But this could end by December after a Government committee recommended abolishing the fee in time for the busy Summer period.

The Government hopes this will save renters money, but David Faulkner, a consultant with Real-iQ, believes renters will still pay.

This is because he expected property managers to try and recover lost income by charging higher fees to landlords, who in turn will pass it back to tenants by raising rents.

However - with letting fees generating up to three quarters of the profits of a typical property management company - small and poorly run businesses may still struggle to manage the transition to a new fee structure.

"If you cannot recover the letting fee income, you are basically wiping out the profit margin of a company," he said

"What we believe will happen is a number of smaller companies will either disappear, go insolvent or sell to bigger companies - which to a degree isn't such a bad thing."

It comes as calls have been growing louder for property managers to be regulated.

While there are no definite figures, Faulkner estimated property managers managed about 35-40 per cent of the country's rental stock.

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Yet, a recent report by the non-profit Anglican Advocacy, titled A Decade Overdue, said many of the problems experienced by landlords and tenants in this country can be linked to property managers, who are not required to be licensed or accredited.

The report compiled dozens of first-hand, anonymous accounts from tenants and landlords about negligence, deceit, discrimination, privacy breaches and dishonesty by property managers.

Despite pushing through other measures to improve the lives of Kiwi renters at a time when home ownership rates are at their lowest levels in 60 years, the Government is yet to commit to regulating property managers.

But Faulkner hoped regulation was brought in soon.

"One of the issues - and it's been highlighted all year - the quality of service in the industry was being let down by a small proportion of property managers."

He said ever since 2008, the industry had become dominated by small companies, managing 200 rental properties or less.

"With anybody able to stick their hand up and say, "I'm going to become a property manager", you just get this mass explosion of companies everywhere," he said.

He said while most property managers were "good people" who "wanted to do the best they can", the problems often arose from a lack of knowledge.

This included a lack of knowledge of the Residential Tenancies Act, which made it hard for them to tell landlords what they can and can't do under the law.

However, if property managers were qualified, trained and had a better support network, it would lessen the number willing to take on shonky properties and landlords, he said.

Regulation would also better ensure property managers place the millions of dollars in bond money they are thought to control into safe-keeping in trust accounts.

Therefore - with the industry in need of reform - Faulkner believed it might not be so bad if the Government's move to end letting fees helped consolidate the industry.

"Fifty per cent of property management companies manage less than 200 houses so that is where the issues lie," he said.

"I'm not saying there is anything wrong with small companies, but if you've got too many they can't all be making money and this will tip some over the edge."