Hot rental market needs care

By ANNE GIBSON

Spring in Auckland is a hot time for residential tenants, landlords and would-be investors.

So hot that even the sector's promoters are calling for time out.

Lobby group the Auckland Property Investors' Association is concerned about new buyers entering the residential property investment market, says its president Andrew King.

"The current climate is encouraging many new investors," he says, noting rising Auckland rents. The Real Estate Institute's latest figures on Auckland suburban rents show a steady climb in prices throughout the city.

To take some of the heat and hype out, the association is running a one-day seminar for investors next Saturday. The message is to all chill out, check the wallet and shore up for possible bad times.

"Problems in property are a bit like icebergs," says King. "About 10 per cent of the trouble is visible above water, but it's the unknown 90 per cent underneath that will sink you."

He hopes the seminar might calm the market a little and inject common sense into investors' minds.

"The situation is similar to that of the late 1990s, when property investment was also very much in favour. At that time the association saw many new entrants, just as we are seeing now.

"However, problems occurred when the positive climate changed. Immigration fell away and both the rental and housing markets became soft. Rental prices fell by around $30 a week. Interest rates started to increase, which has a dramatic effect on the cost of providing rental accommodation.

"Many new investors found that the rent they expected to get was unobtainable, right at a time when interest rates were increasing their costs. It was common for new investors to rely on the best-case scenario information and not to account for items such as repairs, maintenance and vacancy rates. Few investors had contingency plans for these events."

All the signs of a repeat are apparent now, King warns.

Property is a great investment, but you cannot afford to make mistakes because the market will change and you could lose control, he says. The seminar aims to provide information on how to structure and run a property investment to enhance potential for success and save time and money. The essence is professionalism, King says: "Know what you have to do and treat your tenants as customers."

Speakers will cover issues of maximising tax opportunities, structuring finances, understanding the law, using the law and managing an investment.

The reasons for the sizzling market are myriad, King says.

"House prices have fallen or stagnated for the last few years. Although they have started to increase this year, they are still relatively cheap. Incomes have been increasing which, when combined with relatively low house prices, have further helped affordability. Interest rates are still attractive and are falling again, which helps affordability.

"Perhaps the biggest influence has been the increase in New Zealand's population, particularly Kiwis returning home and new immigrant families. An increase in the adult population has an immediate effect on demand for owner-occupied and rental accommodation."

King could have added to these fundamental drivers the information released by Professor Bob Hargreaves of Massey University's department of finance, banking and property in Palmerston North, who found the number of tenants is increasing.

The study found nearly half the 350 tenants surveyed in major centres had no desire to buy a property and planned to rent long-term. Just under a quarter had no plans to buy within six years. A third had absolutely no desire to be tied down by owning a house.

Brian Rankin, formerly of property consultancy Beresford Associates on the Auckland North Shore, is getting nervous about the residential market. Rankin, now with property investor and project manager Chancery Pacific, sees signs of overheating in Auckland, particularly on the North Shore. He cites the last property boom in Auckland in the early 1990s and particularly residential investors in Mt Wellington who rushed to buy properties around $200,000, which quickly pushed prices up to $250,000. But when rents dropped, many small-time investors found they could not keep their properties, so they dumped them on the market, which in turn depressed prices and many people suffered.

Rankin, a former manager of property services for group credit recovery with the BNZ, has a naturally cautious approach to real estate investment, having seen misery caused by declining property prices: "We're not anywhere near a bust, but we've been on an ascent in Auckland property during the past two years, so prospective investors need to be careful about timing - they've got to realise they will be paying strong money for Auckland."

Residential investor Kieran Trass, who runs mortgage broking service Mortgagenet, thinks investors should view Auckland housing as being in the recovery phase, not the boom. He has invented a clock system showing the slump, boom and recovery phase and reckons the city is only entering the good times.

Things could get a lot hotter this summer if he is right.

* Auckland Property Investors' Association seminar, next Saturday 9am-5pm, Sky City Conference Centre, Victoria and Federal Sts, Auckland, $250 non-members, $99 association members. Telephone 09-379-9692 or fax 09-815-8641.