KEY POINTS:
A new breed of property investors is afoot: the accidental landlord. These are home sellers hit by the downturn and forced to let their properties.
Some have used their equity to buy a replacement home only to get caught in a declining market. And there is evidence that
this glut of properties could be dragging rents down - especially in the high-end market.
Forecaster Infometrics' index of rental inflation showed an easing of 7.1 per cent to 5.2 per cent a year nationwide in the March to June quarter.
Massey University's property analysis unit recorded a 1.6 per cent fall over the past quarter in the national median rent level. Professor Bob Hargreaves attributed some of this fall to would-be vendors who are renting their properties out instead after a 50 per cent drop in the volume of house sales.
What's more, mortgage brokers and property managers the Weekend Herald spoke to said they had seen an increase in recent months in properties hitting the rental market because they won't sell. Existing landlords fear that the more the market is flooded, the greater the fall in rents.
One landlord who posted on the website Landlords.co.nz said that in January there were eight properties listed on Trade Me for rent in his area and now there were 58. Research by the New Zealand Property Investors Federation found that the numbers of rental properties listed on Trade Me jumped from 8000 on May 5 to 11,076 on July 28 and listings on Realestate.co.nz from 4818 to 6449 for the same period.
Gail Vietri, principal of Quinovic's property management office in Ponsonby, Auckland, says she has taken on a number of accidental landlords in recent months.
"I have been providing rental appraisals over the past few months for many homes where the owners do have a choice in that they don't have to sell now so are holding on - many until the summer when it is hoped the market will pick up, some longer term," says Vietri. "Others are relocating for work and where they would normally sell are deciding to rent instead."
The slowdown in sales is creating an oversupply at the higher end of the market - over $800 a week in rent, says Vietri.
Many of those sellers forced on to the rental market have homes renovated to a much higher standard than a typical rental. Typical rental properties generally fall in the section of the market that sits below the median price and are often concentrated in lower socio-economic areas.
Vietri's colleague Rex de Bettencor, who runs several Auckland franchises of Quinovic, adds that the selling market is suppressing the rental market and that those accidental landlords with higher-priced properties aren't always getting the rents the owners would have hoped for.
One Orakei home, for example, that would have attained $1000 a week this time last year, rented for only $800 after hard negotiations by the tenant.
Crockers Property Group has also seen new landlords failing to appreciate the current market. "We have noticed that many of these owners are struggling to come to terms with the current value of their property and the realistic rent achievable in today's market," says Lisa Sargison, Crockers' business services manager.
The good news is that the Residential Tenancies Act 1986 permits rents to be raised after 180 days of the lease commencing. De Bettencor says: "With that in mind we say to owners, 'look if it's empty for a month at $500 a week you have lost $2100. Spread that over the rent review period of 180 days and that's the equivalent of $80 a week. If you dropped it $50 to get it let with no delay, you are better off by $30 a week. Then at the 180-day point put it up $20 to $30 a week'."
Likewise, on Auckland's North Shore, Rentex has seen properties come on to the rental market because they wouldn't sell. Rentex principal Chris Skewes says: "These properties are predominantly new homes in the new areas of Albany and prospective tenants are certainly spoiled for choice in this category."
As well as accidental landlords, another category of seller is also flooding the market - traders. These are investors who were relying on a quick flick, but find themselves stuck with property that they never intended to buy and hold.
Mortgage broker Kris Pedersen of Property Financial Solutions, whose clients are almost all investors or traders, says he has seen a significant number of the latter stuck with properties that they can't move.
TheTraders.co.nz chief executive Ashley Church says increasing numbers of traders are having to rent out properties that have failed to sell after two or three months on the market. "It isn't an avalanche yet, but it may well become one." Church's company is running a seminar in Wellington next month on this very topic.
In most cases they trade property in order to raise deposits for new buy-and-hold properties, says Pedersen. These traders often use short-term financing, which means they need to offload the properties quickly.
More than one client, says Pedersen, has been stuck where they have gone unconditional on a property they were buying, and then found that the person they had lined up to sell their existing property to couldn't settle.
If a property trade can't be flicked off, says Pedersen, the trader then refinances and gets tenants in - although they may still have the property on the market.
Being a landlord is a serious responsibility, with fish-hooks - mistakes can have repercussions, such as tenants trashing the property or seeking damages from the Tenancy Tribunal for breaches of the Residential Tenancies Act 2006.
Says Vietri: "We advise [inexperienced landlords] to do what they can to minimise the risk of renting [by] reference checking of both previous landlords and character references and getting Veda Advantage credit checks."
Otherwise they may get landed with bad tenants. Prospective tenant interviews are a bit like a blind date where both parties are on best behaviour and no one admits their worst habits - such as holding frequent parties or having a dog that chews the curtains.
"New landlords need to understand that there will be some minor wear and tear and to be prepared for this. They may wish to consider additional insurance while tenanting," says Vietri.
"They will also need to be realistic about the rent that can be achieved, particularly in the winter months, a traditionally quiet time. [They should] leave it to the professionals unless they have the time and inclination, take advice from the Department of Building and Housing and check out [property investment] websites."
All new landlords should seek advice from an accountant who specialises in property investment and possibly a company structures expert.
There's a good chance it will go well for you. In the United Kingdom, research by the National Landlords Association showed nearly half (43 per cent) of landlords entered the business by accident because they couldn't sell a new property and many have gone on to become very successful.
Recommended reading: Working Landlord, Happy Tenants, by Roger Clist.
