30-12-1899

Restructuring The Residential Property Investment Industry

1. News
2. 1999
3. December

A Proposal by the New Zealand Property Investors Federation Inc

Part I:  Funding Model

A The Problem

The New Zealand residential property investment market is characterized by a high number of small investors owning single properties.  Whilst a high proportion of landlords and tenants enjoy a positive relationship there are some landlords who treat their investment at best as a hobby and at worst as a means of making a capital gain at some time in the future with little input into the property during the intervening period.  Equally there are some tenants who have no idea of their responsibilities.

The NZPIF and Tenancy Services agree that the outcome of these approaches has been inconsistent property management skills among private landlords, (and even professional property managers), which in turn leads to dissatisfied tenants and landlords and increasing levels of rental arrears, tenancy churn and applications to the Tenancy Tribunal.  The New Zealand Property Investors Federation Inc has established itself as the appropriate industry organization to better educate landlords and property managers in order to raise industry standards.

The Federation however is not immune from the fragmented nature of the industry and despite its best endeavours over a considerable period of time it has only been able to attract a relatively small percentage of landlords as members.

B The Solution

The NZPIF perceives that the two options for establishing more professional standards among residential landlords and property managers are:

• Government imposed regulation
• Industry self regulation

Industry self regulation is our preferred option and the following proposal attempts to:

• Gather up all landlords so that they are automatically members of a recognized industry body; and
• Establish a creditable and sustainable line of funding sourced from within the industry itself in the form of a tenancy registration fee.  The only cost to Government will be the cost of collecting and processing the fee through Tenancy Services Bond Centre.  By amending the current Bond Lodgment form to include a registration box and fee, it is envisaged that this cost will be negligible.

C Diagram of Proposal

Note 1:
A minimum Bond of $100.00 could be legislated for to take into account situations where either the landlord and/or the tenant do not wish to include a Bond.  Under our proposal the Bond Lodgment form would double as the Tenancy Registration form hence Bonds are mandatory.

Note 2:

• This is a new obligation for Landlords.  They will be required to register a tenancy agreement with Tenancy Services.
• New Tenancy Agreements will have to be registered within 28 days of the date the Agreement is signed.  Late registration will attract double fees.  Failure to register will be an illegal act.
• The Landlord will be registering the tenancy itself and not the dwelling and therefore a separate registration is required for each separate tenancy within a dwelling.
• The current “Bond Lodgment Form’ will become a “Bond Lodgment and Tenancy Registration Form’.  There will be a registration fee of $50.00 per tenancy with a cap of $250.00 where a Landlord is registering tenancies of a number of units in the one building at the one time.  The NZPIF will set the fee.
• Once a tenancy is registered it remains a registered tenancy until such time as it is terminated and any new tenancy being created must then be registered.

Note 3:

• Upon registration of the Tenancy the Landlord will pursuant to the Residential Tenancies Act, be deemed to be a member of the New Zealand Property Investors Federation Inc.
• The registration fee although collected by Tenancy Services will (subject to any reasonable additional processing costs incurred by Tenancy Services) be payable to the NZPIF to enable it to provide:
  1. Its own administration costs
  2. Appropriate funding assistance for affiliated Associations
  3. The development of a structured recognized industry certification course as outlined in Part II of this proposal

D Statutory Requirements

It is timely that this proposal is being put forward whilst the Residential Tenancies Act is under review as the Federation has identified matters that will require statutory recognition.  We consider that the R.T.A is the appropriate vehicle for that.  Without limiting matters the following have been identified as requiring statutory recognition:

• Bonds to be mandatory
• Registration of Tenancy Agreements and the associated matters referred to in the accompanying notes
• Recognition of the New Zealand Property Investors Federation Inc as the industry body.  (There is already precedent for this as the Real Estate Institute of New Zealand Inc is recognized as the Institute pursuant to the Real Estate Agents Act 1976)
• Landlord of a registered tenancy deemed to be a member of the NZPIF (again there is precedent for this with the Real Estate Agents Act)
• Recognition of the appropriate courses referred to in Part II

Part II: An education and training strategy to improve rental property industry standards

Background

• Wide range of expectations and outcomes between landlords and tenants
• Increased education and training of landlords can mean better business practices and benefits for tenants and the Government
• Presently, landlords do not need any qualifications or training to let or manage their rental property nor is there any best practice guidelines

The Proposal

If landlords were to have higher levels of professionalism, which in turn can minimise potential problems with tenants, there may need to be some form of compulsion needed.

Accordingly, the Federation recommends the following initiatives that can raise the standards and professionalism of rental housing providers and managers.

• Any landlord or property manager should mandatorily undertake an approved training course to attain a minimum standard of competence
• Upon completion of the course each landlord will be certified and permitted to offer rental accommodation
• A certificate or registration number must be used on the lodgement of each new bond (payable by the landlord or property manager at say $50)
• The payment and collection of a bond be compulsory for each new tenancy and no bond will be accepted without a landlord certificate number & registration fee
• Landlords can opt out of the certification process by engaging a suitably qualified property manager to manage the tenancy
• Landlords become a mandatory member of an industry governing body with a code of conduct and continuing education structure
• NZPIF be recognised as an approved governing body

Conclusion

Such a structure will help raise the professionalism and competence levels of landlords and improve relationships with tenants and reduce administrative burdens on the Government.

Craig Paddon
President
NZPIF
February 2005