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Time To Look To The Future

Investors must now look at the changing climate, natural and political, when planning their portfolios, writes David Faulkner.

By: David Faulkner

30 June 2022

As winter bites many tenants across New Zealand will benefit from the introduction of the Healthy Homes standards. Although few will protest the necessity of the standards, implementation has been far from perfect.

Issues around the heating standards have plagued its introduction, especially for homes built to the 2008 building code requirements. This will be of huge frustration for landlords who have had to install top-up heaters in new builds.

As frustrating as the moving target for the Healthy Homes standards has been, change was necessary. The quality of much of the rental stock in NZ is not where it needs to be and in the provinces many towns have aged housing stock, requiring more investment.

Typically, much of the older housing stock is used as rental accommodation. Housing depreciates, and a common mistake many investors make is to fail to budget for future renovations. There will be standard repairs and maintenance and landlords should budget for these.

We studied our rent roll to see what landlords were spending annually on maintenance, and the sum was approximately $1,500. Plumbing, electrical, and general maintenance were the most common expenses. Landlords should also budget for capital expenditure.

'Goldilocks Climate'

Although we’re seeing a slowdown in the housing market, many landlords would have benefited from increased capital gains, especially over the last two years. Real Estate Institute of New Zealand statistics show the median house price for April 2022 was $875,000. Two years prior, just as the pandemic kicked in, the median price was $680,000. This tells us that many investors will have plenty of equity to play with. Although tax rules will hurt investors regarding interest deductibility against rental income, a prudent investor will look at using some of these gains to reinvest back into their portfolios.

‘Significant investment in smart home devices will be required to measure a property’s performance’

Landlords should look into the future and the requirements tenants will have. In a recent interview, New Zealandborn Professor of Engineering at the University of Cambridge, Michael Kelly, referred to NZ as having a “Goldilocks climate” as we are either too hot or too cold. This can explain why housing and renting is such a pulverising topic. We, too, often see headlines about tenants being exploited and living in squalor.

Anyone looking to renovate their portfolio must now look at the changing environmental climate, natural and political, when considering what to invest in. NZ has committed to being net carbon zero by 2050. If we are to come close to achieving this target everyone will be affected, and our lifestyles will change dramatically. As about one-third of the population rent, landlords must ensure their rental properties reduce their carbon footprint. This is where the concept of talking houses comes into play.

Rising Moisture

Significant investment in smart home devices will be required to measure a property’s performance, and technology already exists that can do this. Brandon van Blerk, CEO and co-founder of prop-tech company Tether, has invented a device that tracks a property’s performance, measuring temperature and CO2 emissions. Landlords and tenants can be informed when there is an issue, such as rising moisture content identifying a leak. More intelligent and innovative technology will have to become mainstream in our rental stock, ensuring tenants can run their rental properties with low emissions while remaining safe, warm and dry.

If you are considering renovating your rental property, look to the future demands. Expect to see a Rental Warrant of Fitness introduced and Energy Performance Certification becoming standard on all rental properties as this will grade the energy efficiency of your investment.

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