18 Mar 2019
Changes to rental regulations

What this means for residential investment properties and flats

Last month, Housing and Urban Development Minister Phil Twyford announced the government’s new Healthy Homes Standards (HHS), a new set of regulations around rental properties.

In a follow up to the Government’s ‘Reform of the Residential Tenancies Act 1986’ and 2017 Healthy Homes Bill which were announced last year, the proposed changes in tenancy laws are designed to:

  • improve the security and stability of tenure for tenants,
  • promote good-faith relationships in the rental environment, and
  • ensure there are appropriate protections in place for both landlords and tenants.

The government’s latest standards represent a continued wave of change to the New Zealand tenancy laws over the past few years, the latest being the elimination of letting fees, and higher standards for insulation.

For those looking to invest or who already own residential units (otherwise known as ‘flats’ or ‘blocks’), these changes are bound to affect your investment. With several changes having come about in the past few years, many investors may be confused or concerned about where they stand with their investment property.

In an effort to help you understand your responsibilities, we explain the latest changes to tenancy laws, how they might affect you, and what you should consider when it comes to residential investment flats.

What are the 2019 Healthy Homes Standards?

In an aim to improve the health and wellbeing for tenants, the Healthy Homes Standards set out minimum requirements for heating, insulation, ventilation, moisture and drainage and draught-stopping in residential rental properties.

As explained by Tenancy New Zealand, the Healthy Homes Standards are:

  • Heating: rental homes must have fixed heating devices in living rooms. These must be able to warm rooms to at least 18°.
  • Insulation: rental properties must have ceiling and underfloor insulation which either meets the 2008 Building Code or is at least 120mm thick.
  • Ventilation: the right size extractor fans in kitchens and bathrooms must be in place for rental homes, as well as windows that open in the living, dining, kitchen and bedrooms.
  • Moisture and drainage: rental homes must have efficient drainage and guttering, downpipes and drains.
  • Draught-stopping: rental homes must have no unnecessary gaps or holes in walls, ceilings, windows, floors and doors to cause noticeable draughts. Additionally, all unused chimneys and fireplaces must be blocked.

What does this mean those already invested or looking to invest in residential flats?

With all these changes in rental regulations and rules, many investors may be asking whether residential flats are still a viable investment. The market in every region is different, but residential investment flats still present a good opportunity for investment.

Just like any investment property, the yield on these types of properties change, and there are many variables which affect them, such as overall quality, improvements, market and location.

Four things to consider when investing

To help you weigh up your options when considering investing or selling your residential block of flats, here are a few things to bear in mind:

1. Age, condition and maintenance

Age and condition are major factors when it comes to investing and selling a block of flats. Like any property investment, the value is impacted by the age, condition and overall quality of maintenance of the property.

As well as adding value to your property, a block of flats in good condition with reliable maintenance will likely attract more long-term, higher-paying tenants, therefore add value to the investment over time.

2. How will you manage it?

A block of flats takes a lot more work to manage than a single residential rental property. With more tenants comes more demand for management, whether it be maintenance, inspections, or everyday tenancy management.

When investing in a block of flats, you’ll need to consider how you want to manage it. Will you manage it yourself or hire a property manager? While a property manager comes at an extra cost, they can take care of the property and free you up from looking after your investment.

3. Capital gains and tax

The proposed Capital Gains Tax, announced last month by the Tax Working Group, may influence the decisions of those wanting to sell their property investment. Essentially, this proposed tax will mean investors selling their property will have to pay a tax on the profit they make.

At this stage, the tax is still proposed, with it possibly being passed next July and go into effect from April 2021. It’s important to note that there is already a similar tax in place in New Zealand. As of 2015, the ‘Bright-line Test for Residential Land’ Bill requires income tax to be paid on any gains from a residential property that was sold within two years of purchase (the two year limit has now been increased to five).

While the Capital Gains Tax legislation is yet to pass, it’s important to be aware of as it may result in a change in the market and rent increases.

4. Understand the regulations

With the changes in legislation, regulations and rules, landlords should be well informed with the current standards expected of them. Not all changes are expected to happen at once, but rather over the next few years.

To make sure you don’t fall behind on your responsibilities with your investment property, here are the key dates for compliance:

  • 1 July 2021: Private landlords must ensure that their rental properties comply with the Healthy Home Standards within 90 days of any new tenancy.
  • 1 July 2021: All boarding houses must comply with the Healthy Home Standards.
  • 1 July 2023: All Housing New Zealand houses and registered Community Housing Providers houses must comply with the Healthy Home Standards.
  • 1 July 2024: All rental homes must comply with the Healthy Home Standards.

What to do

If you’re looking to sell, already own or want to invest in a block of flats, it’s valuable to understand all the factors that affect the value of your investment property.

  • Your options: If you’re investing, make sure you consider your options, such as managing the property yourself or hiring a property manager. For those that own, invest, or are looking to sell, it’s important to understand the age, condition and maintenance needs of your property, as all of this affects the value.
  • The latest changes: Be sure to read up and stay up to date with the latest changes in regulations. Tenancy Services is a great website for this, where you can find helpful resources, latest news and answers to common questions.
  • Expert advice: Last but not least, the best thing you can do is talk to your valuer. The investment world can be confusing at times, and a qualified valuer can provide helpful guidance and expert advice on your property investment opportunities.

If you’re thinking about investing in residential flats, or want to know more about your current investment, talk to your local TelferYoung valuer today.