It was October 2003. In New Zealand, Helen Clark was prime minister, at the head of the fifth Labour government. The economy was strong and growing and the population hit four million for the first time. Despite the loss of the America’s Cup earlier in the year, confidence was high.

Running in tandem with this, the property market was booming, with prices on the rise and lots of investor activity. It was into this environment that NZ Property Investor was launched, with the first issue published in October 2003. Much has changed in the years since.

The world saw the Global Financial Crisis (GFC) and subsequent recession in 2007-08. Now we’re in the midst of the Covid-19 pandemic and the related economic meltdown.

But despite the economic ups and downs NZ Property Investor has continued to publish. This issue is our 200th issue. That feels like an achievement, particularly in the post-Covid-19 world, and one worth celebrating.

As part of that, we’ve looked back at our first issue, picked out four of the main articles featured and taken a look at the topics covered - then and now.

Picking The Property Price Peak

Not surprisingly it was an article providing an overview of the property market that led the first issue. It painted a picture of a booming market and highlights some familiar issues, like value growth and declining affordability.

There’s a big focus on migration and population growth. And, in a side bar, the Reserve Bank warns about the role speculators are playing in the market and the proliferation of property investment seminars making “exaggerated claims”. Prominent economic commentator Tony Alexander was BNZ’s chief economist back in 2003. He says the country was seeing a migration boom at the time.

“That was a big driver of the housing market, particularly in Auckland. But New Zealand was also enjoying good economic growth at that time and the unemployment rate was going down. This was all supportive of the housing market and it was helping to attract investors.”

In fact, 2003 was the year that house prices really took off, he says. “The median house price nationwide in October 2003 was $227,000. But that was up from $188,000 in October the year before. So prices were on the rise.”

It was a busy, buzzy time, prominent property investor David Whitburn remembers. “There was lots of confidence in property. Some people thought it was a bubble and due to burst. But it was actually the beginning of a boom that went on for several years.”

Interest rates were much higher, but the biggest difference was prices. For example, Whitburn was buying in South Auckland in the $130,000 to $150,000 range and in West Auckland for around $200,000.

Fast forward to the current day and it’s a very different market. House prices have skyrocketed to leave the New Zealand median price at $620,000 and the Auckland median price at $910,000 in May this year.

Before Covid-19 forced the country into lockdown, the housing market was on the rise again, after a period of flatness. However, that’s changed with sales activity well down and prices expected to falter.

Whitburn says the confidence has gone from the market and that, combined with a spike in unemployment, will have an impact. “But while it was initially thought demand for property would completely drop off, that now seems a bit pessimistic. Instead demand will just reduce.

“There’ll be more pressure in another three to six months’ time once the wage subsidies and mortgage deferments come off. But I think we’ll see a downturn, not a crash. House prices will go down slightly, but not like in the GFC. Some people might be forced to sell, but banks look likely to work with people to get them through.”

Alexander agrees. He says there might be weaker migration into New Zealand over the next two years, but a key difference to previous recessions is that most people don’t want to leave New Zealand in search of better options this time round.

“That’s relevant for long-term migration flows. Even before Covid-19, Kiwis had stopped leaving in net terms.

‘In a low interest rate environment people are looking for investments with yields: property fits that bill’ TONY ALEXANDER

This change, along with returning Kiwis and frustrated buyers from before Covid-19 means housing demand is not down as much as people think.

“Also, the surveys I’ve been conducting show that construction has fallen away. This suggests the demand-supply balance is less out of whack than assumed.”

Many people want house prices to fall dramatically and that’s clouding analysis, Alexander says. “But the shortage of housing remains. In a low interest rate environment people are looking for investments with yields: property fits that bill. These factors are not going away and so we’ll see a different dynamic to the market than many expect.”

The Art Of Tenancy Management

Just as it is now, tenancy management was a hot topic in 2003. Our first issue covered it in an article on fixed-term tenancies. They were presented as a “win-win solution for landlords and tenants” and effective tactics on how to deal with all aspects of them were detailed.

NZ Property Investors’ Federation president Andrew King says that although effective tenant management has always been important, it was less contentious back in 2003. The Residential Tenancies Act had been around since 1986 and it had been reviewed in 1996.

“That review led to a slanting of the balance towards tenants. But not a lot happened about it until around 2006. So in 2003 there was less regulation in place, but issues like security of tenure for tenants were starting to come to the fore.”

In that respect, issue one’s tenancy management article was a sign of its time. King says there was a move towards fixed-term tenancy agreements as they were considered to provide more safeguards for both parties.

“But with a fixed term it’s not possible to issue 42- or 90-day notices if problems with a tenant do arise, so there can be risks in having one that is for too long a term. That’s why many agreements are fixed for one-year terms.”

That has led to tenancy groups and the Government pushing for multi-year tenancies to provide greater security of tenure for tenants, he says. “We’ve always said there were problems with that and yet we now have the current tenancy reform proposals.”

The proposed reforms include the removal of landlords’ right to use “no cause” terminations to end a periodic tenancy agreement and the requirement that fixed-term tenancy agreements become periodic tenancy agreements upon expiry unless both parties agree otherwise.

The NZPIF is opposed to these particular reforms. King says they erode the rights of the owner too much and that more balance is needed.

Should these reforms come in they’ll join other recent developments which make it harder to be a landlord, he adds. These include the post-Osaki changes to tenants’ liability for damage and the ban on letting fees. “Ultimately, it could all deter people from becoming landlords and also push up rents.”

Emergency measures introduced to protect tenants during the Covid-19 lockdown heightened landlords’ concerns about tenancy law going forward. There were fears the provision preventing tenancy terminations could be extended indefinitely.

Associate Housing Minister Kris Faafoi says the emergency measures were important to stabilise accommodation arrangements during an extraordinary time. “But we recognised that once we were able to operate at alert level one we could stick to the plan to end the ban on terminations on June 25.”

Going forward the RTA needs updating as more New Zealanders are living in rental accommodation for longer, he says. “The proposed amendments recognise that reality while striking a balance between the rights of landlords and their tenants.

‘It is a relationship where mutual trust and respect are vital, and where those values exist balance between the interests of landlord and tenant can be achieved’ KRIS FAAFOI

“They still give landlords rights to terminate tenancies, under certain circumstances, and with the right for both parties to take a case to the Tenancy Tribunal. The underlying basis for changes around terminating tenancies recognises that if someone is asked to leave their rental home it’s fair for them to know why.”

But Faafoi thinks most landlords treat their tenants fairly and responsibly and understand that providing people with a home to rent is not simply a business transaction, but has a social wellbeing dimension to it as well.

“It is a relationship where mutual trust and respect are vital, and where those values exist, balance between the interests of landlord and tenant can be achieved. The changes to the RTA support that balance and provide a greater degree of clarity around the rights and responsibilities of both tenants and landlords.”

Apartments & Undersupply Concerns

Back in 2003, apartments were making their way into the mainstream as an accommodation option. In issue one, veteran Auckland apartment agent Martin Dunn wrote about how the apartment market was facing an undersupply of about 10,000 units.

Dunn says there was an undersupply in 2003 and there still is. “Some misinterpret the completion of several larger developments at the same time as an oversupply. It’s actually a momentary rush which floods the market with multiple similar units at the same time but flattens out in a short time. The undersupply remains.”

While Auckland’s CBD apartment market was booming until recently, it has been hard hit by the Covid-19 crisis. But it seems the situation has affected the rental market more than sales which are still tracking well, he says.

“There is a level of vacancy I haven’t come across before. That’s because there’s 50,000 less students and working holiday travellers and there’s been a rush of properties come to market as many hotels relinquish their leases. Also, many Airbnb businesses are no longer viable and are reverting to long-term tenancies.”

Yet although the rental market is experiencing unprecedented vacancies, Dunn doesn’t believe the undersupply will be solved as the consent process is so arduous. “There is still some good buying around for investors. Their main struggle will be securing good long-term tenants as tenants are currently spoiled for choice.”

Specialist apartment investor Grant Hoey also says the undersupply of apartments hasn’t gone away. “The apartment market has changed since 2003 though. Back then it was investors buying apartments, but now there are far more owner-occupiers.”

Covid-19 has altered the market too, with the number of vacant apartments jumping from 700 to 1,500, he continues.

“There are options for investors, but there are lots of empty apartments. Investors were spending over retail on apartments for Airbnb and that market has completely dried up. They are seeing rents go down by 10-50% for those apartments, but Hoey doesn’t think they will know what is happening in the market until the second round of wage subsidies finish in August.

“People aren’t selling up because interest rates are so low, but things may change after the wage subsidies end. Right now, auctions are all over the place. Some junk is selling and some quality apartments aren’t – and buyers aren’t meeting the market.”

Syndicates On Life Support?

It seems that property syndicates were sailing in rough waters in 2003. Issue one’s article was headlined “the death of syndicates” and explored “a lull between
syndicates” for small investors.

Well-known property journalist Bob Dey wrote that article. He says that, back then, generally syndicates were multiple investors in a single asset. “The issue with this was that if there was just one tenant, and they left, all the investors would be in trouble. They had no power to negotiate the lease on a property. Investors are now very wary of single asset syndicates.”

These days it’s a bit different. While there are still a few single asset syndicates, they now tend towards multiple assets. The managers act as fund managers, with three or four properties to look after and maybe 20 tenants, and staff are employed to look after multiple assets. Dey says some of the risk is removed by the amount of tenants and this creates better security. “The syndicates are like small share markets where you can buy in/buy out. But they have become more popular because of low bank interest rates. Fund managers can offer 6%, or even 7% and 8%, which you can’t achieve through other investments.”

Post lockdown, no one knows how things will change in commercial, he says. “With people working from home, will offices still exist? There is a huge question mark over retail at the moment. Industrial is probably the strongest for syndicates, and this may get stronger due to shortage of land around centres like Auckland.”

Potential investors need to be aware some syndicates will be managed worse than others and will come a cropper. Dey says it pays to do thorough research on a syndicate.

“Drive by the buildings (if possible). Meet the managers, go to their talks. It’s important to assess the managers just as much as the buildings. Look out for cowboys and know that syndicates with multiple assets are more fluid investments.