Olly Newland is warning residential property investors not to be too reliant on capital gains.
In a Double Shot video interview with interest.co.nz, the veteran property investor and author, who is also a director of property advisory and management company Newland Burling, said the current residential property market had the same smell about it as previous booms, before they turned into busts.
"The warning bells are well and truly ringing but no one is listening," he said.
He also said that the current Residential Tenancies Act was outdated and needed to be revised to better suit the needs of people who were long term or even lifetime renters.
Newland said although residential property prices were continuing to increase, particularly in Auckland, the days of rising prices would eventually come to an end and that would be a day of reckoning for many investors.
"At the moment they are all giggly. They all go around giggling about the money they are making," he said.
But when prices stopped going up investors would be left with the chores of having to collect rents, maintain their properties and deal with changes in tenants, without the benefit of capital gains, and many would decide to lock in the capital gains that had already been made and cash up.
That could see thousands of properties coming on to the market at the same time, with a shrinking pool of buyers.
Newland said the sale statistics he had, showed that investors were buying 80% of the properties sold in South Auckland and 41% of sales across the whole of Auckland.
"First home buyers haven't got a look in because investors are buying everything that's coming up.
"It's not healthy," he said.
And many of the investors that came to Newland Burling for advice had paid so much for their properties that they were having to keep shovelling money into them to keep them afloat, because the rental income wasn't sufficient to cover the outgoing like rates, insurance and maintenance.
"That's all very nice when capital gains keep making you feel better but when capital gain stops it will become a real pain," he said.
Newland also believes the Residential Tenancies Act needs to be overhauled to better suit the needs of long term renters.
"Because so many people are renting now and renting for life, the Residential Tenancies Act is out of date," he said.
He believed that existing tenancy agreements were suitable for people renting short term, say a year or two, but that long term agreements should be more like leases on commercial premises.
These could be for terms of 50 years or even more, effectively giving people surety of tenure for life.
Under such an arrangement the tenants would be responsible for paying outgoings such as rates, insurance and maintenance, but that would also be reflected in the amount of rent they would pay..
And there would be a specified mechanism for reviewing rents, as there are in commercial leases.
Newland said introducing such arrangements would attract institutional investors into the residential property market and could help boost the supply of affordable housing.
In other countries it was common for both public and private institutions to buy large residential complexes and give people tenancies for life, he said.
You can watch the full video interview with Olly Newland by clicking on the play icon in the video image at the top of this story.
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