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UPDATED: REINZ wants pre-purchase inspection standards

Real Estate Institute boss on decision to continue LVR restrictions | Plus talks of pre-purchase inspection standards


Fiona Rotherham
Fri, 14 Nov 2014

UPDATEDReal Estate Institute chief executive Helen O’Sullivan wants to see pre-purchase building inspections regulated, a standard set for methamphetamine testing, and property managers come back under the Real Estate Industry Authority.

O’Sullivan, who is leaving the institute in February to take on the role of chief executive for Auckland apartment developer Ockham Residential, said there were still several issues that needed to be dealt with in the property industry to improve the information buyers had before making a purchase and better protect landlords from those managing their properties.

She would like to see the pre-sale information required from vendors beefed up as it is in some Australian states to cover all aspects of the property although in the US some states had gone too far by including things such as whether there were noisy neighbours or barking dogs.

One of the biggest issues was getting consistency in pre-purchase building inspections which didn’t have to meet any standard and the practitioners weren’t required to be licensed, she said.

“This has been a big issue with leaky homes and there have been lots of cases where vendors and purchasers have been misled.”

The Building Officials Institute of NZ, which is a voluntary not-for-profit, does provide a building surveyor accreditation. But REINZ wants it to be mandatory for building inspections to meet an audited standard that sets out the procedures required and also for building inspectors to have professional indemnity insurance in case purchasers later discover problems with their house.

“You have a guy who’s been building for 20 years and then buys a thermal imaging camera on the internet and sets up as a building inspector with a limited liability company and no professional indemnity cover. When his reports are found to be not that flash, he is nowhere to be found.”

O’Sullivan said REINZ had also written to government ministers calling for a standard agreement on what constitutes proper methamphetamine testing of houses suspected of having been used as P labs so those paying for them can rely on the quality and consistency of the results.

Another issue she’s concerned about is property management which was deregulated under the 2008 changes to the Real Estate Act. Many real estate agencies have a property management arm which comes under regulation of the REAA as part of their agency licence but others don’t face the same oversight, she said. 

Anecdotally there had been a number of cases where property managers have absconded with landlords’ money, but few complain about it to the police because of the relatively small sums involved, she said. “Cumulatively, it mounts up.”

REINZ wants to see all property managers come under the REAA, a requirement for rent money to be kept in trust accounts, and some method of registration so that those who do transgress can’t just easily pop up again in the market somewhere else.

O’Sullivan recently announced her resignation from the 13,000-member voluntary institute after four years at the helm. She said she had been surprised at the amount of media commentary required in the role but puts that down to kiwis’ love affair with property.

“New Zealand has three religions – rugby, racing and real estate.”

She, for one, dismisses talk of a looming housing bust in New Zealand where property is said to be over-valued. “There would have to be a trigger for it.” Most people would simply hang on to their properties and keep paying the mortgage if values dropped significantly below what they paid, she said.

Auckland needed to keep increasing supply to meet growing migration by building up and out. When supply meets demand, prices tend to stabilise, she said.


EARLIERREINZ says first-home buyers could give up

Departing Real Estate Institute chief executive Helen O’Sullivan said the Reserve Bank’s decision to continue the loan-to-value ratio restrictions on home loans could see some first-home buyers give up on the idea of ever owning a house.

RBNZ governor Graeme Wheeler yesterday said the LVR regime in place for a year had been successful, with house price inflation falling nationally from just under 10 percent to 4.9 percent, while in Auckland it had halved from 17 percent to 8.5 percent. Although there had been speculation the RBNZ would lift the restrictions yesterday, Wheeler said there remained a risk of a resurgence in house price inflation, particularly given strong immigration flows and he didn’t think it appropriate to ease the LVR speed limit at this time.

O’Sullivan said it was meant to be a temporary measure but was now starting to look more permanent.

“Does that mean Auckland will have to have building consents of 13,000 a year before the LVRs are moved, because it will take some time to get there,” she said. “The long-term implications could be that first-home buyers give up on home buying and that’s fine if they turn to other investments but not if they just end up buying jetskis.”

There was data in the US that long-term asset accumulation was linked to property purchases, although it’s not axiomatic that one would follow the other, she said.

The Reserve Bank yesterday said the LVR restrictions had reduced the ratio of first-home buyers to about 17 percent of new lending over the past year, from a peak of 21 percent in September 2013, and just below the 19 percent average over the past decade. 

The general concept was that the LVRs were a temporary measure that would cool demand until supply ramps up, but O’Sullivan said she wants some clarity from the RBNZ as to how long that is expected to take. She also said consideration should be given to extending the amount of home loans banks can make to people with under a 20 per cent deposit, such as adding an extra 5 percent of those sort of loans to first-home buyers eyeing up properties under the $400,000 mark.

Wheeler also said he was considering measures to discourage speculators from buying multiple houses given the LVR regime had favoured investors over first-home buyers.

The RBNZ initially proposed in September last year that banks would have to classify mortgages for property investors with more than four properties as commercial loans from July this year, forcing the banks to conserve more capital to back the loans. This was later increased to those owning more than five properties. But the move has been delayed until next year following more consultation with the banks who said they rules were impractical to implement.

O’Sullivan said it would mean property investors could end up being charged higher interest rates. The problem was identifying what landlords were long-term investors and those that she would regard as speculators who bought a property with the goal of flicking it on in six months to make a capital profit.

She said the Real Estate Institute had compared housing data over the past five years with the consumer price index and found that the compound annual growth rate when adjusted for inflation for house prices was only 6.2 percent in Auckland and 5.8 percent in Canterbury. In many parts of New Zealand such as Northland, Hawkes Bay and the Manawatu there had been a decline over that period.


Fiona Rotherham
Fri, 14 Nov 2014
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UPDATED: REINZ wants pre-purchase inspection standards