Latest changes in residential tenancy act can shift “renting” and “investment property buying” in NZ.

The latest changes in Residential Tenancy Act 1986 which come into force from Thursday, February 11 has the potential to shift the landscape of "renting," and "investment property buying," in this country.

Right now, the unfettered rights enjoyed by the landlords, vis a vis tenants in residential property, has been one of the biggest motivators for new investors to take a plunge in investment property buying, and contributing in heating up of the housing market.

The ability of the landlord to evict tenants almost at will and impose an increase in rents, again without much regulation has kept the experience of renting at best "interim," while enhancing the experience of property investment as exhilarating and luxurious.

Investment property buying and renting are indeed two separate set of human activities which fulfil distinct needs and requirements of specific customers – both important for the effective functioning of a competitive housing market.

However, in recent years the New Zealand's overheated housing market has distorted the fine balance between the two – to an extent making it almost unsustainable.

Right now, "renting" is largely perceived as an act of need and necessity driven by a number of factors in one's life, whereas "investment property buying" is understood as an act of "luxury" that enhances one's total net worth – which is not completely wrong altogether.

Getting into the property ladder and expanding investment property portfolio is a time-tested pathway to increasing one's net worth.

However, it is the combination of factors such as overheated housing market, low interest regime, and ever-increasing renting market that has been fuelling a mad rush towards investment property buying.

Ankur & Geetima (name changed) who just recently bought their first home two years ago in the suburb of Takanini in South Auckland for around high $ 700K have made a splash in the overheated housing market and upgraded to a $ 1.5 million-plus (home & income) property in Flat Bush, hoping to reap the benefit of high rent market and payout mortgage for their new plush property.

Although a source of envy for many struggling families around, the young couple has not done anything wrong or unethical, and in fact played with the rulebook of current realities of the housing market and investment environment and taken some bold, calculated risks.

It's another matter that by taking this bold risk, they have simultaneously exposed themselves to the vagaries of financial market or downturn in the housing market that Reserve Bank Deputy Governor has talked about this week while announcing new Loan to Value ratio.

"A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid 'fire sales' that potentially amplify any downturn," Mr Bascond said.

The risk can be further amplified with the incoming changes in renting laws that is expected to increase the general rental-tenure as renters will have the ability to live as much longer as they wish as long as they continue to behave well and not make any significant damage to the property.

The Residential Tenancies Amendment Act 2020 has already enunciated some changes which were to be fully implemented in three stages (August 12, 2020, February 11, 2021, & August 11, 2021), with most significant changes coming into force from today.

These changes, along with a couple of other announcements made this week, such as re-introducing LVR rates, could potentially shift the way New Zealanders look into renting and investment property buying.

What are the changes in tenancy law?

• Security of rental tenure: Landlords will not be able to end a periodic tenancy without cause by providing 90 days’ notice. New termination grounds will be available to landlords under a periodic tenancy and the required notice periods have changed.
• Changes for fixed-term tenancies: All fixed-term tenancy agreements will convert to periodic tenancies at the end of the fixed-term unless the parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice in accordance with the termination grounds for periodic tenancies.
• Making minor changes: Tenants can ask to make changes to the property and landlords must not decline if the change is minor. Landlords must respond to a tenant’s request to make a change within 21 days.
• Prohibitions on rental bidding: Rental properties cannot be advertised without a rental price listed, and landlords cannot invite or encourage tenants to bid on the rental (pay more than the advertised rent amount).
• Fibre broadband: Tenants can request to install fibre broadband, and landlords must agree if it can be installed at no cost to them, unless specific exemptions apply.
• Privacy and access to justice: A suppression order can remove names and identifying details from published Tenancy Tribunal decisions if a party who has applied for a suppression order is wholly or substantially successful, or if this is in the interests of the parties and the public interest.
• Assignment of tenancies: All requests to assign a tenancy must be considered. Landlords cannot decline unreasonably. If a residential tenancy agreement prohibits assignment, it is of no effect.
• Landlord records: Not providing a tenancy agreement in writing will be an unlawful act and landlords will need to retain and provide new types of information.
• Enforcement measures being strengthened: The Regulator (the Ministry of Business, Innovation and Employment) will have new measures to take action against parties who are not meeting their obligations.
• Changes to Tenancy Tribunal jurisdiction: The Tenancy Tribunal can hear cases and make awards up to $100,000. This is a change from $50,000.