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Better tenants, better properties, better rents

Better tenants, better properties, better rental rate

There’s a new type of tenant in the Auckland market today – someone who has the money to buy but chooses not to.

These cashed up “home owners in waiting” have sold properties in the last two years, but are waiting for the market to settle down before they buy a new home, helping absorb some of the oversupply of higher end rental properties.

Bayleys’ property management team has bucked the trend of flat-lining rental rates in Auckland, with their average weekly rent rolls increasing over the year due to better quality properties and tenants, many of whom can easily afford to buy.

The average rental rate Bayleys property managers obtain for their landlords has risen by 5% between September 2007 and September 2008, says Bayleys property services general manager Nick Ansley.

This is in spite of the median rent level in Auckland holding steady over the year to August 2008 at $350 per week, according to the most recent Massey University NZ Residential Rental Market Report.

Nick Ansley says rental rates generally have suffered from an oversupply of rental properties, especially at the high end of the market where Bayleys does most of its business. Consequently, Bayleys decided last year to concentrate its rental management portfolio on the higher quality, better maintained properties.

The strategy is helping attract discerning and more affluent tenants, such as people who recently sold a home either here or overseas, and who want a high standard of accommodation.

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“We have targeted our growth towards a better quality property, which brings in a better tenant and a higher rental rate, and that’s been reflected in an increase in the average weekly rent of our portfolio,” Mr Ansley says.

“We are seeing quite a few new tenants who are cashed up from selling a property in the last year or two. This category represents about 20% percent of our tenants now, as indicated on their application forms, compared to very few two years ago.

“We also have noted a significant increase in the number of ex-pat New Zealanders who have returned home and are choosing to rent for the short term. Many of these people are renting quality family homes in the upper price bracket,” Mr Ansley says.

Director of Massey University’s Real Estate Analysis Unit, Professor Bob Hargreaves, says that as overall home ownership has decreased in Auckland, the overall quality of rental housing improves, which can lead to rising rents over time due to better stock.

“This is because additions to the rental housing stock are mainly from the conversion of existing owner occupied housing,” Mr Hargreaves says in his September report.

Mr. Ansley adds, “We have definitely seen the trend of an oversupply at the higher end of the rental market, due to an increase in formerly owner-occupied properties being rented out. However, many of these owners do not have to accept low rents.

“They are not so highly leveraged as the investors who have large loans on multiple properties, and they can afford to wait out the market by renting it out for a while.”

Kristy Gillespie, who secures new property managements for Bayleys, says that savvy landlords maximize rental returns by keeping the property in top condition.

“A quality property that is more likely to attract higher rents and better tenants is well maintained and up to date. I have advised owners to take their rental properties off the market and renovate them if they are not up to standard,” she says.

Educating owners on capitalising appropriately is also important.

“We’ve had landlords who want to repaint inside and out even though the property does not need it. Another landlord gave her tenants a new kitchen with marble bench tops, when all they had asked for was new window coverings. We don’t recommend overcapitalising,” she says.

Mrs. Gillespie says rents on some properties have fallen, while others have risen.

“At this time we are seeing a lot of conflicting evidence in the market. A lot of factors effect rental rates, including condition of the property, supply and demand factors, how well the property presents and much more. We really have to see the property to gauge how it will rent,” she says.

“It is important to clearly define the rental price sector before making any bold statements about rental pricing trends. We often see one sector of the market experience the exact opposite trend of another, and two months later the situation reverses.”

Side bar:
Tips for maximizing rental rates without overcapitalizing:

- Keep the colours neutral
- Keep bathrooms and kitchens up to date
- Use harder wearing materials
- Fix any items that affects safety or functionality of the property
- Handle tenant requests for repairs promptly
- Don’t form an emotional attachment to the property. Renovate and maintain to the standard of comparable rentals – not as if it were your own home.
- For a larger investment, add car port or garage, as a tenant’s car can be their most important asset.
- Market the property effectively with good photography and ads that sell the benefits of living there.


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