0800 REAL IQ

Church Preaches 'Game Changer' As Calls For Regulation Intensify

  • Property Institute claim to be 'game changers' for Property Management

  • Why we believe that Governance through the REA is the only logical solution

Never before has our industry come under such intense scrutiny as it has right now. Whether it be tenant groups, politicians, the media or the oppressive Tenancy Compliance and Investigation Team, everyone wants to attack Property Managers. In fairness, we seem to be giving them plenty of ammunition and the latest faux pas by a Wellington-based Property Management company was embarrassingly distasteful. One wonders what they must have been thinking.

With all the negative publicity and an increasingly vocal call from all parties to regulate our industry, it is now a case of when the regulation of our industry will happen rather than if.

The focus should now turn to what regulation will look like and, as an industry, we seem to be heading in two different directions.

The main discussion is whether Property Management will self-regulate as has been suggested by some influential figures within the property sector, or whether the Government should become the regulator. If you read between the lines and listen to what Housing Minister Phil Twyford says, it appears that the Government do not have regulation high on the agenda.  The amount of bad publicity and calls from all sectors, especially renting groups who are traditionally Labour supporters, will likely have the Government re-evaluating their position. 

We are starting to see two very different opinions coming through from two different organisations.

Firstly we look at the smaller but well supported Independent Property Management Association (IPMA). They appear to be very much in the self-regulation camp after aligning themselves with the Property Institute of New Zealand (PINZ). Ashley Church, CEO of PINZ announced their partnership under much fanfare back in July claiming it to be a 'Game Changer' for the Property Management industry. Time will tell if this will be the case.

 REINZ CEO Bindi Norwell with Housing Minister Phil Twyford at the recent REINZ Conference in Auckland

REINZ CEO Bindi Norwell with Housing Minister Phil Twyford at the recent REINZ Conference in Auckland

The opinion we favour and has been voiced by REINZ is the case for regulation under the REA. In our opinion, this is the only logical answer to help solve the issues that have consistently plagued our industry and will provide greater assurances for both tenants and landlords alike.

We fear that Twyford may take the soft option and seek the industry to self-regulate as the Government may not want to create more work for themselves. This will be the likely middle ground that will leave the Government claiming that they took steps without actually taking any responsibility.

How Did We Get Here?

The problems started over a decade ago when the then Associate Justice Minister Clayton Cosgrove introduced a bill that stripped REINZ of its then self-regulating powers and we saw the birth of the Real Estate Agents Authority (now known as the REA). Before the evolution of the REA, to work as a Property Manager leasing property, you had to have your salesperson certificate. As the axe fell on self-regulation and the REA was introduced, it was decided that Property Management should be left out. I remember this time well as around 2010 I was invited to participate in the REINZ Property Management Sector Group. At the time it was discussed that most of the complaints REINZ received were about Property Managers and it was decided that the REA would not have the resources to deal with so many complaints. Therefore, it was decided that Property Management would be left out, meaning anyone could become a Property Manager without any qualification.

The new elected National Government amendments to the Residential Tenancies Act in 2010 escalated the issue, thus allowing anybody operating as a property manager the ability to charge letting fees. Previously only REINZ members were able to do this. This opened the floodgates as new Property Management companies started everywhere, leading to the situation that we have now. A proliferation of small unqualified Property Management companies governed by no one has led to a drop in standards.

Deregulation of our industry has failed.

Game Changer Claims

It seems that after ten years, we have come full circle and the status quo cannot remain. The question is what will Twyford do next?

We know that Minister Twyford has met with IPMA and with Ashley Church of PINZ and if I was a betting man, I would predict that Twyford will take the IPMA and PINZ preferred position of self-regulation, governed by PINZ. 

 Ashley Church of the Property Institute claims that their relationship with IPMA is a 'game changer' for the Property Management industry. Time will tell if he is correct.

Ashley Church of the Property Institute claims that their relationship with IPMA is a 'game changer' for the Property Management industry. Time will tell if he is correct.

If PINZ and IPMA get their way we will be looking at PINZ to set the standards on what best practice will look like and one would suspect they would have their own in-house disciplinary procedures for rogue Property Managers. 

Ashley Church has two years to prove to the current Government that they have what it takes. PINZ are predicting many more Property Management companies will switch to IPMA as part of their new initiative and IPMA chair Karen Withers makes the bold claim that their members already represent the pinnacle of the Property Management industry. 

One must applaud such an initiative. It adds greater credibility to IPMA and will give them more profile. As such, they can start to influence Government policy and in particular around the Residential Tenancies Act. 

But does this mean that we will all become members of IPMA and will PINZ be telling us how to run our industry?

Self Regulation Flawed

In principle, any suggestion of self-regulation is better than the current situation however on a second look at the idea, I do have serious concerns about the practicality of such a plan.

For this idea to have any merit we will need to see the big players switch from REINZ to IPMA and this is highly unlikely. Under the current IPMA constitution, REINZ members cannot take up IPMA membership. Can you imagine the likes of Barfoot and Thompson walking away from REINZ to become a member of IPMA? Me neither!

If IPMA get their way, REINZ will set their own criteria, they partly have already with their Accreditation programme. This would split the industry in two.

It also goes against what Labour stood for 10 years ago when Clayton Cosgrove opposed the self-regulating powers of REINZ - so why should Property Management be any different and can you guarantee that PINZ will run it differently or any better than the way REINZ ran the industry 10 years ago?

My main concern is this will become too confusing for the consumer. Whether we like it or not, there will be multiple times where issues cross the boundary between residential sales and property management and as such having to go to two separate bodies to raise issues will not be practical.

As an example. A house is managed by ABC Property Managers and the landlord decides to sell with Anne Agent Real Estate. The house is sold but there is confusion around possession date and subsequently, incorrect notice is given to the tenants meaning the purchaser cannot move in on the date they settle. Both ABC Property Management and Anne Agent Real Estate blame each other for the mistake. The delay costs thousands as well as the emotional distress it causes the purchaser, the vendor and the tenants. The purchaser decides to log a formal complaint.

  • Who do they complain to - REA, PINZ or both?
  • What happens if different regulators come up with different conclusions?
  • What happens if both regulators end up blaming the other party?
  • Does the purchaser have to fill out two separate complaint forms?
  • Are there different appeal processes?

Whether you like it or not, there is simply too much crossover between residential sales and property management. Although there is clearly a difference in the service that both sales and property management offer, ultimately, they are dealing with the same product, real estate. Therefore, keeping it regulated under one roof is the only logical answer. Having it any other way is too confusing and can lead to inconsistencies.

 In this diagram, we try to show the different parties that can be involved in a transaction involving the sale of an investment property. It simply makes sense for the REA to be the regulator, keeping the process simple for consumers. Tenants would continue to deal directly with Tenancy Tribunal and not the REA yet if a landlord has an issue with their property manager, they can complain directly to REA.

In this diagram, we try to show the different parties that can be involved in a transaction involving the sale of an investment property. It simply makes sense for the REA to be the regulator, keeping the process simple for consumers. Tenants would continue to deal directly with Tenancy Tribunal and not the REA yet if a landlord has an issue with their property manager, they can complain directly to REA.

REA the only way forward

When you look at what the REA covers it seems ludicrous that Property Management is left out. Leasing of commercial real estate is a prime example. To do commercial leasing you have to operate under the boundaries of the REA - yet leasing a residential property is deemed not to come under REA. For companies that run real estate in conjunction with property management, this can unfairly expose them to risk.

I have thought about how regulation would look for some time now and back in February of 2015 when I first started consulting I wrote an article proposing how regulation should look. Not a lot has changed in my opinion.

What I proposed for property management is as follows.

  • Compulsory qualifications for Property Managers: Do we financially benefit from this as a company? Yes, of course we do, but can anyone seriously argue that being qualified as a Property Manager does not benefit the individual, the company they work for and their consumers whether they be tenants or landlords? I truly believe that knowledge is power and lack of knowledge of the Residential Tenancies Act within our industry always astounds me. Since delivering the New Zealand Residential Property Management Level 4 qualification we have seen a nearly 80% increase in uptake since the previous year. We expect to get very busy in the next twelve months.
  • Compulsory verified and non-verified training: Replicate what happens in real estate. Our industry is constantly dealing with change whether it be through legislation, technology or consumer demands. 10 hours on verified and non-verified training has helped real estate. It will also benefit property management.
  • Mandatory Trust Accounting: Professional Property Management is about trust and transparency. The money collected does not belong to a Property Management company, it belongs to the client who will give a small percentage to the company for managing their asset. Yet too few companies actually use a trust account. Money that does not belong to the company can easily be used for business expenses and it is way too easy to deceive your consumer.
  • Compulsory Auditing of Trust Accounts:  Under section 125 of the Real Estate Agents Act 2008 the agent's trust accounts must be audited and the REA has the power to appoint an auditor to audit accounts at any time. When you think of the millions of dollars that are held in an account over a twelve month period, being audited is an absolute necessity.  
  • Criminal record checks on employees: Again this is about establishing trust with the consumers. Property Managers will enter 100's of houses throughout the year. They will do approximately 500 inspections a year and will be potentially managing millions of dollars of landlords income and tenant bonds. You want to know the person doing this has no unpleasant history.
  • Extend the powers of the REA: Put Property Management under this as well. There has to be some discussion as to what authority they have and what constitutes a worthwhile complaint. You cannot have the authority bogged down with small complaints. This was the original issue back in 2008. Landlords would get upset because their expectations around what constitutes reasonably clean may not have been met. Let the REA deal with cases where the claims are for a significant dollar amount. There will have to be clear boundaries put in place for this. Also, give the REA powers so they can penalise companies or individuals or even ban them from operating.
  • Transparent complaints procedure: Every property management company should issue landlords a copy of their complaints procedure and tenants should also be given booklets on what to do if they have an issue that cannot be resolved. The reality is only a handful of property management companies actually have a transparent complaints procedure and many have no procedure at all.
  • Tenant charges clearly displayed: This is a step we have taken from the UK. If tenants break a contract they should be charged for the re-letting of that property. However, to avoid confusion and disputes, those fees should be clearly outlined along with how they are calculated before any tenant signs the Tenancy Agreement. Again, this helps establish transparency and trust.
  • Compulsory training for private landlords:  This is a new suggestion. If you are a landlord you are in business and it can no longer be treated as a hobby. As letting fees being charged to tenants are banned and the responsibility for fees is with the owner, we may see more landlords choose to manage the property themselves. This will cause potential issues as many landlords may have great intentions but do not have the skill set or knowledge to manage a residential tenancy.

The argument put forward by many of the people who oppose regulation under REA is that property management will just become a second-class citizen to residential sales. 10 years ago, I would have agreed, however, I firmly believe that opinion is changing. The true value of any real estate business is in the rent roll, not in the sales. Rather than property management being poor cousins, I see us as the rich uncle or auntie who looks after the family silver. We also have a changing generation as the baby boomers sell up and retire, a new breed of business owner is emerging. They understand the value of a high performing property management business and the companies that thrive will focus on property management first, not the other way round.

Many people may think I take such a stance because of our association with REINZ. That is not the case, however, I do take umbrage when individuals make comments suggesting our stance is commercially motivated. Nothing could be further from the truth. Every decision we make as a company has the industry's well being at heart. It actually makes commercial sense for us to keep quiet. However, I once received some great advice when I was on the REINZ committee from the brilliant Hayley Stevenson of Housesmart in Queenstown. "You can sit on the sideline and whine or you can get on the playing field and speak up for what you believe". I choose to do the latter.

Our industry has taken an absolute hammering over recent times. Yet in spite of this, I remain optimistic that good will come out of all the bad publicity that has been associated with Property Management. There is now a strong sense that change is coming. One hopes that the Government listens to all parties and think their decisions through very very carefully. The next few months are critical for our industry and we cannot afford to get it wrong.

David Faulkner