Letting Fees – A Brave New World

Richard Horne 05/11/2018

The ban on Letting Fees being charged to tenants will be effective just before Christmas. The question now speculating in the minds of many rental owners is: “Am I going to be charged the letting fee from now on?”

Background

​Firstly, a little bit of background for you. The letting fee was previously the profit centre of REINZ members until the National Government deregulated property management in 2009. Before then, a property manager had to be a member of REINZ to charge a letting fee. If you were not a member, you were breaking the law by charging it.

With deregulation, property management companies found they could charge a letting fee. What business owner in their right mind would turn down the opportunity to charge a few hundred bucks simply by asking for it?

But REINZ set it all up wrong by charging one weeks rent plus GST. The unfairness of that is thrown into sharp relief when a property is rented for $1,000 a week compared to a bedsit for $250 a week. Same job, same amount of work, but four times the income.

Many companies will mitigate this loss of fee income simply by charging their owner clients the letting fee. If you’re in that position, you won’t be happy or impressed with this new fee. Raising your rent is also not an effective or practical way to recoup such new costs either.

Too Hard!

Now the letting fee is gone for tenants, things will start to change. Property Management companies that discount their fees (and charge a letting fee) will struggle to stay solvent simply because of this reduction in their income. The increased workload due to compliance with changes to the Tenancies Act and the burden of new legislation requirements will mean small operators start to shut up shop because it’s all getting too hard.

There’s going to be a shake-out of low level and small PM companies, and letting agencies could wither and die. Real Estate companies who have a property management operation may find their profitability has plummets in the New Year. Some companies make 60% or more from their letting fees alone. Take that away (and Phil has now done that) and it will hurt!

Brave New World

There are many fundamental changes being made by this Government that will impact not only on property management companies, but also private landlords. The Government’s focus on property managers is justified, but that focus needs to broaden. About 35% of rentals in New Zealand are under management, so that leaves 65% of rentals under the care of a private landlord.

Don’t get me wrong – there are many private landlords out there who do a fantastic job. It just seems off balance to nail down property managers and not also nail down private landlords at the same time. This points once again to regulation of the business of property management.

It’s going to be a brave new world for property management, and only the strong will survive. The good old Kiwi “No.8 wire” and “she’ll be right” approach to managing your rental is about to be kicked into touch.

Oh, and I nearly forgot! managemyproperty will NOT be charging the letting fee to our Owners.