- Why too much competition and lack of regulation is damaging the industry
- We give our opinion on what needs to be done
Recently, I gave a keynote speech to a group of industry professionals highlighting why our industry is failing to deliver due to too much competition fighting for too few scraps.
There are two major components as to why we now have an oversupply of Property Management companies. The first one was Property Management being left outside of the REAA in 2008 meaning that there were no governing body setting standards that Property Managers had to comply with such as qualifications and standards.
The second major change was when the Residential Tenancies Act was amended in 2010. Prior to this date, only members of REINZ could charge a letting fee. The National Government changed this allowing all companies the ability to charge a letting fee.
These two changes saw an upsurge in startup Property Management companies. We now find ourselves at a point where the market is now saturated with small companies struggling to survive and when companies struggle they start to cut corners.
The basic rules of economics will tell you that when there is an oversupply of a service the price will drop. However, the price is not the only thing that will drop. Standards also plummet as cheap fees inevitably lead to poor service.
David Faulkner giving his key-note lecture at the RETG Event in Auckland on the 7th April
Regulation essential for quality to improve
The reality is that many Property Management companies in New Zealand will barely be making enough profit to survive. When we carried out our great Property Management Survey last year, over 50% of companies who responded had less than 200 managed units on their books. The only way you can be profitable with so few properties is to have low operating expenses, to charge a large enough fee to cover the expenses, or to provide a limited service.
Are Cleaners worth more than Property Managers?
Let’s have a closer look at what is happening with fees.
When too many companies are fighting for too few scraps we see undercutting rife. This is the only real point of difference that many companies can offer. This is when things start to get messy and led us to come up with the phrase the ‘Race to the Bottom’. Undercutting only leads to unprofitable clients and desperate companies taking desperate measures.
When you break down a number of hours Property Management companies spend working on an individual property in many cases they can be working for as little as $40 per hour. This is on a par with some cleaning companies. No disrespect to cleaners but Property Management requires a lot more skill and expertise.
The only real way to tidy up the industry is to regulate it. This will drive out the cowboys as the cost of compliance with a regulated industry means that many of these companies will either sell or simply stop operating. It will no longer be possible to manage properties at 6% or less.
What can be done?
At Real iQ, we have long been arguing for a regulated industry and with the election fast approaching, this may be the time to try and make it an election issue. Our extensive survey also showed unsurprisingly to many that the vast majority want regulation.
Our Great Property Management Survey showed the vast majority of people want regulation.
Last week, the brilliant economist Shamubeel Equab gave a fascinating insight into the housing crisis claiming that New Zealand is fast becoming a divided society akin to Victorian England with wealthy landlords and poor tenants. He also identified that home ownership in New Zealand is at its lowest point since the 1950’s and many middle-income families will be forced to rent. With approximately 60% of the population of Auckland renting, it seems hypocritical that Real Estate agents are regulated but Property Managers aren’t.
What would regulation look like?
- Property Management to come under the REAA
The fact that the REAA should be the governing body of Property Management is in our opinion, a no-brainer. As Property Management becomes more prevalent in today’s society with more and more people renting, it is only natural that the industry will…………..