Better late than never as regulation beckons for the Property Management industry

Back in 2008, Labour made dramatic changes to the real estate industry which lead to a significant improvement in the level of service and transparency from the industry. At the time, the changes were highly controversial. The real estate industry was a self-regulated industry, overseen by the Real Estate Institute of New Zealand (REINZ). Complaints about the conduct of real estate agents were mainly dealt with in house and this led to accusations by the then Associate Justice Minister Clayton Cosgrove around ‘mates looking after mates’. He was quoted as saying “The freedom to self-regulate granted by the current legislation is now perceived as industry protectionism rather than consumer protection”.

We may not have realised it at the time, but former Labour MP Clayton Cosgrove helped transform the real estate industry

As such, the Real Estate Agents Act (REAA) was introduced leading to a state-run department that oversaw the conduct of the real estate industry. Even the most harshed of critics of Cosgrove would have to admit that the real estate industry is much improved due to the introduction of the REAA. At the same time, the property management industry also fell under the realm of REINZ as only REINZ members were able to charge letting fees for the leasing of residential property.

Labour made the call that the Property Management industry was going to be left out of the REAA as many of the complaints that REINZ fielded was about property managers and this was mainly over petty issues such as disputes overcharges for damages or poor tenant behaviour. The feeling was that the newly formed REAA would not have the resources to deal with so many minor complaints. As such, an unregulated property management industry was formed.

The floodgates open

Then, in 2010, we saw further reform but this time around, it was regarding the Residential Tenancies Act (RTA). Before the 2008 general election, there was talk that if Labour was to be re-elected, the letting fee, which at the time was charged to tenants, would be scrapped. The election didn’t quite go to plan for Labour as the Clarke led Labour Government was ousted by National and John Key became the Prime Minister. The reform of the RTA continued but instead of the letting fee being scrapped, National made changes that allowed anyone acting in the business of letting rental properties would be able to charge the letting fee to the tenant. With this call, the floodgates opened. Anyone could call themselves a property manager and anyone could charge the tenant a letting fee.

The property management industry saw an influx of new companies setting up post-2010 as all of a sudden, this unregulated industry was wide open to anybody starting a company. It did not matter if you had no experience, no training, criminal background or a less than reputable reputation.

With the influx came issues. Too many companies competing for too few managements led to a drop in standards and also a drop in price. Soon there were too many property management companies and with a zero-entry barrier, the industry was open to many issues such as poor practice and on some occasions, unethical and inappropriate behaviour. Bonds not being lodged and owners funds being stolen were some of the stories that made the headlines.

A Call For Change has Government listening
REINZ campaign ‘A Call For Change’ must have played its part in influencing the Government

Now, after over a decade, we have almost come full circle. The announcement that Labour will regulate the Property Management industry has been welcomed with great applause from many within the industry. People who have worked in the industry prior to 2008 can see the many issues that have arisen from a lack of regulation. If a landlord has an issue with a company, they have nowhere to go to other than small claims.

REINZ has, for some considerable time now, been campaigning the current Government and also the previous National Government to regulate the industry to protect landlords and tenants from poor and unethical operators. This reached its crescendo last year as REINZ introduced the campaign ‘A Call For Change’ which was a call for the Government to regulate the Property Management industry. This was a group of industry professionals as well as advocacy groups who rallied together to lobby the Government and introduce regulation. Here at Real iQ, we were one of the founding members of this campaign. We strongly believe that Property Management will be better off for a regulation.

REAA to be the regulator?

The question is now, what does a regulated industry look like and who will actually be the regulator? Will it be the Real Estate Agents Authority (REAA) or will it be run by Tenancy Services through their Tenancy Compliance and Investigation Team?

Associate Housing Minister Kris Faafoi addressed the recent REINZ Conference via video and gave a hint as to what regulation may look like

Time will only tell. However, after listening to Kris Faafoi, Associate Housing Minister for the Government, at the recent REINZ conference in Auckland, one must suspect that it could well be the REAA. In a video presentation, he indicated that Property Managers will have to work to a code of conduct, similar to that of real estate agents. He also signalled that the Unit Titles Act will also face an overhaul as more people are renting and more people are living in high-density housing such as apartments. The current Unit Titles Act is no longer fit for purpose.

Being a Property Manager is easy right?

Many people think that being a property manager is easy. You sit back, collect the rent and do very little else. The reality is so much different. At any given time, a property manager could be dealing with a multitude of issues as well as legislations. We are working with far more than just the RTA. The Building Act, the Health Act, The Housing Improvement Regulations, The Fair Trading Act, The Human Rights Act, City council by-laws are just a handful of statutory regulations that we have to deal with.

At the end of the month, your property management company may have millions of dollars sat in a bank account ready to pay out owners yet audits on accounts, police background checks on staff as well as using Trust accounts are all too often infrequent in our industry.

And finally, there is no compulsory training for property managers meaning there is no professional development. We are seeing an increase in property managers getting qualified under the New Zealand Residential Property Management Level 4 qualification (NZRPM), this is not a legal requirement.

Our industry will have to adapt to regulation if and when it does come, however, the best companies will already be running their businesses as if the industry was regulated and very little should change from their perspective. You will likely have to be qualified and committed to ongoing training and development. If you are new to the industry you will have to work under supervision for a period of time. Rental money will be secure, held in an audited Trust account and professional indemnity insurance will be compulsory (you’d be amazed how many companies do not have this). People working in the industry will also likely have to have background checks done on them. With so much access to money and bank accounts, as well as people to enter tenants homes, trust becomes an invaluable commodity for any professional operator. Ultimately, trust is what we are selling. Trust in our expertise and trust in our ethics. I would also strongly recommend that you become either a member of REINZ or PROMINZ so you are committed to a code of ethics.

Our industry is in for massive change over the next few years as we finally head towards the regulation of our industry. It is a decade overdue but better late than never.

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