property quarterly (june 2012)

In this issueRates rebates and remission schemes Valuing the super city The need for earthquake strengthening Market report for Dunedin

Vol 2, Issue 2 • June 2012

It is governed by a Board which is made up of member firms principals, including senior registered valuers, surveyors and kindred professions.

The group has built up over many years very wide expertise in the liability field and offers policies which cover all aspects of liability risk for valuer members.

It is a voluntary risk management organisation which is not profit driven, with its principal objectives being:

• Guidancetomembersonthewaysandmeansofavoidingorminimizingliabilityclaims;

• Providingmemberswithsupportiveclaimsassistanceandadministrationincluding quality technical, legal and insurance assistance;

• Offeringmembersaccesstoespeciallytailoredgroupprofessionalindemnityand other liability insurance facilities on a voluntary basis;

Insurance Consultant: Insurance and Claims Administration Aon New Zealand Limited Attention: Doug Morton (04) 819 4086

Formoreinformationvisitourwebsiteatwww.lpms.co.nz

Land Professionals Mutual Society Incorporated (LPMS) has been arranging group professional liability insurances for member firms since 1976.

Publication Committee

Iain Gribble Donn Armstrong Peter O’Brien Ah-Lek Tay

Contact details

David Clark Property Institute of New Zealand PO Box 11 380 Manners Street Central Wellington 6142

Phone: 04 382 7621 Email: [email protected]

Editor

Julian Bateson

Assistant Editor

Helen Greatrex

Bateson Publishing Limited PO Box 2002 Wellington Phone: 04 385 9705 Email: [email protected]

Advertising management

Julianne Orr Bateson Publishing Limited Phone: 09 406 2218 Email: [email protected]

Publisher

Property Institute of New Zealand

Property Quarterly is published four times a year and a copy goes to every member of the Property Institute.

Issue 2 • June 2012

ContentsCEO’s comment David Clark .................................................................................................................... 2Feature articlesMunicipal rates Rebates, postponement and remission schemes for the ratepayer Ian Campbell ................................................................................................................... 3Valuing the super city Auckland Council 2011 revaluation project Peter McKay and Mindy James .................................................................................. 7The need for earthquake strengthening Connal Townsend ........................................................................................................ 10The effects of the Canterbury earthquake on the commercial office market in Christchurch Sandy Bond and Zoltan Moricz ................................................................................14How well protected is your data? Steve McNamara .........................................................................................................24The new iPad3 reviewed Piers Macrae Cockram ...............................................................................................26A market report on Dunedin Ah-Lek Tay .....................................................................................................................30Student investment market Anthony Taylor .............................................................................................................33Earthquake-prone buildings policy for Dunedin and the future of Port Chalmers Ah-Lek Tay .....................................................................................................................35Valuation reporting David Paterson .............................................................................................................39Property Education and Training ............................................................................42Legal casesConviction and culpability under the Real Estate Agents Act 2008 Niven Prasad .................................................................................................................18Tenant’s obligation to reinstate premises Niven Prasad .................................................................................................................20ProfileAnthony Taylor .............................................................................................................43

It is governed by a Board which is made up of member firms principals, including senior registered valuers, surveyors and kindred professions.

The group has built up over many years very wide expertise in the liability field and offers policies which cover all aspects of liability risk for valuer members.

It is a voluntary risk management organisation which is not profit driven, with its principal objectives being:

• Guidancetomembersonthewaysandmeansofavoidingorminimizingliabilityclaims;

• Providingmemberswithsupportiveclaimsassistanceandadministrationincluding quality technical, legal and insurance assistance;

• Offeringmembersaccesstoespeciallytailoredgroupprofessionalindemnityand other liability insurance facilities on a voluntary basis;

Insurance Consultant: Insurance and Claims Administration Aon New Zealand Limited Attention: Doug Morton (04) 819 4086

Formoreinformationvisitourwebsiteatwww.lpms.co.nz

Land Professionals Mutual Society Incorporated (LPMS) has been arranging group professional liability insurances for member firms since 1976.

Vol 2, Issue 2, June 2012 Property Quarterly 1

CEO’s commentAs a profession, our most valuable asset is our reputation. It is not enough for us just to be reliable, honest and competent – we have to ensure that as a profession we are seen as reliable, honest and competent. We have to make sure that people understand the efforts we take in order to provide the quality services they are entitle to expect from valuers and other property professionals.

Here in the Property Institute’s National Office, we are determined to protect and enhance the reputation of property professionals across our four communities. It is for that reason that I was particularly interested to see a theme of quality assurance running throughout this issue of Property Quarterly.

Mindy James and Peter McKay’s article on the Auckland super city revaluation project on page seven is a particularly good demonstration of quality control best process within the valuing community. A vital aspect of the quality control processes employed was communication with the client. They ensured that their approaches and procedures were well documented, providing the client with total clarity as to their activities.

Further to this, they developed a detailed communications plan to make sure that the client was proactively kept informed as the project proceeded. Taken together, the documentation and the communications plan go a long way in fostering client confidence in their work.

Steve McNamara’s article on data procedures, on page 24, also illustrates the importance of providing clients with confidence in our procedures and professionalism. His suggestion for procedures to provide clients with the confidence that they are reading the original, unmodified report is particularly valuable.

Finally, David Paterson on page 42 discusses the importance of ensuring reports provided to clients are comprehensive. The effort put into detailing and reporting in compliance with the IVS 103 standard is yet another part of inspiring confidence in the industry.

This all feeds in to the work that we are currently doing around the Quality Assurance and Accreditation Scheme. It is certainly true that the scheme is designed to allow firms to ensure compliance with best practice. It is important that all our communities embrace and adopt quality assurance, either through the Property Institute’s scheme or an equivalent scheme, to promote both ourselves and the profession.

Also featured in this edition is Ian Campbell’s article on the management of rates liabilities. They may say that death and taxes are unavoidable, but as Ian explains your rates costs are manageable through a variety of options. Connal Townsend provides a discussion on the importance of earthquake strengthening in New Zealand’s environment. He also addresses how our taxation structures affect incentives for the improvement, or otherwise, of our building stock.

We also carry the regular column on legal issues provided by our sponsor, Simpson Grierson, Piers Macrae Cockram offers a review of the new iPad3 and how it can help valuers, and Ah-Lek Tay writes on plans for the future of Dunedin and Port Chalmers.

This is the second issue of Property Quarterly which has been printed in a hard copy format rather than being only digitally distributed. We are very thankful for the large amount of positive feedback we received for the first print versions, and think this June issue is a fitting successor. As well as being of interest to members of our professional communities, Property Quarterly is also a valuable resource for anyone with an interest in our industry. On that basis, if members would like extra physical copies sent to place in receptions, meeting rooms or the like, do not hesitate to ask.

CEO’s comment Rates rebates and remission schemes

2 Property Quarterly Vol 2, Issue 2, June 2012

CEO’s comment

Ian Campbell

Municipal ratesRebates, postponement and remission schemes available to the ratepayer

Many ratepayers, property managers and owners are often unaware of the number of schemes which are available to help them manage their annual municipal rates liabilities. This article looks at three schemes which can help qualifying ratepayers and along with the salient details behind each scheme. After reviewing each of the schemes on offer, readers may already know of someone who could easily qualify and benefit from any of these packages.

Rates rebates and remission schemes

Rates rebate scheme The rates rebate scheme operates under the Rates Rebate Act 1973 and is managed by the Department of Internal Affairs. The purpose of the scheme is to provide a subsidy to low income homeowners on the cost of their rates. The amount of rate rebate depends on a combination of income, the amount of rates charged and the number of dependents you have. A spouse’s income is taken into account when working out total household income which is calculated up to 31 March 2012.

Total household incomes of less than $23,240 are entitled to the maximum rebate of $580. If total household income exceeds $23,240 a rebate also applies depending on the number of dependents and the amount of rates due. Note that an owner occupier in a flat or company share arrangement sharing a single rating



unit can also be eligible under the rates rebate scheme. Local councils can also offer a top-up to the Internal Affairs rebate by including water and waste water charges in the rebate calculation as part of the rates remission scheme.

Rates rebate application forms are available on the Internal Affairs website or downloading an application form at ratesrebates.govt.nz. The current rating year applications close on 30 June 2012.

Rates postponement schemeSection 87 of the Local Government (Rating) Act 2002 and Local Government Act 2002 allowed changes on a council’s powers to postpone rates payments. Law changes allowed a council to adopt whatever rates postponement policy it chooses.

According to the Office of the Auditor General, which reviewed progress on rates postponement in 2006, most local authorities offer some kind of residential rates postponement. However, the number of ratepayers currently postponing their rates is considered to be quite low.

Councils are no longer constrained in offering rates postponement only to those with financial hardship. With law changes, councils can now include a number of other situations. These include coming to the aid of businesses that encourage economic development in a particular area or managing special land categories such as farmland situated near urban areas.

Postponement means that all rates or part payments have been postponed to a future pre-agreed period, along with a postponement fee charged. The final debt the ratepayer owes the council will be larger than just the postponed rates. The council will usually add interest and other fees to the amount owed.

As well as each year’s rates being added to the debt, the interest compounds. This means even quite small initial debt can become large over a period of years. Postponed rates are then paid at the end of the agreed period, or at a specified event such as the property being sold or on the death of the ratepayer.

The council supplements the existing security it

has for postponed rates by registering a notification of charge on the title to the ratepayer’s property. This means the property cannot be sold without the council being notified, as well as alerting anyone searching the title that rates on that property have been postponed.

Designing a schemeIn 2003, four councils and a private company McKinlay Douglas Limited agreed to work together to design and produce a rates postponement scheme offering postponement to older ratepayers who own their own properties. The councils were Far North District Council, Rodney District Council, Thames-Coromandel District Council and Western Bay of Plenty District Council. Gisborne District Council and Waikato Regional Council joined the consortium group in 2004.

A dedicated company, RP Scheme Managers Limited, a subsidiary of McKinlay Douglas, manages the rates postponement scheme. Their management arrangement is for 15 years at 0.5 per cent a year of the total postponed rates owed to councils. To cover this cost, the council then on-charges a 1.0 per cent a year fee to the individual ratepayers postponed rates.

Eight councils have since joined the scheme making a total of 14 consortium councils. These include Ashburton District Council, Kapiti Coast District Council, Marlborough District Council, Masterton District Council, Nelson City Council, Queenstown-Lakes District Council, Rotorua District Council and South Wairarapa District Council. Councils such as Christchurch City, Wellington City and Auckland all manage their own rates postponement schemes.

A table outlining fees and charges added to the postponed rates by some of the consortium authorities is shown below. The postponement cost averages around 9 per cent a year of the outstanding rates balance.

In 2006, the Office of the Auditor General recommended that councils offering optional rates postponement monitor individual accounts. This is so that they can consider stopping postponement if the value of outstanding rates is likely to breach the 80 per cent equity cap. It also recommended that councils include the effect



Rates rebates and remission schemes Rates rebates and remission schemes

of optional rates postponement in the financial projections in their annual plans when the amounts of money involved become significant.

Rates remission schemeUnder the Local Government (Rating) Act 2002, councils may grant a remission of part or all of the rates subject to certain criteria being met. Section 85 requires that a local authority may remit all or part of rates on a rating unit, including penalties for unpaid rates, if the local authority has adopted a rates remission policy and are satisfied that the conditions and criteria in the remission policy are met.

Section 86 requires the recording of remitted rates as being fully paid on the due date and paid by the local authority on behalf of the ratepayer. There are a number of remission schemes offered by local authorities. Examples offered by Auckland, Wellington and Christchurch City Councils are outlined below.

Auckland CouncilRemission of rates for remote islands Gulf islands which qualify for remission of rates are usually remote, small and have terrain which would render them unsuitable for any practical use. Some are little more than rocky outcrops with sparse vegetation and are difficult to access. The council will automatically remit the rates in full on all rating units for remote islands which are uninhabitable or cannot be used for any practical use.

Remission of rates penalties This scheme enables the council to act fairly and reasonably in relation to penalties applied when rates have not been received by the due date. Criteria include if a ratepayer is a beneficiary, earns a low income, has recently been made redundant or unemployed, or is experiencing significant family

disruption such as illness or accident. Similar rates penalty policies are seen with other local authorities.

Maori freehold land Auckland Council’s policy aims to support iwi to retain ownership of this land and use the land in a manner that aligns with their spiritual and cultural world view. Property is eligible for a remission if the land, or part of the land, is undeveloped and unused. A qualifying rating unit will be eligible for a 100 per cent remission of the rates on the portion of the rating unit that is undeveloped or unused.

For land developed and used for non-commercial purposes for the benefit of iwi members including papakainga housing, community facilities, marae and associated infrastructure other remissions are also available.

Wellington City CouncilRural open space Wellington City Council will grant a 50 per cent remission on land classified as rural under the district plan where the rating unit is rated under the base differential and used principally for farming or conservation purposes. Where the council considers a rating unit is used mainly for games or sport, it will apply a 50 per cent remission of general rates.

Remission on property under development Relief is available for downtown commercial property temporarily not fit for purpose due to the property undergoing development and therefore not receiving the benefits derived by contributing to the Downtown Levy targeted rate.

Christchurch City Council – Canterbury earthquakeAs a result of the Canterbury earthquake and aftershocks Christchurch City Council has adopted an extraordinary rates relief package for commercial and residential

Rates postponement fees and charges

Local authority Interest rate per cent Application fee Annual fee Reserve fund Scheme admin fee Counselling feeFar North DC 7.50% per year $100 $50 0.25% per year 1.00% per year $300

Gisborne 7.50% per year $50 $0 0.25% per year 1.00% per year $300

Kapiti 7.00% per year $100 $0 0.25% per year 1.00% per year $300

Nelson City 7.25% per year $100 $0 0.25% per year 1.00% per year $300

Queenstown 7.00% per year $100 $0 0.25% per year 1.00% per year $300


property owners. On 18 November 2010, the council resolved to

amend its Rates Remissions Policy within the purposes of the Canterbury Earthquake Response and Recovery Act 2010. The council relied on exemptions contained in the Canterbury Earthquake (Local Government Act 2002) Order 2010.

The package, which amounts to $1.4 million in lost rates revenue for the city, helps those most adversely affected. For residential it offers 40 per cent rates remission. Businesses located within the cordoned red zone are provided with 30 per cent rates remission and 30 per cent rates remission for businesses outside this zone that cannot be occupied because they are adjacent to dangerous buildings.

On 15 December 2011, and for Port Hill properties, the council amended its rates remission policy to give 100 per cent rates remission to owners of properties at risk of rock fall, cliff collapse, unsafe access and who have been instructed by the council to leave their properties. This remission was put in place automatically, so residents should not have to do anything to receive it.

Rates remission applies to residential properties on land identified by EQC as requiring remediation from 1 September 2010 until the earlier of the completion of rebuilding, or six months following completion of land remediation if building has not commenced. All applications for remission must be supported by documentation from the Earthquake Commission or private insurance firms showing that the property meets criteria. Remissions are at the discretion of the council and assessed on a case-by-case basis.

SummaryThere are a number of avenues available to ratepayers in managing ratepayer liabilities. The rates rebate scheme is

managed through the Department of Internal Affairs and offers a subsidy of up to $580 dependent on household income. The scheme operates under the Rates Rebate Act 1973 and is available during the applicable rating year.

Local government changes allowed any council to adopt whatever rates postponement policy it chooses allowing the criteria for offering postponement schemes to be widened. Fourteen local authorities have since combined to form a rates postponement consortium managed by RP Scheme Managers Limited. The average cost is around nine per cent a year of the outstanding rates balance. Postponed rates are then registered by a notification of charge on the title to the ratepayer’s property.

The Office of the Auditor General considered that the number of ratepayers currently postponing rates was low. It also noted that with each year’s rates being added to the debt, the interest compounds. This means even quite small initial debt can become large over a period of years.

Councils needed to stop postponement if the value of outstanding rates is likely to breach the 80 per cent equity cap and record the financial projections if the amounts owing became significant. Councils may grant a rates remission of part or all of the rates.

Rates remission schemes offered by Auckland Council include remission of rates for remote islands, remission on rates penalties and remission for Maori freehold land. Schemes offered by Wellington City Council include rates remission on rural open space land, games and sports land, and the Downtown Levy on property under development.

Following the Canterbury earthquake and aftershocks Christchurch City Council has adopted an extraordinary rates relief package. For residential property, a rates remission is available for properties on land identified by EQC as requiring remediation.

Rates rebates and remission schemes Valuing the super city



Peter McKay and Mindy James

Valuing the super city Auckland Council 2011 revaluation project

The first Auckland Council revaluation was the largest one ever undertaken in New Zealand, with 516,000 rating units. The revaluation involved the amalgamation of the separate district valuation rolls of the seven former territorial authorities, which had differing revaluation dates and rateable bases, into a single district valuation roll with a common revaluation date and rateable base. The revaluation date of 1 July 2011 and future rateable base were included in the enabling legislation of the new council.

Valuing the super city

With the short lead-in time to the revaluation project, it was determined by the Auckland Transitional Authority that continuity of existing valuation service providers would be the best option to ensure successful completion of the revaluation project. As a result, the former Auckland City Council valuation team was appointed to undertake the valuation work in the former Auckland City Council area. Quotable Value was appointed to provide valuation services for the other former legacy councils.

Legacy council Number of rating units

Last revaluation date

Previous rating base

Valuation serviceprovider

Auckland City 176,000 01/07/08 Annual value Auckland CouncilFranklin District 20,000 01/07/09 Capital value Quotable ValueManukau City 105,000 01/09/08 Annual value Quotable ValueNorth Shore City 82,000 01/09/08 Land value Quotable ValuePapakura District 18,000 01/09/09 Land value Quotable ValueRodney District 46,000 01/09/07 Land value Quotable ValueWaitakere City 68,000 01/09/07 Land value Quotable Value



Project structure The continuity of valuation service providers allowed for the retention of existing valuation databases and valuers with the necessary blend of mass appraisal and rating valuation experience along with knowledge of particular market sectors. The project involved approximately 40 valuers from the two teams. There was also support personnel from specialist fields including IT, GIS, building control, risk and assurance, legal and communications.

A formal project structure was put in place in late 2010 which included the appointment of a project sponsor, steering committee, project manager and project team leaders. The steering committee objectives were to provide the framework for the valuers to successfully complete the revaluation in the necessary timeframe, introduce best practices initiatives for rating valuations for Auckland Council, and provide a solid foundation for the future.

Legislative and audit requirementsRating valuations in New Zealand are subject to the Rating Valuations Act 1998. Under the Act the Valuer General is the regulator and auditor for rating valuations in New Zealand. Their certification is required before the values can be published and used for rating purposes.

The Valuer General’s rules for rating valuations are documented in the Rating Valuation Rules 2008. These provide detailed rules about how valuation service providers undertake rating valuations in New Zealand and prescribe the mandatory data required for the rating valuation process. A second publication from the office of the Valuer General entitled the Rating Revaluation Handbook 2011 contains best practice initiatives for rating revaluations.

A feature of this revaluation was the regulatory approach of the Valuer General due to the number of rating units involved and the issues associated with combining seven different valuation rolls. Generally in a rating valuation audit, the Valuer General’s involvement is focused on the results over a three-week audit period at the end of the valuation process. However, with this revaluation, the Valuer General was consulted throughout the project on policy issues, the development of standard formats for the presentation of market analysis, and evidence as well as interim audits on the proposed values over the course of the project

Best practice and quality assuranceRating valuations are massed appraised valuations based on data held in the valuation service provider databases. Conclusions are derived from the analysis of market transactions relevant to the effective date of valuation. The values are computer generated in the valuation service

provider computer system at first and subject to valuer review to ensure they comply with the standards set down in the Rating Valuation Rules.

The Rating Valuation Rules prescribe a number of processes that the valuation service providers must undertake to ensure minimum standards are achieved in provision of rating valuation services. Under the rules, valuation service providers are required to hold detailed property information about every property in their computer database. This information is continuously updated with the supplementary valuation process. This involves the production of subdivisions and building consents by 30 June each year. Approximately 40,000 properties in Auckland Council area would be inspected for these purposes in a typical year.

The rules also require valuation service providers to record and code all sales − market or non-market. Sales notices are reviewed after input to determine their status. Those appearing to be ‘market’, but at significant variance to current roll values, are inspected and researched further by valuers to determine their status. This process can result in updates to correct property details on specific properties and or identify areas requiring in-depth reviews at the next revaluation.

Company prices and values

The main quality assurance tool used to measure the accuracy of values in mass appraisal revaluations is statistical testing using standard ratio analysis. This compares proposed values and sales prices for groups of property.

The New Zealand standards for statistical testing are summarised in the rating valuation rules and these are in line with international best practice for mass appraisal valuations around the world. The coefficient of dispersion and median statistics are the most important statistical tests. The coefficient of dispersion ensures that variances between sale prices and values are within acceptable levels. For the minimum standard for the coefficient of dispersion to be less than 12.0 in the rules requires the value-to-sale ratio of most properties with a sales sample to be within plus or minus 15 per cent, with some variances of up to 20 per cent permissible. Values produced at the Auckland Council 2011 revaluation were well under the minimum standard in most instances.

The median statistic ensures values are at market levels relative to the effect date of valuation. As there is usually a delay between when sales occur and when they are notified to council, a retrospective revaluation date ensures a sufficient volume of sales is available for statistical testing purposes which is especially important in a moving market. The effective date of the 2011 revaluation was 1 July 2011. However, the values were finalised late September and published in late October.



Valuing the super city Valuing the super city

The other two mandatory statistics in the Valuer General rules are the price related differential, which ensures value relativities are correct between high and low value properties, and the comparison of average value change between sold and unsold properties. This ensures both groups of properties are valued in similar ways.

Other initiativesAs part of the revaluation project, Auckland Council introduced a number of additional initiatives to ensure the consistent application of methods and value levels between the two teams and to provide transparency and confidence around the revaluation process. Some on these were −• Independentprojectmanagement The

appointment of an independent project manager to manage the revaluation process including valuation policy issues, timelines, quality control, resource allocations and basis documentation.

• Documentationofvaluationpolicies Documented policies to ensure common valuation approaches, valuation uniformity and regional consistency with respect to value levels and particular issues such as the valuation treatment of buildings with weather tightness problems.

• Standardisedformats Common formats developed for market analysis and the presentation of valuation evidence and basis documentation.

• Commercialvaluematrix A regional matrix of land values level, rental levels and capitalisation rates was developed for commercial and industrial properties to ensure regional consistency

• Independentpeerreview Independent registered valuers engaged to peer review value levels and benchmark properties for commercial, industrial, rural and lifestyle properties

• Thematicmapping The introduction of thematic mapping for the entire Auckland Council region showing rates and percentage change movements for capital and land value. This was available to the valuers working on the revaluation and the public at publication.

• Communicationplan An extensive communications plan was developed to provide transparency and a no

surprises environment with the objective of minimising queries and objections. Information was provided to property owners and other main stakeholders about the revaluation process including valuation trends and important dates via web, media and publications .

• Propertyinspections There is no requirement to inspect every property at each revaluation and with the number of properties involved. It would be impractical and not cost-effective to do so. However, as part of this revaluation approximately a third of all properties were inspected from the roadside.

Valuation resultsThe Auckland property market was relatively subdued since the peak of the market in late 2007 and the effective date of revaluation1 July 2011. Overall value movements were conservative in comparison to previous recent revaluations in the Auckland region with movement being plus or minus 10 per cent for most property owners.

Value changes were influenced in part by the last revaluation date. Significant value trends at this revaluation include the decline in the values of rural and lifestyle properties and commercial and industrial properties across the region. Residential properties showed a slight increase overall. However, residential properties in the inner city suburbs of the former Auckland City Council experienced increases in the order of 10 per cent on average while residential properties in Rodney have fallen an average of 7.8 per cent. Below is a table showing average value movements between revaluations by property type for each legacy council area.

Overall, the 2011 revaluation project was a success with all targets achieved within the stated timeframes and quality assurance measures producing consistent and accurate values. The revaluation has generally received positive public acceptance from Auckland ratepayers and the public. The objection rate of just under 2.25 per cent is in keeping with objection rates from previous revaluations in the region.

Peter McKay is a Team Leader for Auckland Council and Mindy James is a Revaluation Project Manager for The Property Group Ltd.

Legacy Council Residential Commercial Industrial Rural Lifestyle Last revaluation date

Auckland City 5.1 -2.4 -2.0 -18.1 -9.4 1/7/2008

Franklin District 1.8 6.9 -2.7 -9.2 -6.1 1/7/2009

Manukau City 2.4 -5.0 -9.0 -9.2 -2.8 1/9/2008

North Shore City 0.2 -7.4 -13.3 0.0 -4.9 1/9/2008

Papakura District 1.2 -1.4 -2.2 -2.6 2.2 1/9/2009

Rodney District -7.8 -4.1 -12.1 -12.6 -9.7 1/9/2007

Waitakere City -2.8 -4.9 -13.6 -2.3 -10.3 1/9/2007



Connal Townsend

The need for earthquake strengthening

New Zealand sits on active tectonic plates. But the extent of the power these plates wield and their unpredictability has only really been understood in recent times and most acutely with the 2010 and 2011 Canterbury earthquakes. This country’s building stock needs to be resilient to the seismic activity of the world beneath our feet. Exactly how to ensure the resilience of New Zealand buildings is now the subject of debate, some of which is being played out before the Canterbury Earthquakes Royal Commission.

Need for earthquake strengthening

The current focus is on what went wrong with structures during the earthquakes in Christchurch and how we can improve the performance of much of New Zealand’s existing building stock. In sensitive situations such as these there can be a tendency to rush in and haphazardly attempt to fix problems – as a knee-jerk reaction. What we need most right now is careful research, a measured approach and strong government leadership to ensure the problems are solved effectively.

Royal Commission of InquiryFollowing the 6.3 magnitude earthquake in the Canterbury region in February 2011, the government established a Royal Commission into the causes of building failure as a result of the earthquake, as well as reviewing the legal and best practice requirements for buildings in New Zealand. Royal Commissions are reserved for matters of very significant public interest. Currently two such inquiries are under way – one focussing on the Canterbury earthquake disaster and the other on the Pike River mining explosion. Both of these inquiries are charged with ensuring that public safety is protected in the future.

Once the Royal Commission completes its inquiry into building failures, the commercial property industry will have a better understanding



of what is required to improve the structural integrity of buildings. It is possible that the Commission will make recommendations about the standards set down in New Zealand’s Building Code. In addition, it is not inconceivable that recommendations might be made about the policies which territorial authorities adopt in relation to dangerous, earthquake-prone and unsanitary buildings in accordance with section 131 of the Building Act 2004. The Commission has already provided recommendations to strengthen unreinforced masonry buildings.

While it is impossible to predict the outcome of the Commission, some potentially affected stakeholders are already trying to pre-empt it. The Hon Justice Mark Cooper, Sir Ron Carter and Professor Richard Fenwick are leading a deliberate and evidential process of discovery. So far the Commission has issued an interim report and a more substantive one is due later this year.

Calculating the problemThe ramifications of the Canterbury earthquakes are of obvious and great concern to New Zealand’s property industry. To prepare the commercial sector for the results of the Royal Commission’s inquiry, the Property Council has begun research into the scale of properties which may be affected by any law changes.

Detailed analysis of central city building stock in all

New Zealand’s main centres is being conducted by the Property Council to estimate the cost of strengthening affected commercial property. A clear message is emerging. The analysis of commercial buildings built during the most relevant Building Code periods is already indicating that the problem for the industry is going to be huge, and the cost to the economy will be significant.

Hard data is difficult to find. Different buildings in this country have been built in accordance with different code specifications, which have been amended over the years. The age cohort is not the only challenge. Many buildings are subject to additions and extensions, which have been built in accordance with different building standards.

The Department of Building and Housing is acutely aware of the lack of structural integrity of many buildings in New Zealand. The department is monitoring the Royal Commission’s inquiry carefully, as any recommendations it makes will no doubt be acted on by the government, possibly in the firm of an updated Building Code. The Property Council is participating in this process.

Seismic resilienceThe government is conducting a significant amount of work which is already underway. We understand that the


respective approaches to seismic resilience in earthquake-prone jurisdictions including California, Japan, Chile, Taiwan, Turkey, Italy, Canada and Australia are all part of this mix.

The Property Council’s own research indicates that most countries tend to focus on increasing life safety during a seismic event. However, the data suggests that in some cases substantial building damage may not be avoidable even if the standards of seismic strengthening are raised. This is a loss that we need to calculate. The exception to this is seismic hazard mitigation for important buildings, typically identified as schools, hospitals, and other public buildings. Analysis of heritage buildings also shows that heritage sites are valued differently in different countries.

The research being undertaken is a reflection of the level of concern the industry is feeling in the lead-up to government issuing its directive on earthquake strengthening measures. It is also throwing up a lot of questions such as −• Whatvaluedowewantthegovernmenttoplaceon

our schools, hospitals, town halls and cathedrals? • Whatwillbeacceptabletothepublic?• Whatwillbemanageablefortheindustrywhichwill

be heavily affected by any law changes?This is a dilemma that requires serious consideration,

analysis, understanding and planning. We need to take the research one step further in the search for an acceptable balance between strengthening work to safeguard public safety and protecting New Zealand from becoming a financially compromised country.

Creating a level playing fieldFunding future seismic strengthening building work will be one of the greatest challenges facing commercial property owners. This is more than a Canterbury issue, it is a national one. We suspect it will trigger a major debate, and the probable outcome will lead to costs that could make leaky buildings look cheap in comparison.

Since 2010 the cost of maintaining New Zealand’s stock of commercial buildings, office towers, shopping malls and retail strips, factories and warehouses has become increasingly expensive. This cost has had a negative effect on the ability to perform in a tough market, affecting what is considered to be the infrastructure of business in New Zealand.

Unfortunately the September 2010 earthquake was not the only shock. In May 2010 the government announced the removal of depreciation deductibility, rendering New Zealand’s commercial property industry at a distinct disadvantage against most of our major OECD trading partners. In its advocacy to the government in the lead-up to the 2010 budget, the Property Council reiterated that buildings depreciate, at least in the context

of non-residential buildings such as commercial and industrial property.

It is useful to record the fact that depreciable property is defined in the Income Tax Act 2007 as − ‘property that, in normal circumstances, might reasonably be expected to decline in value while it is used or available for use in [either] deriving assessable income; or in carrying on a business for the purpose of deriving taxable income.’

International evidence, including the various economic studies since the late 1970s, concluded that commercial and industrial buildings depreciate at rates of between two and four per cent each year. These studies were noted in an Inland Revenue Department and Treasury issues paper on tax depreciation, released in 2004, which concluded that tax depreciation should not be removed.

DepreciationMore recent international evidence also supports the 2004 analysis by officials with the studies suggesting that depreciation rates for commercial and industrial buildings could be higher. Coupled with that, the research indicates the useful lives of buildings appear to be shortening.

Qualitative factors mean that buildings can and do economically lose value over time and these factors could include −• Thehigh-ratesofre-developmentofcommercial

buildings, particularly in the Auckland and Wellington CBD areas

• Changesinbuildingtechnology,suchastheneedtocomply with new building standards

• Changingtenantpreferences.Buildings also move across different segments of the

market over their economic life, reflecting deterioration in income-earning capability.

We have consistently argued that the cost of removing depreciation on buildings would be borne mainly by the New Zealand business sector and non-residential building owners. It is also true that the flow-on implications from removing the right to claim for depreciation on buildings would be lower quality of infrastructure as there would be lesser incentives to reinvest capital, or higher rents as landlords look to recover the lost tax deductions. This is particularly relevant in Christchurch, as we witness capital leaving and higher rents for those who choose to stay.

Adverse tax rulesPublic policy decisions which were taken in 2010 now significantly constrain the ability of property owners to fund changes to their buildings. In effect, any additional work to the building structure is not deductible or depreciable, resulting in an additional cash cost to building owners.

Need for earthquake strengthening Need for earthquake strengthening



In anticipation of the Commission’s recommendations, the government should revisit how taxation rules adversely affect New Zealand property owners undertaking improvements in the future. The Property Council sent the Commission a series of recommendations, which should constitute recommendations to the government. These are −• Depreciationonnon-residentialpropertyclassesshould

be reintroduced to reflect the reality that buildings depreciate over time

• NewZealandshouldsitwithinthemid-rangeofOECD countries in terms of the application of depreciation for non-residential property classes in order to compete for internationally mobile capital

• Iftheaboverecommendationsarenotaccepted,at a minimum there should be scope for losses on buildings, such as on sale or demolition, to be claimed. Currently losses can only be claimed in limited circumstances.

• The2010and2011Canterburyearthquakesnecessitate a new approach to the taxation treatment of earthquake strengthening. Historically, earthquake strengthening has been treated as a capitalised cost effectively meaning no deduction arises with the

removal of tax depreciation on buildings. The cost of strengthening buildings to mitigate earthquake-related damage or loss should be deductible to reduce the financial burden of this building work on individual property owners.

• ThetimingofCanterbury’srecoveryisuncertain.The lack of momentum is unacceptable given the size and significance of Canterbury as a regional economy. Property owners should be allowed to claim an immediate deduction for all or part of the cost of rebuilding. The government should be prepared for a clear, direct path for the rebuilding of Christchurch.

This advocacy represents nothing more than a levelling of the playing field. It does this by removing tax disincentives in order to give property owners the facility necessary to make repairs, maintain their properties and strengthen buildings in anticipation of changes to the Building Code and the Building Act.

ConclusionEarthquake strengthening in New Zealand is a necessity. This is a fact that the Royal Commission, the government, the commercial property industry and the public all agree on. The protection and preservation of human life is of paramount importance. But that is not everything.

Steps need to be taken by the government to ensure the financial burden for strengthening work is not unfairly put on to an industry that has already been heavily affected by the global financial crisis and the catastrophic events in Christchurch. We all have a responsibility to ensure that the necessary buildings are strengthened so further lives are not lost.

Connal Townsend is the Chief Executive of Property Council New Zealand




Sandy Bond and Zoltan Moricz

The effects of the Canterbury earthquakes on the commercial office market in Christchurch

The February 2011 Canterbury earthquake had a devastating effect on Christchurch property with significant damage caused to land and buildings. At the start of 2012, around 740 buildings had either been demolished or identified to be demolished in central Christchurch. In addition, around 140 buildings have either been partially demolished or identified to be partially demolished.

Canterbury earthquakes and the commercial market

Research aimsThe broad aims of the research we have done is to −• ExaminethenatureandextentoftheCBDofficerelocation• Determineoccupier’sperceptionsofthefuture,theirlocationandspaceneeds

post the February earthquake, and the likelihood of relocating back to the CBD after the rebuild

• FindoutwhatoccupiersseeasthefutureoftheCBD,andhowtheywantthisto look.

To address these problems an online survey was developed. Potential respondents were obtained from two sources. A total of 275 suburban office occupier contact details were obtained from a physical survey of office occupiers as of August 2011 and 368 contacts obtained from a business database held by CBRE.

Lincoln University and CBRE carried out the survey in August 2011. It was sent to 643 office occupier contacts. Over a period of four weeks, 139 responses



were received, which is a response rate of just over 20 per cent. Respondents were generally business owners whose business occupied less than 250 square metres, although some larger corporate occupiers occupying more than 1,000 square metres also responded.

ResultsBusinesses have been fairly resilient after the earthquake, with half of the respondents indicating that business and turnover has remained stable. There are still a number of respondents who suffered losses, with 29 per cent indicating some loss and 11 per cent indicating significant loss. Only five per cent are struggling to survive. Business turnover had increased for 14 per cent of respondents. The number of staff who had been laid off has been low, with only 15 companies out of 139 laying off staff.

Over half of respondents were relocated CBD occupiers and 45 per cent were existing suburban office occupiers. Results indicate that 66 per cent of respondents have reduced their office size since the earthquakes. Half of businesses are paying less rent than before the earthquake, probably due to 45 per cent of respondents being in poorer quality space. More than a quarter of relocated tenants have signed leases of one year or less, and 27 per cent of businesses are now working out of residential premises.

Of the businesses which relocated out of the CBD, the biggest group at 38 per cent want to return to the CBD into low-rise buildings of three floors or less that meet earthquake codes with good amenities and public transport. There was a preference for new buildings. However many would also go into existing buildings which sustained little or no damage and are deemed earthquake safe. Few indicated they would occupy an existing building which sustained damage and required significant repair but which is now deemed earthquake safe. The speed of rebuild is important to respondents.

Follow-up surveyIn January 2012, Lincoln University and CBRE undertook a follow-up survey. This was to help understand some of the more recent problems facing office occupiers in Christchurch after the earthquakes of December 2011 and January 2012.

Based on the survey respondents indicating that they are planning to relocate to the CBD from current suburban premises, demand for office space could reach around 180,000 square metres in the rebuild. This demand base for the rebuilt CBD compares to the 390,000 square metres of office space which was contained in the CBD before the earthquake. Although this is a significant reduction, the likelihood that the new CBD will be much smaller in terms of building size and geographic extent will offset some of this shortfall.

The research carried out in January 2012 reveals that the proportion of companies which consider moving



back to the CBD has declined. Now only 32 per cent, 45 of the 140 survey respondents, plan to relocate to the CBD, down from 44 per cent. This decline occurred for a number of reasons, including frustration with rebuild delays and the possibility that rents will be unaffordable in new buildings. Suburban locations have also become more attractive as changes to the businesses and client base mean that a CBD location is of lesser importance.

AffordabilityThe survey also indicates that if tenants cannot afford their preferred CBD space, more than 40 per cent of survey respondents would locate outside the CBD where it is more affordable. However, more than 30 per cent would occupy lower quality CBD space which is affordable. Significantly downsizing space requirements and accepting the higher rental was not so popular. Other responses said they would buy their own building.

There is a concern that rentals in new builds are likely to be too high for tenants to afford. This has been illustrated by a gap analysis of respondent expectations of rents and the indicative market rentals that may need to be achieved to make the rebuild feasible. However the complexity about insurance payouts is a complicating factor when determining development costs and economic rents.

As a preference for a building which sustained little or no damage appears to be nearly as strong as new buildings, demand for the existing buildings is likely to be strong. However, this will be compounded by the fact that many buildings across the CBD will or have been demolished, leading to supply constraints.

Reactions and conclusionAwareness of the central city plan is high and it has received criticism from numerous quarters. Quotes include −• Veryambitiousanduneconomical,thefactthatthe

city is not starting with a blank canvas makes it even more unrealistic

• Concernsatprescriptivebuildingregulations,especiallystrict and unrealistic parking codes for the CBD compared to the suburbs

• Maylookgoodonpaperbutthepracticalityoftheplan, costs of implementation and the cost to businesses to locate within the plan are serious concerns.

This research indicates that a demand base exists to kick start the Christchurch CBD rebuild, but it is not going to be plain sailing ahead for the rebuild. The demand base for the CBD has weakened and it may weaken further as initial short-term leases expire. Although many businesses have indicated they will keep waiting until the CBD is ready, some will commit to long-term leases in the suburbs.

Professor Sandy Bond is Senior Member of the Property Institute of New Zealand, a Past President of the Pacific Rim Real Estate Society, and is the current secretary of the International Real Estate Society.

Zoltan Moricz is the head of CBRE’s property research operations in New Zealand. In addition he undertakes bespoke research projects within the office, retail, industrial, land and residential property market sectors.


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ContactDeborah Fisher0800 895 376 300 [email protected] Property Quarterly Vol 2, Issue 2, June 2012


JLT - appointed insurance broker to The Property Institute of New Zealand

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ContactDeborah Fisher0800 895 376 300 [email protected]

Legal cases

Niven Prasad

Real estate agency workConviction and culpability under the Real Estate Agents Act 2008Home Buyers Ltd versus Real Estate Agents Authority

The definition of ‘real estate agency work’ in section 4 of the Real Estate Agents Act 2004 is the cornerstone of the Act. It determines whether the consumer protection provisions in the Act apply and whether an offence has been committed. Those protective measures link back to the Act’s purpose which is to promote public confidence in the performance of real estate agency work through adequate regulation.

Legal cases

Convictions for breach of the Act have been rare which is why the case of Home Buyers Limited v Real Estate Agents Authority is a significant one. This case is about the appeal against the first conviction for breach of the Act. The breach relates to carrying out real estate agency work without a licence by Home Buyers Limited and its director, Mrs F.

The case is important in highlighting the strict liability nature of offences in the Act, as well as the court approach to convictions that arise early in relation to the inception of the Act. While the High Court imposed a fine on Home Buyers Limited and discharged Mrs F without conviction, it is interesting to note this discussion on mitigating factors in imposing its penalties.

BackgroundHome Buyers Limited was a family company whose business model worked on buying property from a vendor and then on-selling for a profit, usually on the same day on which the property was bought by the company. It expressly held itself out as a trader and not a real estate agent. On that basis, Home Buyers Limited did not believe it needed a licence under the Act.

The company had used its business model on a number of occasions. However, in this case the buyer wanted to enter into an agreement directly with the

vendors, with a side agreement with Home Buyers Limited to pay them a ‘finder’s fee’ for finding and helping out with the transaction. This arrangement, not originally envisaged by Home Buyers Limited, arose because the purchasers were concerned about vendor warranties after seeking legal advice.

Following sale and purchase, the purchasers only paid Home Buyers Limited $5,000 instead of the $6,000 ‘finder’s fee’ because of their dissatisfaction with the company’s services. The purchasers then complained to the Real Estate Agents Authority. Mrs F and Home Buyers Limited were investigated by the Authority and eventually convicted in the District Court for carrying out real estate agency work without a licence.

Mrs F and Home Buyers Limited appealed their conviction to the High Court, arguing that they did not hold themselves to be real estate agents as they did not carry out real estate agency work. The High Court upheld the company’s conviction, but discharged Mrs F without conviction.

ReasoningHome Buyers Limited and Mrs F were found to have been carrying out real estate agency work without a licence and therefore breached section 141 of the Act. The High Court said in paragraph 23 of their judgment that

Legal cases


Legal cases

‘the combination of ss4 and 141 mean that an offence is committed if –1. Any work or services provided are carried out by a

person2. In trade3. On behalf of another person4. For the purpose of bringing about the sale and

purchase of land5. Without a licence (or exemption).’

Home Buyers Limited argued that by buying real estate and on-selling as vendors they were effectively acting for themselves and not ‘on behalf of another person’. In addition, the company believed that by making it clear that they were not real estate agents and by not taking money from the original vendors, the company fell outside the scope of the Act.

However, the High Court disagreed with the company’s submissions and decided that locating potential buyers, and negotiating with the purchaser and vendor, all amounted to work carried out to bring about the sale of real estate. In addition, the work went beyond ‘the provision of general advice or materials to assist owners to locate and negotiate with potential buyers’. In substance, the work was ‘indistinguishable’ from real estate agency work.

Strict liabilityThe District Court considered offences in section 141 to be offences in strict liability because it was of a ‘public regulatory nature’ and the definition of real estate agency work was clear. Only a total absence of fault would exclude Home Buyers Limited and Mrs F from liability.

The High Court considered the strict liability issue would be relevant if the company and Mrs F thought they had a licence when in fact they did not. In this case, however, Mrs F and Home Buyers Limited knew that they did not have a licence to carry out real estate agency work and so any discussion on strict liability did not help their

cause. The District Court’s views then still stand in relation to offences under the Act.

Culpability and penalties under the ActUnder the Act, the maximum fine for unlicensed trading is $100,000 for a company and $40,000 for an individual. The eventual penalty imposed by the High Court was a fine of $13,000 on Home Buyers Limited, along with a forfeiture of the $5,000 finder’s fee back to the purchasers.

The High Court found mitigating factors to be the lack of intent to breach the law, the relative newness of the legislation and the absence of harm to vendor or purchaser. Despite these factors, the court paid homage to the consumer-oriented intent of the Act and commented that ‘to achieve deterrence, fines must be significant so as “to bite” rather to amount to a licence fee’.

For Mrs F, the High Court decided that the consequences of her conviction, including the heightened disrepute and publicity’ were disproportionate to the gravity of her offending. In any case, her close link with Home Buyers Limited would have a detrimental financial effect on her anyway.

Significantly, when commenting on ‘the relative newness of the legislation being relevant to the culpability’, the High Court supported its reasoning by reference to the first prosecutions under the Fair Trading Act 1986 and the case of Commerce Commission v L D Nathan & Co Ltd [1990] 2 NZLR 160 where the court thought it was not ‘necessary to begin with very substantial fines’.

Overall, the Home Buyers Limited case was presented with a number of mitigating factors which kept the penalties towards the lower end of the spectrum. The penalty imposed was kept to a level which was intended to have a detrimental effect and sustain the principles of the Act. In future cases, the relative newness of the legislation and the lack of awareness about licensing requirements may be two mitigating factors less readily available to defendants.

Legal cases

Legal cases


Niven Prasad

Tenant’s obligation to reinstate premises Prime Commercial Ltd v Capital Chambers Ltd

Reinstatement obligations under a commercial lease are something that tenants should always be cautious about. Under a commercial lease, tenants can sometimes have an obligation on the expiry of the lease to remove the fit-out and reinstate the premises to a bare shell of an open plan layout. In addition, tenants are sometimes given a period of time after expiry of the lease to fulfil that obligation so that they are not deprived of their ability to use the premises as fitted-out.

If the tenant does not reinstate within the time frame prescribed in the lease, the landlord can re-enter the premises and reinstate themselves. During the landlord’s reinstatement the tenant may even have an obligation to pay rent while the premises are being reinstated.

Not surprisingly problems can arise about the precise extent of this obligation on a tenant. Specifically, agreement between the landlord and tenant as to the scope of the work needs to be agreed on so that the landlord can give their consent. Delay in beginning this work can result in a greater period of time for which a tenant has to pay rent, so landlords in these situations cannot unreasonably withhold their consent to reinstatement.

The High Court decision of Prime Commercial Ltd v Capital Chambers Ltd highlights those issues in circumstances when a tenant breaches its reinstatement obligations. The case shows the courts using a reasonableness approach to determining the cost of the tenant’s reinstatement obligations and the period of time for which the tenant has to pay rent while a landlord re-enters and reinstates the premises.

BackgroundPrime Commercial Ltd leased Level 6 of Craigs Investment Partners House in Wellington to Capital Chambers Limited, a company held by a group of barristers.

On expiry of the lease, Capital Chambers Limited had an obligation to remove its fittings and fixtures and ‘reinstate the premises as near as practicable to a refurbished and redecorated bare shell of open plan layout’ at the expense of Capital Chambers Limited. Effectively, two steps were required −

• Removalofthetenant’sfit-outsothattherewasabareshell layout

• Refurbishmentandredecorationofthebareshelltoa quality and style suitable for commercial property purposes.

In addition, the lease stated that replacement carpet had to be in a style and quality to the landlord’s reasonable satisfaction. If Capital Chambers Limited failed to discharge its fit-out or repair obligations within 14 days of the expiry of the lease, Prime Commercial Limited could re-enter and effect removal of the fit-out, with all reasonable expenses and costs payable by Capital Chambers Limited.

On expiry of the lease, Capital Chambers Limited failed to reinstate the premises, arguing that consent to the works was unreasonably withheld. This was particularly in relation to the carpet. Capital Chambers Limited insisted that only worn carpet tiles were to be replaced as opposed to Prime Commercial Limited’s requirement that there be a completely brand new carpet. Prime Commercial Limited proceeded to carry out the works through its own contractor and took Capital Chambers Limited to court for reinstatement costs and rent payable during the landlord’s reinstatement.

The High Court found that Prime Commercial Limited did not unreasonably withhold its consent to the tenant’s reinstatement works. It found the reasonable cost of meeting the tenants’ obligation was based upon a $95,000 estimate given by surveyors and reduced by $10,000 after factoring in the actual cost of carpeting. This was down from approximately $118,000 that Prime Commercial Limited asked for based on their own contractor’s price.

Legal cases

Legal cases Legal cases


Capital Chambers Limited was found liable for 13 weeks’ rent while Prime Commercial Limited reinstated the premises, the latter company having contended for around eight months’ rent. The High Court came to this conclusion after discussing the factors mentioned below.

Cost of tenant’s removal and reinstatement obligationPrime Commercial Limited claimed costs for demolition, reinstatement to a bare shell layout, and the unpaid rent for a breach of the reinstatement obligations. Prime Commercial Limited eventually used its own contractor for pricing and carrying out the works. The High Court in its judgment acknowledged that bypassing the tender process meant that the price was on a non-competitive basis. This non-competitive nature of the quote would have been justified had Prime Commercial Limited ‘moved with real urgency’.

The High Court also disallowed a number of items in Prime Commercial Limited’s $118,000 estimate because those amounted to ‘replacement or improvement of the landlord’s fixtures and fittings, rather than reinstatement to a bare open plan layout’. These items included an in-ceiling air handling unit which pre-dated Capital Chambers Limited’s occupancy.

Consultants’ costs for architects, services engineer and fire safety were also disallowed by the court because they were not reasonably incurred. The High Court noted that some of the costs related to the unnecessary amendment to the building permit and others were already included in the estimate given by the surveyors. Legal costs included in Prime Commercial Limited contractor’s estimate were disallowed because they related to this company’s director who was also a lawyer. The High Court decided that these costs were administrative costs of Prime Commercial Limited’s to bear rather than external lawyer fees. Given those factors, the court decided on the surveyor’s $95,000 estimate, based on a reasonable bare open plan layout reduced by $10,000 for actual cost of carpeting.

RentThe High Court had to establish both the date from which rent was payable and the date on which the obligations ceased. Even though the works only finished eight months after expiry of the lease, the court stated that ‘rent payable is only for such time as the landlord reasonably required to complete reinstatement and make good’. Miller J decided that the period for rent began 14 days after expiry of the lease as per the terms of the lease. As for the reasonable period of time for reinstatement, the High Court decided 13 weeks of rent was to be paid by Capital Chambers Limited to Prime Commercial Limited.

In coming to its decision, the High Court took into account the work already done by Capital Chambers Limited including scoping the work, design documentation and obtaining the building consent.

The High Court denied the argument by Capital Chambers Limited to reduce the number of weeks because Prime Commercial Limited had acted unreasonably in withholding consent to the reinstatement works. In its argument, Capital Chambers Limited relied on the case of Cigna Life Insurance Limited v The New Zealand Counties Investment Company Limited (HC Wellington CP 27/96, 10 May 1997) to say that there should be a ‘reasonableness overlay’ factored into the time period for rent because of Prime Commercial Limited’s withholding of consent.

However, the High Court denied this argument because Prime Commercial Limited was entitled to the new carpet that Capital Chambers Limited refused to install. Therefore, Prime Commercial Limited’s consent was not unreasonably withheld in the first place.

The tenant in this case had begun planning for reinstatement early and avoided further costs because of this. However, the case shows us that not having clarity in the scope of reinstatement obligations can lead to greater costs not only for the tenant, but also for the landlord. The reinstatement obligation is an obligation which should be considered with caution and in detail early on by either party in a landlord and tenant relationship.

Legal cases

Legal casesVol 2, Issue 2, June 2012 Property Quarterly 21

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How well protected is your data?

When we speak with prospective franchisees and valuers it often interests us as to how secure some people believe their data is. This is a massive topic, so in writing this article we have chosen to look at a diverse number of areas including the way valuers publish their reports, back-up their computers, have their computers networked, protect against viruses and send group emails.

Protecting data

How secure is a PDF?Astonishingly, the vast majority of valuers we meet believe that a PDF document is secure and cannot be changed. This is incorrect. There are several programmes available at no cost on the internet, or available on standard PC software, that will convert a PDF back to a Word document within seconds, enabling changes to be made.

If desired, this Word document can be printed back to a PDF, at which point most people would have no knowledge that any change may have been made at all. So make no mistake – they are not secure. Be very aware of how much reliance you place on such reports as they may have been changed by a third party.

To alleviate such risk, we at Property InDepth have a link on the front page of all our PDF reports which, if clicked, takes the reader back to the web version of the report where they can download a new PDF copy of the report. This ensures they are always reading the original report directly from our server.

Backing-up computersAgain we see very poor practices amongst most valuers when it comes to

Protecting data

Protecting data Protecting data

backing-up computers. Now with the vast majority of valuation company’s records being kept electronically the need for this is paramount. Ideally, the back-up needs to be stored off-site so in the case of fire or burglary the data remains safely held.

Logistically we suggest valuers should look at a cloud-based solution such as Dropbox, which I have written about in the past. Here your data is backed-up in the cloud, which alleviates the need to transport back-up devices off-site. It also provides the ability to remotely access the data from any computer providing you have the necessary password access.

Some of the most concerning examples demonstrating the lack of back-up involve mobile devices such as laptops and tablet computers. These are often carried into the field where they are highly susceptible to damage as well as theft. These devices should be frequently backed-up, as well as having password access required to further ensure the data held on them is safe.

While on passwords, these need to be regularly changed. Ideally they should include a combination of capital and lower case letters, numerals and symbols such as $ and %. The use of ‘remember my password’ should also be discouraged if companies are running intranets.

Network accessWith most of the valuation practices in New Zealand having networked computers, there is also a need for management to continuously monitor the levels of access each person has to a range of information. This is particularly where this is confidential such as client details, valuation reports and sensitive sales data.

In the Property InDepth intranet we can allow each valuer to view each of their valuations they have undertaken since they started with us. Each valuer also has the ability to share each specific valuation with other users. This gives others the ability to have read-only access to the valuer’s field notes, workings and reports. It also gives the shared valuer the ability to add comments that will be

held against that specific job file. Such hierarchy can also be applied to information,

such as sales databases, so certain valuers can have access to specific information, with additional valuers able to be added to the viewing list where necessary. This is particularly valuable where the restriction on the distribution of highly sensitive property and sales information is required.

From yet another angle, many databases are again highly susceptible to viruses, with a lot of users opting for very little or even no virus protection in the hope it may speed their computers up. This is an important area, and can quickly have massive ramifications if viruses strike and data has not been adequately backed-up.

Group emailsFrom yet another angle, it amazes me when I receive a group email where the email addresses for all of the recipients are viewable. I have seen several instances where businesses have sent emails to large numbers of their referrers and clients. This leaves opportunities for unscrupulous recipients to contact others on the list looking for work.

One example that sticks in my mind is a fairly inexperienced colleague of mine who set up business on his own and then emailed his entire referral database to advise them of his move. He had just advised all of his colleagues and competitors of all of his business referral sources. This is something which could have proved very costly had competitors chosen to take advantage of it.

For the benefit of people with less computer experience, you are able to insert the email address into the ‘Bcc’ (blind carbon copy) line of an email in Outlook. This will mean the recipients of the email will not be able to see the email addresses of all the other people who have received it. This can be done by going into Options in Outlook and selecting Show Bcc.

I hope this short article makes each of you take a moment to consider how secure your data is, and to perhaps regularly review how you manage this in the future. If you think the few dollars setting up systems now may not be warranted, then try calculating the cost in fees and client disappointment if you were to lose the last five days of data in your business.

Steve McNamara is from Property InDepth



Piers Macrae Cockram

The new iPad3 reviewed

You would have to be living under a fairly sizable rock not to have heard of the revolution that has been taking place in computing. Tablet computers – computers you can easily carry and you do not really need a keyboard to use – have been around for some time in one shape or other. But until the release of the first iPad in 2010, no manufacturer had come up with a product that users actually lusted after en masse. It sold worldwide in the millions, and then the tens of millions, and now a new category of computing appliance has been defined.

New iPad 3

It is probably fair to say that Apple has turned the computing industry on its head and are rightly credited with leading the movement which is changing the way the world works. In fact, sales of tablet computers are expected to eclipse those of desktop PCs well before the end of the decade. We are at the tail end of the PC era.

Copycat productsThere have been plenty of copycat products since 2010, all of which are intent on emulating the iPad’s characteristics and also attempt to capitalise on its well-publicised and perceived deficiencies. No other single model of device, however, has even come close to achieving the same commercial success.

Gartner, the leading global IT research firm, predicts that Apple’s iPad will control 60 per cent of the tablet market in 2012 and sell 73 million units this year. They also forecast Apple will retain its staggering lead in this category until well into 2016 at least. This is no fickle blip of fashion, but a lasting and pervasive change.

In the property valuation industry what opportunities await valuers for making the best use of this amazing device? In March, with the release of the new iPad and the reduction in the price of the iPad2, the economics for making

New iPad 3

New iPad 3 New iPad 3

use of this device within a valuation practice have turned into a no-brainer. Even for those outside Apple’s fan club, the iPad2’s pricing and the features of the new version have added more pressure to competing manufacturers to further lift their game. The winners from this battle are the consumers and users of these devices.

Why buy the iPad3?What is new in this iPad and should you be buying this latest model, or is the reduced price iPad2 now the most compelling choice for business? Without a doubt the new display is the iPad’s party piece. For anyone used to using the iPhone 4 or 4S, you are already familiar with the extremely crisp text and razor sharp precision of this type of screen. It works by packing in four times the number of pixels in the same space as other screens this size.

By making the pixels so small it is no longer possible for the human retina to see each individual pixel, so the brain is able to process text and lines without the additional processing we subconsciously do to ‘join the dots’. All in all, it makes for a very comfortable reading experience.

It is the kind of innovation that you only appreciate once you have used it and then compare it to a different device that does not have it. You then really miss that clarity. For gadget collectors this unique screen – the highest definition one of its size in the world – will be sufficient justification to rush out and buy one.

4G capability with a cameraIn New Zealand and Australia, Apple got themselves in trouble by advertising the iPad3 as 4G LTE capable. 4G LTE is a substantially faster version of 3G internet access which promises network speed on the go, similar to what we are used to on cable and wired internet access at home or the office. However, the new iPad’s 4G system does not work on the frequencies available for 4G in New Zealand and so you cannot currently use it in practice.

The bottom line is that if you are using the new version, you will only be getting 4G speeds when you travel overseas. As 4G networks in this country are still far from being available, this gap in the iPad’s capabilities is unlikely to sway your decision either way for the time being.

Built-in cameraWhen the first iPad was released, there was near universal condemnation over its lack of a built-in camera. It was possible to use some tricky apps which let you Bluetooth photos between your iPhone and your iPad, but that was still far from convenient or practical in the real world.

With iPad2, Apple band-aided the problem by providing two very ordinary cameras both front and rear. It is fair to say that both cameras on the iPad2 fall far short of the kind of photography most valuers want to produce, except perhaps when used in perfect lighting conditions and with a very steady pair of hands. With iPad3, Apple have come closer, but have not yet succeeded, in solving the problem. For example − • Thefrontcamera’squalityremainsdisappointinglythe

same as the iPad2, making video conferencing on the device feel as if it is from the last decade

• Therearcameraisarealimprovement,butoddlystilldoes not rise to the same quality as the iPhone 4S.

It will probably take another generation or two of these embedded camera devices to reach a standard of photography where a valuer will feel fully justified in ditching the separate point and shoot camera for valuation reports.

Connecting other camerasFortunately there are some good solutions for integrating your current point and shoot or digital SLR camera with your iPad. For those looking for the cheapest option, there is a camera connection kit you can purchase which lets you import photographs from your camera by plugging in a USB cable or inserting your SD card into the iPad. It is a little clunky, and in practice this is quite an inefficient and annoying process to go through after every inspection.

If you are looking for something more convenient consider getting the Eye-Fi SD card. This is a unique and amazing product that you can use to wirelessly transmit, in real time, photographs that you take with your point and shoot camera on to your iPad. No cables and no fussing


New iPad 3

around. Because it is a normal sized SD card, it can be

retrofitted to almost any camera which has a card slot. The card has a very small wi-fi network base station inside it, a very tiny version of the wi-fi router in your home or office, which uses the camera’s battery to power itself. Using the free Eye-Fi app, your iPad joins the wi-fi network hosted by your SD card and downloads the photographs automatically to your tablet’s camera roll.

To those of us used to transferring photographs the old-fashioned way, this feels somewhat like magic the first few times you experience it. You can impress your tech savvy clients and colleagues with this trick.

Dictation support and keyboardAnother long sought-after feature missing in the previous two iPads has been viable dictation support. Finally with iPad3 it is here, and it is not bad. Although you do need an internet connection for it to work, there is genuine support now for our non-American accents. A good portion of this article was written by using the dictation feature on the iPad.

Wherever you see the on-screen keyboard, you can dictate instead of getting frustrated by typing. To get the best out of the dictation feature, dictate just one sentence

at a time, correct any issues or simply try again speaking more clearly and slowly. Doing this is often quicker than correcting any mistakes it makes using the keyboard.

If dictation is not your thing, and you find the on-screen keyboard just a little on the clunky side to use, there are some other options for keying in larger chunks of text while you are sitting down. The first is Apple’s wireless keyboard which can connect up to your computer or iPad through Bluetooth. You can position the keyboard anywhere within a few metres of the tablet and type away.

For more permanent set-ups, perhaps your home or office desktop, you can also purchase a docking station which will keep your tablet nice and steady while you comfortably type away. Also available are third party iPad covers that incorporate a built-in keyboard you can use. Having an external keyboard frees up the half of the screen which is normally used to display the keyboard. This makes editing documents and producing content a much more familiar experience, like using a laptop or ultra-light notebook.

Heat, charge and storageOne of the really noticeable side effects is the heat all of this new kit generates. For users of the iPad2, which no-one could accuse of ever providing warmth on a winter’s day, the new version is positively toasty if it is used for a reasonable length of time or doing anything graphically intensive. Those who bother to measure such things have determined that it can rise to 46°C, or about 10°C hotter than the iPad2’s maximum recorded heat.

Another annoyance is how long it can take to charge. Now that the battery has twice as much power capacity, it can also take twice as long to charge up. Most users of the iPad will forgive these transgressions, which will probably be corrected in future models as these technologies constantly improve with the weight of billions of dollars of annual research and development investment.

The new iPad has the same mix of storage and wi-fi only versus phone network connectivity as previous models. You can pick from 16, 32 or 64 Gb models. Which should you choose? This all depends on how cost-conscious you are and whether your device is going to be used purely for business, or if you are planning on using it for fun and home as well.

For business users, it is unlikely you will need to go for more than the base 16 Gb of storage. Most business apps are fairly slim on storage needs, and if you are using the iPad for business, you are most probably making use of cloud or remote server based applications. As these applications mainly manage storage on a remote server, you can get by with having a minimum on the device itself.

Is it a good choice for valuers?Should you get the 4G option? Given the nature of a

New iPad 3


New iPad 3 New iPad 3

valuer’s work, mostly being on the road and inspecting properties, you would be well advised to consider getting a 4G + wi-fi model. While it is possible to piggy-back a wi-fi only iPad on to the internet connection on your smart phone, using the personal hot spot feature, in practice this can be awkward.

Piggy-backing streamlines your data plan on to a single device. However you are then more dependent on having enough battery charge on your phone to be able to connect up to the internet on your tablet while on the go. Even if you do not immediately buy a SIM card and data plan to go with your new iPad, at least by getting the 4G model you will have the option to add the card in later on.

In today’s cost-conscious environment, how can you best manage the cost of purchasing and staying up to date with the annual cycle of improved devices? Currently, eBay indicates that the top of the line original iPad fetches between 40 per cent and 50 per cent of its original purchase price, and iPad2s are selling for 60 per cent.

If you had bought an iPad2 when it was released last year and re-sold it today, it would have only cost you $1.35 a day to own. If you had done the same over a two-year period with iPad1, it would have cost you 80 cents a day. So it would appear that the financially savvy thing to do is buy your iPad with a view to on-selling it and trading up to the next model each year or every two years.

In the fieldIs the device field ready? That is, can a valuer practically make use of an iPad to help in capturing field notes, sketching and measuring a property, and filing their report from the field? In short, yes. The screen works surprisingly well even in high-glare environments. There are numerous third party accessories such as BodyGuardz.com that can help in adding some more field readiness to the device. These include anti-glare films for the screen and rugged rubber cases which protect the iPad from the evils of rain, shocks and drops.

Even with all these accessories, it is still possible to do damage to your tablet but that is when the iPad’s economics come into play. There are competing windows tablet devices such as the Motion Computing F5 and the Panasonic Toughbook range that are more rugged and field-proof than a hardened-up iPad will ever be.

However these devices each cost the same as three, four or more iPads would cost. For the same money, you could afford to break several iPads in the line of duty. In our experience, this frequency of breakage does not happen, and from the hundreds of valuers in Australia now using iPads for their daily work, the business case for using them in field environments has been well and truly proved.

What sort of apps will be useful for valuation on your iPad? A stable of must-have business apps have taken hold and once you have got these tools incorporated into

your workday, you will wonder how you were ever able to do your job without them.

Business essentials These essentials include the following.

DropBox This lets you have access to all your files and documents anywhere and on any device. No more having to remember to email yourself a copy of a document you were working on before going out.

Evernote This app lets you win the paper war. Scan your paper, receipts, archived documents, invoices and suddenly it is all instantly accessible and even searchable from wherever you are.

iCloud All of your contacts, calendar appointments, email, to do lists, notes and photographs can be accessed from any of your devices. Any changes and new items are automatically synchronised without lifting a finger. All your critical data is constantly backed-up. Even if you lose a device, you can get everything back up and running without losing any of your digital work.

Xero Keep on top of your accounts and chase up your invoicing, even in the field, or keep track of how your team are doing when you are on sick leave.

Valuationsoftwareproducts There are even apps now designed specifically for valuation field data collection which are in extensive use throughout the world. Capabilities that are out there include capture of field notes, integration with valuation management systems, sketching and measuring with laser DISTO integration, access to sales data and job documentation.

The verdictWhile other competing Android and Windows devices can sometimes match or surpass a given feature or aspect of iPad3, no other comes close to competing with the whole package. This is really a case where the whole experience is greater than the sum of the parts.

If you do not currently have an iPad, there has never been a better time to jump in. The really cost-conscious can buy good second hand units online for a few hundred dollars, or get the iPad2 for what would probably be half the cost of the phone in your pocket.

For business users, the best feature of iPad3 is probably that it has reduced the cost of the iPad2. Business users will not necessarily see the justification for the nicer screen or the better camera if they are using a separate point and shoot camera. For business use, the iPad2 still fulfils the brief just as it did last year, but now for a lot less money. Certainly for the less cost-conscious buyer, or those with an existing iPad to trade up from, the iPad3 is far and away the tablet of choice in today’s market.

Piers Mackrae Cockram is founder and Managing Director of Value Pro. Piers is involved in designing and operating software system for valuers.



Ah-Lek TayA market report on Dunedin

Feature on Dunedin

A broad analysis of the residential market indicates that since the beginning of 2008, after the global financial crisis, there has been very little change in the average and median sale prices. The expectations of any significant change are nil, with very little population growth expected for Dunedin city.

An analysis of the city’s population indicates that the growth has occurred in the number of students, while the total number of residents has actually declined. Although there is good anticipated and planned future growth for the university, this does not bode well overall for the city.

The Dunedin residential property market saw a significant increase in volume of sales in the early 2000s through to a point where it peaked in 2003 at 3,900 sales. From there it started to fall away steadily, although 2006 was a slightly better year than 2005. However, the years from 2008 onwards have been particularly lean and sale volumes have dropped down to around the 2,000 mark.

Feature on Dunedin

Feature on Dunedin Feature on Dunedin

Dunedin median and average sale prices

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Dunedin population change105,000

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CommercialThe leasehold property market has shown an interesting decline, as noted in the following table. Capitalisation rates have started to rise, partly on the back of a period of increasing ground rentals but also due to the lack of availability of finance. As a result, the overall demand and popularity for this asset has weakened further, to the point where there is a very clear gap between leasehold and freehold and with the gap likely to increase further.

A further sign that capitalisation rates have increased overall, particularly on freehold properties, was the recent sale of the Canterbury shop which sold in December 2011 on a 6.5 per cent capitalisation rate. Previously this block, which was considered the prime area of Dunedin, would have achieved capitalisation rates of around six per cent. There have been previously recorded sales in George Street in this prime block at capitalisation rates below six per cent.

Address Price Date Capitalisation rate 149 Vogel Street $2,530,000 November 2009 9.7 per cent121 Crawford Street $870,000 January 2010 9.7 per cent11 Wharf Street $1,030,000 May 2010 10.2 per cent330 Andersons Bay Road $1,000,000 August 2010 11.3 per cent22-26 Bridgman Street $342,000 December 2010 11.5 per centSturdee Street $2,080,000 May 2011 11.9 per cent


Feature on Dunedin

The retail area has not suffered particularly in terms of rentals, with the most recent large letting not too far from the Canterbury shop sale being the letting of Dick Smith. This rental is significantly stronger than previously indicated on this side of the street, and for a relatively large shop for Dunedin, at a rental in excess of $300,000.

The rental growth in general is relatively low and has knocked a few buyers out of the market. There is also a general anticipation that value growth will be relatively small over the next few years in line with modest rental increases.

In terms of the office market, rentals have been consistently at, or slightly above, existing levels, with the general rental range on a gross rental basis between $180 and $230 a square metre. There has, however, been an increasing quantity of supply, which in part has been brought about by some tenants looking for a reduction in space. As well as this, additional areas are being brought into the office market by upgrading older buildings which were previously considered unlettable.

The same or down In the industrial sector for the smaller workshops of between 200 and 300 square metres, rental rates are at previous levels, or down slightly. This market has a wide range of landlords who are more likely to negotiate softer deals with existing or new tenants. The older warehouse space, particularly the multiple brick, older and low stud areas, are in abundance in the old industrial area, and

rental rates are assumed to be under strong pressure on the downwards side. There have been no new lettings to confirm this. In the medium to larger modern tilt slab workshops, rental rates have increased, with a number of new lettings in the 2011 year. All these are at, or slightly higher than their previous rentals, although there are only three or four large new lettings of note.

Retail heartAs mentioned before, the main retail strip of George Street is quite strong for retail tenants, with a number of new lettings during the 2011 year and the aforementioned Dick Smith. The bulk retail sector is also in good heart, with the former Smith City building now approximately 50 per cent leased, and a new bulk retail-style building being constructed by Calder Stewart in Cumberland Street.

The indication from the construction of this new development is there is still heart in the bulk retail sector. This is further confirmed with the old PGG Wrightson store, then Toyworld, and now Display ‘N Sell being leased at the same rate as it was previously, despite the fact it was vacant for a number of months.

Dunedin has a significant area of leasehold land, and every year there are one or two sales. The most recent is a resale from July 2009 when it sold for $470,000. The property resold in November 2011 for $535,000.

Earthquake policyOverall the commercial sales market has been relatively quiet, and we anticipate this continuing while the Dunedin City Council sorts out its earthquake policy in regard to commercial buildings. Currently they are looking at recommending only 33 per cent of the new code as the benchmark, and this is probably going to be implemented over a 15-year period.

Despite what may appear to be a reasonably lenient proposal, this will have a significant effect on Dunedin’s commercial building stock, which is generally a lot older than in most other cities in New Zealand. We therefore anticipate a relatively flat commercial market for the next two or three years, with a low volume of sales and a very flat capitalisation rate curve.

Ah-Lek Tay is a Registered Valuer for Barlow Justice Limited in Dunedin

Feature on Dunedin


Feature on Dunedin

Anthony TaylorStudent investment market

With students contributing in excess of 15 per cent to Dunedin’s population the student investment segment plays a crucial role in the city’s overall property market. Over recent decades the University of Otago has consistently recorded significant increases in student numbers, with the average approximately 600 a year.

Feature on Dunedin

When we break this down on a per flat basis it equates to be an extra 125 flats required each year based on a typical five bedroom flat. With this compound growth in numbers, returning students over recent years have migrated out of the prime investment area to other suburbs of the city.

In the years up to 2011 students traditionally headed down North East Valley as this was still close to the university, only a 10 to 15 minute walk. However, in the past year-and-a-half a distinctive trend has seen students heading towards the centre city, not only closer to university but to hospitality and entertainment venues as well as the shopping centre in George Street. This movement has seen the redevelopment of a number of first floor office spaces into well-appointed apartments and studio rooms.

A more caring class of tenantThis move to the centre city is based on the changing demographics of the university’s student population. Students are becoming more selective and have higher expectations of their accommodation, demanding a more highly specified flat than a five bedroom villa which is colder inside than out. This demand for improved specifications and comfort has not only seen a move south, but also prompted landlords within the prime investment area to provide a higher standard of accommodation often.

On top of this, landlords in the prime investment area are now offering a wider range of chattels to attract both higher rentals and a more caring class of tenant. Otago University has always had a high number of international students, both as undergraduates and post-graduates. As these international numbers have increased over recent years the demand for studio rooms has also increased. The


past three years has seen a glut of studio rooms come to the market, whether it be new builds or in a recent case, a conversion of a former hotel.

The studio market now is swamped, with rental increases stalling. In poorly managed properties vacancy rates are increasing. With a number of new studio rooms rumoured to be coming to the market in 2012, one can only surmise that a saturation point has been reached and the market will struggle to support any more.

Good returnsStudents are not the only internationals involved in the north Dunedin property market, with a significant number of investors from overseas purchasing student investment property. Over the past 12 months, 15 per cent of the sales in the north Dunedin market have been to international investors.

With good returns and low vacancy rates in the prime investment area the market appeals to ex-pats now living overseas. With the University of Otago’s quality education and strong research focus, it now competes on the international stage and a new market of investors.

The research and post-graduate programmes also contribute to the selectivity of the student market. More senior students, often with families, demand a higher standard of accommodation than the ‘southern man’ imaged student flat. International students have traditionally come from Asia and South America. However, with greater numbers of Australians attending the university, trans-Tasman investors are now seriously looking at the Dunedin market.

Not only is Dunedin home to a great rugby team, in the recent Crockers Report Dunedin rental returns beat out Auckland, Wellington and Christchurch. The report, carried out by an Auckland-based property management company, highlights that from 2003 to 2007 Dunedin provided a better return than the other three main centres by a margin of 15 per cent. All four centres have shown a steady increase in yields since 2007, but Dunedin’s performance has remained superior.

What the report illustrates is that, although Auckland has had rental growth, the continued value growth has kept down capitalisation rates. Overall, the local market has increased 15 per cent in yields since 2007. It is now producing 22 per cent higher yields than the other three main centres who all sit comfortably together around 4.7 per cent yields.

Although some students are heading south within the city, and the studio room rentals have stalled, landlords continue to see a steady five dollar a room increase year-on-year. Despite this increase the market reacted quickly to the removal of depreciation on buildings, adjusting capitalisation rates by five per cent upwards. Any capital gain was therefore largely offset by an increase in capitalisation rate.

Student market investorsThe student market appears to be noticeably split amongst investors based on value. A large amount of activity, almost 50 per cent, happens in the $300,000 to $500,000 range. This is where the mum and dad investors feel comfortable to invest. Within this range they are able to pull equity from their own home and invest in something their children can live in over their student years. Then, once the children have left university, the parents still have a solid investment for retirement.

Once over the $500,000 market there is more reluctance in the market, with this being occupied by the professional investor. They tend to be more prudent, understand the market and often know the sales which have occurred and the current capitalisation rates.

The next ceiling is $1 million. Over recent the years there have been few sales at this price point, with the market showing a real reluctance to enter the seven figure price category.

Pitfalls and predictionsAlthough there are a number of positives associated with investing in the north Dunedin student property market, the recent events in Christchurch have exposed a number of pitfalls, with insurance companies taking a keen interest in the state of repair of properties. The majority of properties within the student market are in excess of 50 years of age, with a number of the ablutions and amenities remaining in almost original condition.

Properties which had once been left ‘as is’ and simply continued to provide a constant cash-flow are now required to undergo major renovations involving re-wiring and re-plumbing, making the property fit for use in the eyes of the insurers. We are yet to see these renovation costs being reflected in rentals as the standard five dollar yearly increase continues. Then again, the price is set at a level which factors in good, well-appointed, insulated, respectably serviced sanitary accommodation. In that regard, it is catch-up time on overdue maintenance.

There is likely to be a ceiling for rental rates. With the government offering students $160 a week on their student loan, we believe bedroom rates will struggle to exceed this figure as students begin to look at the increased cost of living in the prime student area.

Studio rooms will continue to struggle if poor management continues and more rooms come to the market. The centre city will continue to thrive with more and more students finding urban living more desirable.

Capitalisation rates will remain the same over 2012 with the cost of money likely to remain the same in the next 12 months. The year 2013 will see the market slowly begin to grow again. The only threat to this is the capping of course numbers by the university, halting growth.

Anthony Taylor works for Barlow Justice in Dunedin

Feature on Dunedin Feature on Dunedin


Feature on Dunedin

Ah-Lek Tay

Earthquake-prone buildings policy for Dunedin and the future of Port Chalmers

Like many councils around New Zealand, the Christchurch earthquakes have put a new focus on buildings and earthquake policy. The Dunedin City Council issued a new policy in November 2011, replacing the one produced in 2007.

Feature on Dunedin

The new policy provides for a four-stage plan, the first of which has already begun. Stage 1 is the council identifying potentially earthquake-prone buildings. Buildings that will not require further assessment include −• Thosedesignedorwereretrofittedtomeetthefullrequirementsof

NZS4203.1976 and subsequent design standards• Isolatedstructuresunlikelytocollapse,causinginjuryordeathtopersonsor

damage to property, see section 122(1)b of the Building Act• Thoseusedsolelyormainlyforresidentialpurposes,unlessthebuilding

comprises two or more storeys and contains three or more household units.Having identified these buildings, the council wrote to building owners

within the city advising that further assessment is required. On the property file held at the Dunedin City Council a note will be made that more information is required for confirmation of the building’s status.

AssessmentStage 2 begins on 1 July 2012 and runs through to 30 June 2014. This period is when the building owners undertake an initial assessment using the New Zealand Society of Earthquake Engineering initial evaluation procedure, or equivalent method, to satisfy evidence that the building is not earthquake-prone.

If the building does not meet 34 per cent of the design standard NZS 1170.5: 2004 it will be noted that the building is likely to be earthquake-prone.


Feature on Dunedin

If satisfactory evidence is provided that the building is not earthquake-prone, the record status of the building will be changed and the owner will be advised of the council’s decision.

Stage 3 is a detailed assessment of the property, and building owners will undertake a full building assessment. This is only required if the building is deemed or noted as likely to be earthquake-prone. Again, the assessment is of the design standard NZS 1170.5: 2004.

Stage 4 is the upgrading of buildings, which is along the timelines set by the Department of Building and Housing guidelines, and ranges from 15 to 30 years. Buildings which are less than 15 per cent of the current structural performance will be required to be upgraded within 15 years. For buildings which are less than 20 per cent, they will be required to be upgraded within 20 years, and for 25 per cent, 25 years. For buildings at 30 per cent, they will be required to be upgraded within 30 years.

EncouragementAny change of use to a building, or building work that requires a building consent which has a value of more than $200,000 or 25 per cent of the rateable value, whichever is the higher, will be deemed to be significant work. Therefore it will be required to be brought up to 34 per cent of the new building code. It is expected that

government legislation will change and that this may require buildings be brought up to 67 per cent of the new building code. The policy therefore encourages building owners to upgrade buildings to the maximum practical amount, and therefore help in future-proofing their buildings.

The council has launched a number of initiatives to help building owners, as there are a significant number of historic and heritage structures in the city. Currently the district plan identifies 733 of these structure and to help owners, the council has established a heritage fund.

The Next Generation projectThe Next Generation project is the preparation of Port Chalmers for the next 30 to 50 years. Port Otago has started a dedicated project to explore the problems and options associated with securing visits by larger ships. Port Otago currently itself generates direct economic output of about $53 million a year, $41 million of which is business and household income, including $21 million in wages and salaries. There are approximately 320 jobs.

The downstream multiplier effect of the Port Otago operation generates a regional output of $85 million a year of which $56 million of this business is regional. In turn it generates approximately 480 jobs. The port facility is significant in the economic viability of the city and the

Feature on Dunedin


Feature on Dunedin

Effective of proposal on FindingsTangata whenua Consultation would ensure that

Maori would not be adversely affected by more than a minor extent.

Hydrodynamics and sediment processes

Monitoring and adaptive management would ensure that the effects would be no more than minor.

Water quality The effects are considered to be minor subject to appropriate conditions, which provide for adaptive management.

Ecology There would be short to medium-term effects on marine organisms as a result of dredging activities. While there remains a degree of uncertainty concerning the effects on the ecology, it is acknowledged that this can be managed using adaptive management provisions

Natural character and landscape

These values would not be compromised by the proposal.

Amenity values Effects on amenity values (noise, visual and lighting) arise from port operations the effects of which are not germane to this application. Conditions can be imposed to control those that occur during construction.

Recreation and public access

Effects on recreation would be no more than minor and provision of a public fishing jetty would enhance public access.

Heritage values Effects less than minor

Traffic Effects less than minor

Climate change No effect

The economy Net economic benefits identified

wider region, with approximately 25 per cent of the cargo originating from Canterbury, 40 per cent from Southland and only 34 per cent from Otago.

Future of shippingThe Next Generation project looks at the future of shipping in New Zealand, and particularly in the lower part of the South Island. The largest container ships which come to New Zealand call at Port Chalmers. They nominally carry a capacity of 4,100 TEUs − the international standard of measurement for containers is the 20 foot equivalent. The ships are approximately 285 metres long and have a maximum draft of 12.5 metres. The next generation of ships is likely to have a carrying capacity of 6,000 TEUs and would be up to 320 metres long and require a draft of 14.5 metres.

Port Otago has a major deep water export port, and is New Zealand’s third largest port by cargo value. Since 1997, cargo volumes have increased by more than 300 per cent and staff numbers risen by 120 per cent. The planning and development of the container terminal in the 1970s was world class, and has stood the test of time for over 30 years. Port Otago has maintained a high standard and is now looking at its future in the next 30 to 50 years.

ConsultationAfter announcing its initial plan, Port Otago then started consulting with the community. They employed a number of consultants, including Dr Robert Bell of the National Institute of Water and Atmospheric Research, to develop a computer model of hydrodynamics to predict the effects of dredging on harbour tides and currents, coastal erosion and the coastal ecology.

The port company established a project consultative group, chaired by Stephen Higgs of Polson Higgs, with representatives from Otakou and Huirapa Runanga, the Department of Conservation, Otago Regional Council, Dunedin City Council, Port Chalmers Community Board, Port Environment Liaison Committee, commercial harbour users, recreational harbour users and other community representatives. The group met many times before the Otago Regional Council consent hearing.

An environmental status report was prepared and defined the environmental baseline, inside and outside the harbour, the effects of the dredging and confirmed the best marine disposal site for the dredged material. In addition, the report assessed the environmental effects of the marine disposals.

Consent application was lodged with the Otago Regional Council in May 2010 and was publicly notified in June of that year. The submission period was extended and 198 submissions were received and the hearing was held in April 2011. The hearing’s findings are summarised in the table.

The hearing concluded that the Next Generation

project is consistent with the sustainable management of natural and physical resources, and should be allowed to proceed largely as proposed, but subject to an imposition of conditions. The matter has now been advanced, with a number of appeals to the original decision. Mediation has resolved a significant number of these, with only a dumping of some of the harbour waste being an issue to be heard before the Environment Court.

District plan changesLike most local authorities, the Dunedin City Council district plan is now due for review, after the initial plan was made operative in 2004.

Feature on Dunedin


Feature on Dunedin

The council has undertaken a number of activities, including seeking advice from consultants on traffic, planning and retailing. Almost simultaneously, they launched a document Towards 2050 – A Spatial Plan for Dunedin, and called for submissions and hearings in early 2012. These hearings have been held, and the second part of the process is the generation of the second district plan. The spatial plan identified some main problems for Dunedin. These included −• Futurehousingneeds• Infrastructureandfacilities• Naturalenvironment• Globalchallenges• Naturalhazards• Oureconomy• Heritageandcharacter.

In terms of housing, it assessed that there were an extra 7,600 residential units needed by the year 2031, that we are living in an ageing population with a decreasing household size, and there will be continued growth in student numbers. It also identified a large proportion of the housing stock is old, and many are poorly insulated. Infrastructure and facilities are a dilemma for the council, as they are relatively expensive and require continuing maintenance.

Natural hazardsIn regard to natural hazards, there is development in the areas of flooding and land stability, which have been issued in a number of areas around Dunedin. Much has been made of climate change and the potential increase in sea levels. These would have a significant effect on the St Clair and south Dunedin areas as they are relatively low-lying and potentially susceptible to flooding.

The natural environment encompasses rural land and inappropriate development, including expansion of urban areas and lifestyle developments. While the plan does not propose a wholesale restriction around these areas, it does look to protect areas of significant biodiversity and landscape values or character of the rural environment.

Global challenges are discussed in the plan and solutions focus on how to deal with rising fuel prices and at ways in which the urban form can support cycling, walking and public transport. The plan also discourages, or attempts to discourage, development in low-lying areas which may be inundated from sea level rise or coastal erosion.

Heritage buildingsA number of submitters made significant points about the economy. The plan attempts to recognise some of this with supporting successful business clusters in some of the older heritage and character buildings around the tertiary and medical area, the harbourside engineering cluster, and the creative business area south of The Octagon

Heritage and character is recognised by the fact that there are a number of heritage buildings which are either vacant or under-used. Maintaining and retaining the large number of these buildings can contribute to the character of the city but many of them need earthquake strengthening.

The city is quite privileged to maintain the number of these old buildings which, unfortunately in Christchurch, suffered significant damage and have since been removed. In preventing the erosion of the special character by limiting the removal of these heritage buildings, the city will benefit from having an attractive streetscape, which hopefully will provide an invigorating living community.

The plan also looked at the strengthening of the amenity and accessibility of the central city, as Dunedin is relatively unique in that it has retained its central heart. Unlike Invercargill, bulk retail has not decimated the CBD, and George Street is a main retail location. However there is a conflict between current and developing bulk retail and the George Street retail precinct.

Princes Street has tended to suffer a little with the loss of a number of businesses in this location as a result. Therefore protecting the current hierarchy of retail centres for both social and economic activity has been identified.

The Spatial Plan has identified areas of re-zoning, expansion of current zones, and forms the basis for the second generation district plan. It will be interesting to see how this develops and evolves alongside other such plans, and how the city intends to promote and encourage development.

Ah-Lek Tay is a Registered Valuer with Barlow Justice Limited, Dunedin

Valuation reporting


Feature on Dunedin

David Paterson

Valuation reporting

Looking back in the files recently I found an old report undertaken by one of Dunedin’s leading commercial valuers. It would be fair to say that, based on today’s standards, it would be considered a poor report. Unfortunately there are still valuers around who think that this type of report is acceptable today.

Valuation reporting

Features of a good reportSo what constitutes a good report? The information that needs to be included in a report is set out in the standards and I will discuss this shortly. On a very basic level, a valuation report is designed to inform the reader of your findings. The reader should understand how you came to your conclusions and the final value should not be a surprise once the report has been read. It is this aspect of the report that is often missing and the reader has no idea from a list of sales how the value is decided.

There was a time when valuers considered the client paid them to tell them the answer and that is basically all they did. The feeling was that the more information you provided the greater the chance of you being proved wrong. Today clients have access to an array of property-related sites from which they can obtain information and as a result are far better informed about the market. If you do not go the next step and explain, you are likely to be queried.

New International Valuation StandardsIn January this year the new International Valuation Standards were adopted by NZIV and the Property Institute. If you have not read these yet it would be in your interest to do so. In terms of reporting, the new standard is IVS 103. It is very general and less prescriptive in nature than the previous standards and applications, but it does set down some good parameters. It is worth noting the following.

General Principle 1 The final step in the valuation process is communicating the value to the commissioning party and other intended users.


It is essential that the valuation report communicates the information necessary for proper understanding of the valuation. A valuation report should not be ambiguous or misleading and will provide the intended reader with a clear understanding of the valuation provided.

General Principle 2 To provide comparability, relevance and credibility, the valuation report will set out a clear and accurate description of the scope of the assignment, its purpose and intended use, confirmation of the basis of value used and disclosure of any assumptions, special assumptions, material uncertainty or limiting conditions that directly affect the valuation.

The report contents are set out in Section 4 and 5 of the standard. Section 4 talks about the level of detail required and that this will depend on the purpose of the valuation, complexity of the asset being valued and the requirements of the end user. The detail should be agreed and set out in the scope of work, which should be referred to in the report. Section 5 sets out the matters that should be included in the report which include −• Identificationandstatusofthevaluer• Identificationoftheclientandanyotherintended

users• Thepurposeofthevaluation

• Identificationoftheassetorliabilitybeingvalued• Basisofthevalue• Valuationdate• Extentoftheinvestigation• Natureandsourceoftheinformationreliedupon• Assumptionsandspecialassumptions• Restrictionsonuse,distributionorpublication• Confirmationthatthevaluationhasbeenundertaken

in accordance with IVS• Valuationapproachandreasoning• Amountofthevaluationorvaluations• Dateofthevaluationreport.

Of particular note is point 5(l) Valuation approach and reasoning in which the standard states − To understand the valuation figure in context, the report will make reference to the approach or approaches adopted, the key inputs used and the principle reasons for the conclusions reached.

Reporting requirementsIn addition to the above general reporting standard, there are additional reporting requirements in IVS 233 Investment properties under construction, IVS 300 Valuations for financial reporting and IVS 310 Valuation of real property interests for secured lending.

Valuation reporting Valuation reporting


Valuation reporting Valuation reporting

Members should be aware that there is nothing new in IVS 103 in terms of the requirement to provide the reader with reasons for your answer. IVS 3 section 5.1.8 states that a report should ‘include a description of the information and data examined, the market analysis performed, the valuation approaches and procedures followed, and the reasoning that supports the analyses, opinions, and conclusions in the report.’

Valuers should also be aware that sitting below these standards are guidance notes set out in the Australia and New Zealand Valuation and Property Standards 2008. Of particular note for report content is oulined below.

ANZVGN 1 Valuation Procedures – Real Property. Section 4 sets out a list of 26 separate items which should be included in your report. The interesting point is they are presented in a logical order and could be adopted as a template for your own report. Section 4 is set out as follows.

All valuation reports must include content as is relevant to the type of property and the style of report, unless using a pro-forma required by a client. The extent of detail under any heading will vary depending on the style of report and the nature of the property. Report content usually includes – 4.1 Instructing party 4.2 Purpose 4.3 Date of valuation 4.4 Basis of value 4.5 Methodology, reconciliation and value range 4.6 Legal description 4.7 Nature of interest 4.8 Lease or licence details 4.9 Dimensions and area (land) 4.10 Location and locality 4.11 Town planning/resource management 4.12 Site, services and environmental hazards 4.13 Structural improvements 4.14 Lease(s) 4.15 Outgoings and recoveries 4.16 Marketability 4.17 Further investigation other experts 4.18 Condition of the market 4.19 Market evidence In the case of property this should include sales

and rental data evidence and justification by reference to market evidence of any capitalisation rate adopted. As warranted, the application of this data should be shown or explained.

4.20 Single valuation figure 4.21 Sale in one line or single transaction Where a member undertakes a valuation of

multiple properties in one development, such as lots in a subdivision or units in a building,

the sum of the individual values or gross realisation assessed on the basis of an orderly marketing and sale programme should be clearly defined as the total gross realisation. The valuation of multiple properties in one development should be completed on the basis of a single transaction or sale in one line to one buyer. This valuation approach should incorporate an appropriate discount to reflect the costs incurred in realising the proceeds from the sale of the individual properties. These costs normally include marketing and sale costs, holding costs and a profit and risk factor.

4.22 Proposed developments Where the subject of a report is a proposed

development of the property the report should clearly state −

• Thesourceofinformationuponwhichthereport is based

• Thevaluationonan‘ssifcomplete’basis • Anyassumptionsnecessarytoensurethebasisof

the report is clear. 4.23 General market advice 4.24 Going concerns 4.25 Disclaimers and qualifications 4.26 Signing the report I have included the explanations in 4.19, 4.21 and

4.22 as these are areas where we often see problems in reports that come to the notice of the Professional Practices Committee.

ANZVGN 2 Valuations for Mortgage Security Purposes. Section 3 of this guidance notes adds some additional reporting requirements and includes such things as risk analysis and rating and alternative use values.

Aim for best practice You will of course note that the guidance notes are not mandatory. However they are intended to embody recognised good practice, and I venture to suggest best practice, when a member’s performance is being measured in court or in a Valuers Registration Board hearing.

To sum up, it is incumbent on valuers to provide the client the level of reporting necessary for for the assignment. The standards do allow for deviations when they are set out in the scope of work and agreed with the client before beginning the assignment. Members should therefore be aware of the requirements of General Standard – IVS 101 Scope of Work.

David Paterson is the NZIV Southern Region Councillor and NZIV representative on the Professional Practices Committee


Profile

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Verifiable educationIn March we became one of the first providers in the market to offer the Real Estate Agents Authority verifiable learning module ‘Professional conduct and client care rules’. Feedback from clients who have completed the module to date has been complimentary. It appears that uptake of the education across the sector has been slow to gain momentum. It is anticipated that, as the critical timing approaches towards the end of year when the education requirements are required to be completed, we may see a flurry of activity in the sector.

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The first module will provide an overview of Crown land administration and should be available by the middle of this year. The training will be available to Property Institute members using the e-learning website, and to non-members via Property Education and Training. Craig Harris, the Crown property regulatory manager for LINZ says that working with the Property Institute on this initiative is a good example of two organisations seeing an opportunity to add value to the property management sector and working together to achieve this.

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ProfileAnthony Taylor

Profile

Anthony works within what he describes as an energetic and upbeat team at Barlow Justice Ltd, a valuation firm based in Dunedin covering all parts of Otago and Southland. His work involves largely commercial, industrial and residential investment valuation and his passion and speciality is in insurance valuations. Dunedin has the unique student investment market which he finds an interesting market to work in, especially some of the inspections.

Study and first valuation jobHe feels he had a less than normal introduction to valuation as a career. Before working in the property industry, Anthony worked largely in the hospitality industry in various roles ranging from security through to bar manager. After spending four years at Otago University enjoying all that the university and surrounding licensed establishments had to offer, he was taken in by Barlow Justice Ltd as an office boy. He then grew to love the profession and went on to study a valuation and property management degree at Lincoln University.

His father has had a long and successful career in commercial property so he was always aware of the property profession as a whole and what it could offer. Anthony says that straight out of high school the property industry had never really interested him. It was when he joined Barlow Justice that his passion for the industry began. ‘While working there it was the client interaction and the fact you were able to get out of the office and visit properties that really attracted me to the job.’

A positive industryIn terms of good points about this type of career and the drawbacks, at the moment he can only see positive points in the industry. Although the market is still not booming, he views this as a perfect time for younger members in the sector to really stamp their mark. The career offers variety and every day is

Property related training


Profile

different. Dunedin is a great place to work from in this aspect with a range of building types and designs and no two inspections being the same.

Something he loves about his job is the privilege of being able to see inside some of the most beautiful and well-maintained buildings in the country which are just a 10 minute walk from the office. For those people who think Dunedin is too small and boring, he says to come down and spend a day with him and he will show you buildings that will blow your mind. His seven kilometre journey to work in the CBD each morning takes under 10 minutes, a lot less than elsewhere in the country.

The people Anthony meets in this job he finds amazing, from the smallest investor right through to CEOs controlling multi-million dollar property portfolios. Each have differing opinions on what the property market is doing and where the next move will be.

Views on the valuation sectorAnthony believes that an ageing population of valuers has both negative and positive aspects for young valuers such as himself. The positive aspect is that a number of opportunities are about to arise for the younger generation to take over where others have left off and really make a name for themselves. The concern that comes with this is that the older members of the industry will leave without passing on their knowledge.

He would like to use this article to press the fact that the Property Institute needs to help create something of a mentoring programme. Young members of the industry need to be taken under the wing of the experts in various areas of both the valuation and advisory sectors. He would be one of the first of the younger generation to put his hand up and say ‘I want to learn more about the specialty

areas of valuation that are out there. I would be more than happy to travel in my spare time to learn.’

From his short experience in valuation he has found that the industry does not promote itself well enough. He says that we become so busy being valuers we often forget to promote ourselves. As an industry we need to be more active in the media. A big frustration is when there is comment made on the state of the property industry in the media comments are frequently from a real estate agent, not from us.

We are meant to be the professionals with a greater knowledge of the market and an unrivalled independence. It should be someone from our industry speaking to the media. A solution to this is the Property Institute having regional contacts who could be the media’s first point of call on any local issues affecting the property industry. There would also be a national spokesperson who makes comment on all national property matters. This would benefit the industry as a whole and bring more awareness to our sector.

A worthwhile career choiceAnthony believes that new entrants to the valuation field should not be put off by all the negative press about the downward property market and a job market which is impossible to get into. We as young professionals create our own opportunities. If you approach the industry with a good work ethic and the communication skills to portray your abilities to any employer, they will hire you. If you are job hunting, do not just send your CV out generically. Turn up in person to present your resumé and yourself. It shows you are personable and prepared to go the extra distance.

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property quarterly (june 2012)

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