Prop 231 - Module 1-6

Property as an asset

Heterogeneous - All properties are different 

Real estate - Physical assets

Maintenance - Obsolescence

Large values

Leverage - Borrowing against property

Inelastic supply - Cannot immediately respond to changes in demand

Illiquid - Time is required to convert to cash

Property Investment strategies

Core (Income)

Competitively generate income from tenants

• Focus: Low-risk, high-quality, fully leased properties with reliable cash flow CoreCast Blog.

• Target: Conservative investors seeking long-term passive income, often in premium locations.

• Management: Typically low, with few operational tweaks needed.

• Key Benefit: High stability and liquidity, providing a hedge against volatile markets. 

Value Add (Growth)

Invest by adding to building value

• Focus: Moderate to high-risk projects requiring significant renovations, repositioning, or active management to boost building value.

• Target: Investors seeking higher returns through forced appreciation (equity growth), rather than just market appreciation.

• Examples: Upgrading units to increase rent, refurbishing common areas, or restructuring tenant mix.

• Key Benefit: Potential for significant, rapid capital growth and higher rental yields. 

Development

• Focus: High-risk, hands-on creation of new built space or land subdivision, according to Property Brokers.

• Target: Investors with substantial capital and the ability to manage construction risks.

• Key Benefit: Substantial potential returns by building new assets rather than upgrading existing ones.

Role of a property manager

Planning - Market research, Best location for use

Acquisition - Reading terms

Design and fit out

Lease management - Facilities management

Disposal - Reinstatment

Residential

Legal framework

Health and Safety at Work Act 2015

Human Rights Act 1993

Unit  titles 2010

Residential tenancies Act 1986

Privacy Act 1993

Real Estate Agents Act 2008 

Fair trading Act 1986

Building Act 2004

Resource Management Act 1991

Residential tenancy termination periods

Landlord notice

90 days notice for any reason

42 days for other reasons 

Eg use by family members, sold with vacant possession, use by employees* (strict)

Tenant notice 

21 days notice for any reason

Residential tenancy cycles

Vacancy

Marketing/ viewings

Tenant screening

Tenancy agreement 

Tenancy management

Termination

Inspection Process

Preparation

Inspection

Documentation

Response

Rent increase and Bonds

Rent

60 days written notice and every 12 months

Bonds

Up to 4 weeks and 2 weeks pet bond

Residential - Termination by tribunal

21 days in rent arrears

14 days after for payment

Commerical

What is lease distortion

Affects value of property from income valuation
Income/ capitalisation rate

Lease types and explain

Rental and outgoings

• Gross rent - nominal and outgoings included

• Net rent - nominal and outgoings extra

• Turnover - Based on turnover and outgoings included or Extra

• Rent + % of revenue Incentivizes landlords to invest in the building, which helps revenue

Types of rent reviews

Market rent review

Hard ratchet - real cannot decrease

Soft ratchet - rent cannot decrease below commencement rent

No ratchet - rent can decrease

Cap - rent has a maximum

Collar - rent has a minimum on review

Fixed/indexed growth

Fixed growth

Inflation indexed (CPI)

• Rent will grow x% every year

• Every x years rent is increased by inflation

Alterations and reinstatement

Tenant is required to replace the fittings back to original condition

The fixtures and sitting must not be removed before the end of the termination date

Or

Settlement - Tenant pays amount quoted by Landlord

Macro risks and micro risks

Macro risks (Market level)

High inflation rate - mortgage payments

Market rates

Market oversupply

Economic recession - COVID

Micro risks (Property specific)

Physical

Wear and tear

Maintenance

Natural disasters - accidents

Chemicals

Flooding and Leakage

Security -theft

Large upgrades required - regulations

Tenancy

Unsuccessful business

Health and Safety

Vacancy

High tenant turnover

How does a property manager create value?

Increase revenue

Minimise vacancy

Minimise expenses

Outperform competition

Unit titles

What are the terms for areas in unit

Principal Unit

Primary property, exclusive - unit apartment

Accessory Unit

Carpark, storage lockers

Common Property

Lifts, garden, amenities, lobby, 

Commercial - driveways, footpath, stairwell, fire escape

Body Corporate Roles:

Own and manage the common property (incl insurance)

Establish long-term maintenance plan - Develop an uplook and 10 year plan

Administer body corporate (AGMs)

Levying unit owners

Provide docs to unit owners

Enforce body corporate rules

How did the unit titles act amendment bill 2022 change the industry

Unit title rights/ responsibilities

Rights:

AGM meetings

Having a vote on matters

Election for chairperson

Access

Responsibilities:

Playing levies to fund operation and maintenance of the property

Complying with BC operational rules and legal requirements

Disagreement

Self solution with other parties

Check body corporate rules 

Ask for an EGM, requiring 25% of owners to request

Apply to Tenanct tribunal