Market comment March 2018

Each year we conduct a very informal survey as to the extent to which agents’ marketing materials are “romancing’ the truth. We have a theory that there is an inverse relationship between the overall state of the economy, and the extent to which agents “guild the lily” or obfuscate the truth. The worse the state of the economy, the more make-up and lipstick is put on to dress up the marketing of a property. Or conversely, the better performing the economy, the more realistic is the advertising.

This years’ very unscientific survey tends to confirm our theory. With the economy overall in good shape we found very little evidence in online marketing of agents deliberately misleading.

There were several of the usual “occupy or invest” for properties with long leases – which must be very confusing for new entrants to the industry. How can you occupy a property with a long term tenant? And thankfully advertising a yield for a vacant property has almost disappeared. We know any agent who does that managed to fail miserably at maths.

Top prize this year goes to the agent who must have discovered a secret motorway. He contends that “Beachlands is only a short drive from Auckland CBD”.

We are very aware of the saying “a little knowledge can be a dangerous thing”. But this has been emphasised by  a couple of episodes during the last month.

A tenant (who we had inherited) was coming up to a market rent review on the industrial unit they lease. Accordingly we gave them advance warning of this, together with some indications of market rents in the area, which would point to the potential increase they may be facing. The response was that they were not prepared to pay any increased rent, and that if we tried to increase the rent they would appeal to the tenancy tribunal. A little knowledge, but unfortunately pertaining to quite the wrong type of tenancy. We needed to direct them to read their lease.

And we encountered a vendor who wanted close to a 4.5% yield for their building. The building was suffering from what may euphemistically be called “deferred maintenance”. For more than one decade. The short term tenants may have sometimes paid rent, and certainly not treated the building kindly. But a nearby building – in pristine, well maintained condition, with a long term multi-national tenant, had sold for 4.4% yield. Again a little knowledge, but massively mis-applied.