Property Quarterly (June 2014)

VOL 4 | ISSUE 2 | JUNE 2014

IN THIS ISSUE Valuers Act review Hotel property market Residential insurance valuation Reducing a building’s ecological footprint

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Vol 4, Issue 2 June 2014 ISSN 2253 5179 print ISSN 2253 5195 online

Publication Committee Donn Armstrong Daniel Miles Ah-Lek Tay Gwendoline Callaghan Ian Campbell Contact details David Clark Property Institute of New Zealand PO Box 11 380 Manners Street Central Wellington 6142 Phone: 04 382 7621 david@property.org.nz Editor Julian Bateson Assistant Editor Helen Greatrex Bateson Publishing Limited PO Box 2002 Wellington Phone: 04 385 9705 bateson.publish@xtra.co.nz Advertising management Bateson Publishing Limited Phone: 04 385 9705 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.

Property Quarterly articles are not peer reviewed. Articles in the magazine represent the unaudited views of the relevant authors. If you have any questions about the content of an article please contact the Editor or the relevant author.

Cover photograph William Liew, Quotable Value

Contents Residential insurance valuation Jerome McKeefry .......................................................................................................... 3 Reducing a building’s ecological footprint Building certification schemes Regan Simpson .............................................................................................................. 6 Why our workplaces need to change Duncan Mitchell ............................................................................................................ 9 Sixty-six years on The Valuers Act review David Clark ....................................................................................................................13 Real estate 2020 – building the future Chris Leatham ..............................................................................................................16 Retirement villages and the ageing population Norah Barlow ...............................................................................................................19 Why building owners need to know about fire and the Building Act 2004 Peter Thorby ..................................................................................................................24 Hotel property market Dean Humphries .......................................................................................................... 31 Land use, ownership and investment in Tanzania Donn Armstrong ..........................................................................................................34 Census 2013 and regional population changes Ian Campbell.................................................................................................................37 Three Valuers Registration Board decisions David Paterson and Mark Dow ................................................................................. 41 Legal cases Calling an unsatisfactory piece of gardening equipement a spade Niven Prasad .................................................................................................................26 Heads of agreement in a caveat supporting role Niven Prasad .................................................................................................................29 Profile Malcolm Liddell ...........................................................................................................44

Vol 4, Issue 2, June 2014 Property Quarterly 1

CEO’s comment

CEO’s comment National Office is on the move, after almost 40 years in the current location at 181 Willis Street.

In June we will be packing our bags and moving to a new office on level 3, 69 the Terrace, Wellington. The new premises will be shared with the NZ Institute of Surveyors and the NZ Institute of Primary Industry Management. The floor space is the same as we currently have but the number of people on the floor will double. We will no longer have a boardroom as our analysis shows the infrequent use of the boardroom makes it more efficient to hire one than rent it permanently.

The new location is much nearer the heart of Wellington, giving us easy access to Parliament and government departments, as well as being close to the railway station. Members are invited to come by at any time, and if you are looking for space to work during a trip to Wellington we also have a hot desk available for members to use.

Appropriately, you will also find an article from Duncan Mitchell on page nine of this issue on the significant changes taking place in workplaces. We have worked closely with Paul Mautz, chair of the Property Advisory community to ensure that the new space and IT platform meets the requirements of a modern workplace, and allows staff to be available whether or not they are physically present. We are also ensuring that we are able to cooperate closely with our new office companion organisations, hopefully to derive efficiencies over the long term.

We are currently working through options for the library. It has largely been replaced by other online resources and since I joined the Institute has been used only a couple of times a year. The Wellington branch of the NZIV is assisting us to go through the contents and determine what should be scanned and preserved digitally, what should be kept for posterity and what is already preserved by other institutions or no longer worth keeping.

The current office floor has been sold by the NZIV for $250,000, slightly below a current market valuation of $270,000 but without agents’ fees and free of any sale conditions. The NZIV Council believed the sale represented a fair price as the building did not have a current NBS rating, although it was thought to be above 40 per cent.

In the weeks immediately following the move we also have the annual conference in Rotorua on 2 to 4 July. Jenny and her team have organised an excellent programme, headlined by Professor Mark Burry, a Kiwi who is the Chief Architect and organiser for the Sagrada Familia. This is Antoni Gaudi’s fantastically strange basilica in Barcelona which has been over 100 years in construction and still has some way to go to completion. We have also invited the new Minister of Land Information, Michael Woodhouse, who replaced Maurice Williamson following his resignation, and expect to have confirmation soon.

Other highlights are included in the conference brochure which is available to download on the front page of the website. All National Office staff will also be at the conference. It is an annual highlight for us and we look forward once again to catching up with members.

This issue of Property Quarterly also includes a substantial update on the Valuers’ Act progress. You will find this on page 13 and I encourage all valuers to give it a read.

2 Property Quarterly Vol 4, Issue 2, June 2014

Residential insurance valuation

Residential insurance valuation Jerome McKeefry Since the Canterbury earthquakes there have been some major changes within the insurance industry.

One of these has been the move for owners of residential property to provide a ‘sum insured’ figure which represents the estimated total replacement costs of a person’s property in the event of a total loss.

Speaking from a valuer’s perspective, we have always provided insurance valuations but these have usually been for residential blocks of units or apartments, commercial or industrial properties, and perhaps some executive style residences. The move to the provision of a sum insured figure for residential property has come about after insurers realised the total cost of replacement for property extends beyond just the main residential dwelling and includes other buildings and site improvements.

As valuers we are not privy to a client’s insurance policy. However, various seminars provided on the topic would suggest that most people have a standard replacement cost policy. In the absence of stipulating any special features, only a certain specified amount of that replacement cost is attributed to site improvements such as retaining walls.

 Limited public knowledge With the exception of those who have recently built a house or carried out renovations or additions, it is probable that the general public has a limited knowledge of the true cost of building once all works are completed. It would be fair to say, however, that a large portion of those who have built or renovated are often surprised at the true cost of building when everything is added up, including professional fees and council consents.

Two articles I am aware of suggest that a large portion of the general public, perhaps up to 90 per cent of owners, are unaware of the changes in residential insurance or have adopted the default rate offered to them by insurance companies. This default rate equates to $2,000 a square metre, although it is unconfirmed if all insurers offer this rate.

Those who have recently constructed a home or completed renovations or additions would understand that Vol 4, Issue 2, June 2014 Property Quarterly 3

Residential insurance valuation

$2,000 a square metre, when including site improvements, professional fees, consent fees and GST, may fall well short of the cost to build. If these percentages are correct then it may be that a corresponding percentage of owners may be under-insured. This is especially so when the sum insured figure must also include demolition costs along with provision for inflation.

ďƒž What is involved?

When completing a sum insured residential insurance valuation there are a number of items which need to be considered. Obviously the main structure is the dwelling or home. However any secondary buildings, garages or sheds, other improvements, retaining walls, special features such as tennis courts, swimming pools, paths, driveways and fencing are all included. These also could be subject to a loss, as was the case with many of the Canterbury properties during the recent earthquakes.

As well as the estimated replacement costs, the valuer must also consider the estimated demolition costs of those items and the estimated inflationary provisions over the period of the policy along with time involved in demolishing the improvements, having plans drafted by professionals, obtaining council consents and rebuilding. Seminars provided for the Property Institute on this topic indicate the insurer’s preference in relation to residential property is for the sum insured figure to be stated as including GST.

ďƒž What are the pitfalls?

Insurers are directing home owners to online calculators or to obtain professional advice, but it is quite apparent that many people struggle to understand what is involved in assessing the sum insured figure. The various online calculators available can have differing requirements. This alone may cause confusion, but also may result in varying answers in relation to the total sum insured figure that is calculated.

A recent article reported on www.stuff.co.nz by Rob Stock indicated that, of the results of a survey completed by elderly home owners, half of the respondents doubted their ability to measure their home accurately enough to use the online calculators correctly. Some houses may be relatively easy to measure but others may be extremely difficult, especially architecturally designed homes with more than one level. However, it is not just the house or main structures which require measurement because the site improvements also need this. The same article indicated that after this survey had been completed, many of the properties assessed by the company who issued the survey found nearly all home owners to be under-insured.

It was also suggested that discussions with major banks and insurers had indicated that 93 per cent of 4 Property Quarterly Vol 4, Issue 2, June 2014

home owners who had renewed their policies since July 2013 had accepted the default sum. Only a very small portion used property valuers, quantity surveyors or similar professionals to obtain a more accurate indication of re-build costs.

Confidence From discussions with various registered valuers it appears there are concerns over confidently providing replacement costs for various items. An example would be a large retaining wall, because those over 1.5 metres in height require professional engineering advice. It is unlikely that a valuer or quantity surveyor will have full knowledge of what is required for a significant retaining wall, such as whether rock anchors are needed and the type of retaining under the current building code.

The valuer or professional required to carry out the work should enquire about the presence of such features on the property when taking the instruction. If in doubt they should suggest that those items be excluded from the assessment and for the owner to find more specific professional advice. Another example would be the probable cost of replacement or installation of a swimming pool. The costs of such a special feature may vary considerably depending on the pool itself, size and depth, type of construction and ease of access. There are also uncertainties about improvements which extend along a boundary line, such as fencing and retaining walls.

It may be prudent for the valuer or other professional to provide the full estimated cost of replacement of such improvements, even though these items may be a shared cost in other instances such as neighbours sharing the cost of a new boundary fence. The home owner is unlikely to be aware of the level of cover that the neighbouring owner has on those items, if any at all, and in the event of a disaster will need to include the full cost to ensure full replacement.

Shared access Shared driveways may also pose a problem. Situations arise where a right of way or shared driveway which provides access to multiple properties is privately owned. Preferably, the client would have some form of agreement with the owners of the remaining properties as to how the maintenance or replacement insurance for that improvement is treated. If there is an agreement in place, the person providing the sum insured should request a copy, to be informed about the proportion of the costs which are attributed to their client, and then they could apply this to their assessment.

Any owner of property accessed off a shared driveway or right of way may decide that they would rather park their vehicle on the road and walk to their

Residential insurance valuation

house site than contribute to replacement of the access way. Conversely, owners who see more benefit in keeping vehicular access up to their property, due to distance from the road or loss in value without such access, would carry a greater cost to replace or a greater premium for insurance cover to replace that access. Some properties may use the entire length of an access versus others who may be located closer to the start of the access. If a valuer or quantity surveyor was provided with an apportionment of contributions, then the estimated reinstatement cost of the access may be attributed accordingly.

If the professional is not confident or qualified to provide a reinstatement cost figure for a private or shared driveway or other special feature, it should be agreed with the client that this item will be excluded and that they should obtain professional advice. If there is no maintenance agreement in place, suggest to the client that it may be beneficial for those who maintain the access way to agree about how the costs should be shared.

Replacement new for old?

A question often posed to valuers is, ‘Will I get back all my character features within my dwelling such as ornate Cararra ceilings, ornate cornices, internal timber panelling and woodwork?’ The Property Institute has provided various seminars with‘question and answer’ type sessions on this topic and representatives from the insurance industry have suggested that replacement relates to new for old.

If a property had timber floorboards throughout these would be replaced with the modern equivalent.

However, in the case of a partial loss, such as due to a fire, some matching floorboards may be used in replacement. In a catastrophic situation where there is a total loss, or multiple losses of dwellings such as in the case of Canterbury, this may be unlikely. Timber flooring may therefore be replaced with timber overlay flooring or timber flooring of a different type than that which currently exists. Ornate cornices and ceilings can be replaced, but these should be specified in the insurance policy. The professional needs to be informed of this and state this in the report, and be aware that the overall costs to replace will be greater.

 Cost data Valuers must have access to current cost data. It is essential for valuers to build and maintain a database where costs are available to them, and an example would be valuing a proposed new house off the plans.

The valuer should enquire about the construction or contract costs and find out whether these include professional and consent fees. Similarly the same can be said for clients installing or constructing special features such as a swimming pool, a tennis court or carrying out significant site development.

It is now essential for valuers who are assessing sum insured costs for residential properties to obtain this cost data. From a valuer’s perspective it is also important to become familiar with a range of building costs for different property types. These could range from a basic group home, to a quality executive home with a high level of internal fixtures and fittings.

Analysis of such costs is imperative if you are to become familiar with the amount associated with an actual dwelling, garage or self-contained flat compared with site development.

 Conclusion If some media reports are true then a large percentage of the residential property-owning population may well be considerably under-insured as a result of a limited understanding of what is included in providing a sum insured figure. Methods of measurement, assessing areas, apportionment of construction costs, professional fees and including allowances for demolition and inflation, as well as GST, all need to be considered and included.

Valuers in particular, should form a professional relationship with cost experts and liaise with them when completing this type of work. The professional should exclude any property or features they are unqualified, uncomfortable, or lack confidence to provide accurate costings on and refer the client on to a more suitably qualified person. The valuer or professional providing the advice needs to state clearly what they have included and excluded, and any exclusions should be communicated at an early stage with the client.

Jerome McKeefry is a Valuer at TelferYoung (Wellington) Limited.

Vol 4, Issue 2, June 2014 Property Quarterly 5

Green building certification

Reducing a building’s ecological footprint Building certification schemes Regan Simpson Environmental awareness continues to grow with energy management and sustainability programmes increasingly becoming vital in the objectives of many corporate companies. Buildings contribute a substantial amount of greenhouse gas emissions to our environment.

By introducing various green standards which look at different aspects of a building’s ecological footprint, the effect can be decreased. This can benefit an organisation’s bottom line as much as it benefits the planet. Among the certified rating schemes which measure a building’s energy performance in New Zealand are − • National Australian Built Environment Rating System formerly Australian Building Greenhouse Rating • Green Star.

 Effect on building value Energy efficiency is vital to an organisation’s bottom line and sustainability is important for improving asset value. A green building uses less energy, water and natural resources, creates less waste, and is healthier for the occupants compared to a standard building. Air quality in buildings usually contain up to five times more pollutants than outdoor air. It is for these reasons that tenants are looking for energy efficient premises. In addition, buildings are responsible for 30 per cent of the world’s greenhouse gas emissions.

There is increasing recognition that green or high-performance buildings have a positive effect on asset values and employee health and productivity. It is becoming apparent that energy and environmental sustainability are influencing real estate decisions about location, design and construction, workplace design and building operations.

A building rating process allows different buildings to be benchmarked in terms of their environmental performance. The way a building uses energy, water and causes other environmental effects can be very different from building to building. Rating buildings and comparing them against others becomes useful when buying or selling one or selecting a new tenancy. It is 6 Property Quarterly Vol 4, Issue 2, June 2014

Green building certification

also very valuable when setting performance targets and trying to make improvements. Rating systems produce a third party accredited rating of performance for added assurance and also awards excellence, which allows differentiation of products and pushes the market forward.

 Being green An international risk analysis company IPD has produced the New Zealand Green Property Index.

This tracks the investment performance of commercial office buildings which have been awarded a Green Star rating from the New Zealand Green Building Council.

The index currently reports on $1.3 billion in value of office buildings. The index details total, capital and income returns, pricing and space market information.

It provides a way to measure and benchmark the investment performance of property assets with a Green Star rating.

All Green Star rated office assets have produced an annualised total return of 8.9 per cent to September 2012. This is 2.5 per cent better than non-Green Star office assets over the same period. When controlling for asset quality, A grade buildings with a Green Star rating provide higher investment returns. This is consistent with stronger net income, lower capital expenditure, higher capital growth and lower capitalisation rates. Lower capitalisation rates for A grade Green Star buildings would also suggest lower investment risk.

We are seeing similar premiums in asset value in National Australian Built Environment Rating System NZ (NABERSNZ) rated buildings. As this is relatively new to the market, information on its effect in New Zealand is fairly limited. However, in Australia’s established market there is a premium in asset value for a five star level of nine per cent and a discounted value towards 10 per cent for those assets rated below three star.

 Some of the differences NABERSNZ is a rating system based on performance from zero to six stars. It focuses on energy performance and is a process of continuous improvement and monitoring. Green Star is a one-off design based rating system which takes a more holistic approach with several

criteria assessed and gives formal ratings between four and six stars.

Both NABERSNZ and Green Star are administered by the New Zealand Green Building Council, which is dedicated to increasing the development and adoption of green building practices. The partnership with the building industry establishes a common language and standard of measurement for green buildings. Its aim is to promote whole-of-building design, raise green awareness and reduce the environmental effect of development.

Green Star targets the top 25 per cent of the market in terms of sustainable design. It leads the market and we would expect technology and ideas to trickle down, eventually improving the aging office stock. Green Star assessments take into account eight different criteria from management principles, products used in construction and energy and environment, with additional credits available under innovation.

 Eligibility To be eligible to apply for certification under the Green Star, the building must meet certain selection criteria.

Office space must make up 80 per cent or more of the building’s total assessable area. It must be visually identifiable from surrounding buildings to differentiate those which are Green Star certified and those which are not certified. The building must achieve an energy use of less than 105 kilowatts per square metre each year, exclusive of office lighting energy consumption and tenant small power consumption, as well as meeting the building code base ventilation rates.

New projects may not be built on land of high ecological value. If the project is going for a certified built rating, a certificate of practical completion must be submitted before assessment.

 Use in Australia and New Zealand Australia has been using the rating system for more than 10 years for water, waste and indoor environment quality as well as energy. It has been adapted for the New Zealand market and is a rating system for existing office buildings based on performance. The aims are to achieve positive environmental results, encourage innovation and Vol 4, Issue 2, June 2014 Property Quarterly 7

Green building certification

establish market best practice.

The system has been used to rate the energy performance of around two-thirds of all office space in Australia. Data from the New South Wales Office of Environment and Heritage shows that office buildings using NABERS to regularly measure performance have improved energy efficiency on average by nine per cent, or 23 kilowatts per square metre each year, which equates to about 0.6 stars. Collectively, they are saving 345,100 tonnes of greenhouse gas emissions every year.

The logical choice In 2012, the Energy Efficiency and Conservation Authority began the process of adapting NABERS for use in New Zealand commercial buildings. As a successful energy rating process it was the logical choice as the basis for a commercial building energy rating system in this country. A number of main stakeholders were consulted, including large commercial property owners and major tenants, government and local government, for adapting the system for the New Zealand commercial building market. During the pilot phase, it was tested on a range of small and large commercial buildings and tenancies around the country and was successfully launched in June 2013.

NABERSNZ measures only energy and can currently be assessed under three categories − • Tenancy rating which covers the tenanted space, and can be used by the tenant occupying a lease or privately-owned office space within a commercial building • Base building rating which relates to central building services and common areas and generally applies to a building owner or property manager • Whole building rating which is the combination of the two.

As with Green Star, a NABERSNZ certified rating is carried out by an accredited assessor. The assessment takes into account several criteria over a 12-month period using an approved method. Self-assessments are available via the website. This will give you an idea of where a building sits in the rating scheme although it is meant to be indicative only. These ratings cannot be used in promotional material or advertised as a certified rating.

The philosophy is to compare buildings against their peers and not to penalise a building for factors outside the control of a building owner or tenant.

There is no penalty for providing building services, so a building which operates 24 hours a day, seven days a week is just as capable of achieving a five star rating as one which operates during standard business hours.

However, if you provide these services inefficiently then your rating will suffer. In order that this philosophy can be upheld, the system has been developed to a national standard with a strict set of definitions and rules to ensure all its ratings are done equitably.

 Integrating energy and property management There is an energy monitoring system which can be used as a part of the process of energy management with a view to supporting assessments. The energy and sustainability platform by JLL is based on the web and it aggregates, validates and arranges the building data into interactive displays. It is a building system which provides reporting and analysis as well as initiative, performance indicators and project tracking. Operating a building to its highest potential performance means knowing which elements are being efficiently managed, understanding where improvements need to be made, and aligning operational and capital expenditure programmes for the cost-efficiency.

One example is Local Government Superannuation which was struggling to align their commitment to the environment with their 17,000 square metre shopping mall, Market Place Leichardt in Sydney. They had already started a 100 per cent green energy purchase programme, but they also focused their attention on improving their existing energy consumption.

An improved energy management was integrated into the property management process. This was achieved with data sorted into benchmarks, followed by a more in-depth review of the consumption patterns of the building management control systems and the heating, ventilation and air conditioning systems. This energy saving allowed the client to exceed their initial target and reduced total energy consumption by over 50 per cent, saving over $280,000. The building was given the Excellence in Sustainability award at the New South Wales Chamber of Commerce Southern Sydney Regional Business Awards this year.

Regan Simpson is the National Director for Energy and Sustainability Services as well as Property and Asset Management for JLL, a professional services and investment management firm offering specialised real estate services.

8 Property Quarterly Vol 4, Issue 2, June 2014

Changing the workplace

Why our workplaces need to change Duncan Mitchell The office environment is not changing fast enough to keep up with emerging and changing business needs.

As the New Zealand economy continues to show clear signs of recovery, how can businesses modify their workplaces to enable staff productivity and retention, manage the need for different work styles across generations and remain financially competitive?

If you think back to your office at the beginning of the new millennium you may be surprised by how different, or not, it appears from today’s office. Desks were once filled with large chunky monitors and desktop computers. Many offices now find their technology scaled down and much more flexible than before. In just 13 years, office workers have moved from the inflexibility of heavy fixed computing systems to being able to call from a smartphone while working remotely on their laptop.

The change in technology is not the only development in the business world. Many workplaces have gone from fixed offices and cubicle workstations to open plan collaborative spaces where employees spend more time in teams than before. Meetings are often informal and spur-of-the-moment, easily mediated via technology, whether ‘voice over internet’ conference calling, or Skype.

Although the desire for new flexible offices has expanded, the means to create these has not necessarily developed at the same rapid pace. Leases are often still signed for long periods, much of the office is constructed from fixed partitioning, and we still do not have enough meeting spaces. The fundamental way of calculating how much space a business needs to lease is based on usual staff numbers, but the past five years has taught us that there is no such thing as business as usual.

The dynamic economic environment has highlighted the need for flexibility and adaptability and many businesses have struggled with their long-term inflexible office arrangements.

Competing demands on businesses are not new – the pressure for productivity and efficiency has been around since the industrial revolution. Today’s businesses are competing within their local economy as well as globally. The pressure to innovate and stay ahead of the pack is immense. The challenge for businesses is the high initial cost of setting up the workplace, along with the Vol 4, Issue 2, June 2014 Property Quarterly 9

Changing the workplace

cost of change to keep modifying the layouts as business needs change.

 Effect of the new generation The new generation entering the workforce is also changing the way businesses operate. They are more assertive about their wants and needs in the workplace, and are increasingly using their volume to try and get what they want. This can mean flexible technology, work schedules which reflect their work-life balance, and access to people from across the organisation, not just their department.

Combine all these competing business needs, and it is no wonder that changing or upgrading office space often ends up at the bottom of the budget list. There are some very good arguments about why businesses should put their time and effort into their premises, and why just adding more desks will not solve many of the problems facing businesses now or in the future.

Recently the biggest focus for organisations and the government in New Zealand has tended towards trying to fit more people into less space. Unsurprisingly this has had some unintended effects on staff productivity.

One of the main reasons for the government’s property strategy has been consolidation, a move echoed by Yahoo’s CEO, Marissa Mayer, who has gone against recent trends and cancelled the mobile work policy. By getting the entire organisation into a single location, cultural and organisational changes can be easier to instill. Google, TradeMe and ASB Bank are all using their premises to improve their team culture and retain staff.

 What do staff want in their workplace?

It is not enough to think that merely redesigning offices will achieve improved employee involvement and productivity. Recent research by the British Council of Offices found that 55 per cent of staff said that a major office refurbishment or move to a new office had made no difference to their productivity. Perhaps this is a result of businesses and designers not understanding what people really want in their workplace. A literature review

by TwentyTwo in July 2013 found that there were five main elements of successful workplace projects from the staff ’s perspective 10 Property Quarterly Vol 4, Issue 2, June 2014

• Get the basics right Staff want comfortable air conditioning, lighting and outlook, reasonable noise levels, space around them, nice kitchen and toilet facilities, and wifi which works. They are simple wants, but often these factors are not paid enough attention by businesses and designers.

• Give them a choice of where they can work This could be at a desk, or collaborating with others in a meeting room, or a quiet place to go to when they want to think or avoid disruptions. It could also mean working from home or at a client’s site. Many of our policies on working from home acknowledge that it happens, but do not take it seriously. We hear concerns about the responsibility for health, safety and ergonomics, but it is clear that staff do not want to be forced to do all their work from their desk.

• Find the right balance of facilities Recently there has been a focus on facilities to collaborate and this has improved our workplaces, but we still need alternative places to think and avoid disruptions. Gensler’s 2013 US Workplace Survey found ‘when focus is compromised in pursuit of collaboration, neither works well.’

• Provide technology which works People need to be able to move seamlessly between the various places where they work. This means providing staff with the appropriate technology and tools such as portable computers, roaming profiles and wireless phones. They cannot be tied to a desk by cumbersome equipment. Given increased staff collaboration, audio visual technology is being more widely used between offices and organisations, but it needs to be integrated into workplaces and be almost ubiquitous throughout the office.

• Allow staff input into creating their workplace Giving staff input contributes to higher satisfaction about where they work. Why not let people have a say in the type of workplace they work in? This does not mean a wish list, as people generally understand that their wants need to be balanced with that of the business.

Changing the workplace

ďƒž What do businesses want?

From a businesses perspective we are seeing several themes emerging about workplaces of the future − they should to be more flexible and adaptable to changing needs. Some parts of our buildings are fixed and not changed easily. The structure, amenities, services and perimeter are designed to remain unchanged. However these parts of the building are only the starting point from where we can create the workplace. The aspects that are more easily changed are the fixed fit-out, workstations and other areas created by furniture and different fit-out elements.

To be economic, any fixed fit-out which we build needs to serve our purposes for between seven and 10 years. What we actually need and its location has to be thought about carefully. It is difficult to move offices and it is a sunk cost which we cannot take with us to new premises. If the investment in the fixed fit-out is reduced, this can give businesses more flexibility about remaining in their existing premises or moving to new premises as they want. When businesses have this flexibility, they may also have more bargaining power when re-negotiating new terms with landlords.

Often the investment in fixed facilities is focused on the front-of-house area where we meet and greet

our visitors. This is where the confidential discussions often need to occur and where the public image of the business is presented. It is difficult to reduce the investment in these facilities. As we move away from client-facing areas, a more creative approach can be taken.

Customising the office Businesses need to reduce how much the fixed fit-out is customised for particular groups. Staff and groups often need to move locations within the office every one or two years. It is costly and inconvenient for businesses to re-create customised layouts as often as this. Ideally workstations should be set up in efficient pods and wired in for power and network cabling. Wireless networks are becoming more prevalent and this is further increasing the ability to move people quickly and at low cost. These more generic layouts allow people and belongings to be moved, not walls and workstations.

Designers are now starting to be able to create team support facilities out of furniture and other soft elements. Not only can these be changed in the office as the needs of the business alter, they can also be picked up and moved to new premises when needed. Another advantage of creating team support facilities in this way is they can be easily customised by users to create the configuration they want.

Vol 4, Issue 2, June 2014 Property Quarterly 11

Changing the workplace

Reducing costs The costs to occupy and set up premises need to be made to work harder. Reducing costs in businesses will be a continuing theme, but this requires the consideration of both the property costs and people performance sides of the equation. Property costs, including rent, are generally easily measured and are therefore often an easy target for cost reduction.

The simple solution is to reduce the amount of space occupied by using smaller desks. The logic is reasonable.

People now use flat screens, there is less need for paper, and there are plenty of other places to work in the office so workstations can be smaller and closer together. This is all very well, up to a point.

A study of our personal space and territory explains that we all have a preferred bubble of personal space we try to keep around us. If other people are in this space it makes us feel uncomfortable. This distance varies between people and situations, but some of our plans for open plan workstations are starting to affect people’s personal bubbles.

Reducing the space occupied by cramming in more desks often leads to reduced staff satisfaction and productivity. Unfortunately these softer aspects of the financial equation are more difficult to measure and are often not considered equally in workplace decisions.

ďƒž Desk ownership and sharing An alternative approach to reducing desk size and space in the workplace is to consider desk ownership.

Recent research on two very different Wellingtonbased businesses showed that on average, approximately 30 per cent of the desks were not used for that day.

These unused desks are a large cost to a business. If they consider not allocating desks to all staff all the time, more flexible arrangements where some staff share desks could result in better overall working environments.

This is because accommodating fewer desks creates the opportunity for providing a better range of places for people to choose to work from.

However businesses need to take their people through the change. The process of introducing desk sharing into a workplace is quite challenging as people find it difficult to give up desk ownership. Fortunately, 12 Property Quarterly Vol 4, Issue 2, June 2014

it is not necessary to jump straight into full desk sharing and it could be started by requiring staff to leave their desk in a condition where someone else might use it if not needed. This immediately allows more flexibility about where staff sit and better use of desks.

If these more flexible desk allocation systems are started softly, it is possible to let staff get comfortable before pushing the concept harder. In this way, when staff need a desk it will be one with appropriate space around it and there will be good support facilities nearby.

Another way to make the investment of a business in the workplace work harder is to consider it as a part of marketing. Office accommodation and workplaces can be used to increase the profile of a business and to support culture and values in an organisation. By changing how businesses view their desks and overall office environments, the costs of setting up a new office can be thought of in the wider context of marketing, business development and staff involvement.

ďƒž A range of options Businesses have survived a lot since the turn of the millennium, as well as during the previous century. The ways in which we work, and the technology available to us, have changed remarkably. Our business needs are changing, and this means we need a different style of workplace to support our objectives of reducing cost and increasing performance.

There is a range of ways that good workplaces can be created and a one-size-fits-all approach will not work. The really successful workplaces are created out of acknowledging what staff want and what businesses need to be profitable. By involving staff in decisions about their workplace, new ways of creating enjoyable places to work can be explored. These can meet the business needs for flexibility and affordability, and provide staff with a workplace where they want to work. The result this will be increased staff satisfaction and productivity, an important aspect of what businesses are looking for.

Duncan Mitchell is a Property and Workplace Adviser with more than 20 years of experience creating effective workplaces for clients. He is a partner with TwentyTwo, Independent Property Advisers based in Wellington.

Valuers Act review

Sixty-six years on The Valuers Act review David Clark At around the same time as the publication of this issue of Property Quarterly, valuers will finally see the Land Information New Zealand discussion document on the future of Valuer’s Occupational Regulation.

The discussion document has been, quite literally, 66 years in the making. In 1948, when the current Valuers Act was written, the world was a different place. The Valuers Act as it currently stands makes no reference to the public interest. Contrast this with the numerous references to the public interest which pepper the Real Estate Agents Act 2008. As a result, the primary focus of the government this time round is on re-making an occupational regulation regime which puts the public interest first.

Technically speaking, this is not a review of the Valuers Act, but rather a review of the occupational regulation regime for valuers. This may sound like the same thing, but in fact it signifies a difference in approach.

The discussion document is a first-principles review. It means that when Land Information New Zealand began their work, nothing was assumed about the suitability or otherwise of the current system, and everything was assessed on its merits – nothing was kept just for the sake of keeping what already existed.

This does not correlate to change for the sake of change. While there are a number of changes that will be made to the discussion document, I think you will be surprised by how much of the current system is proposed to remain broadly in place. For example, registration for valuers will undoubtedly remain. The registration scheme is a certification scheme which has been called registration. Registration refers to a system where practitioners’ names are recorded in a register, without consideration of their competency or otherwise. However, due to the established nature of the term Registered Valuer, LINZ are not proposing changing the term – even though certified valuer would be a more accurate description of how things work.

 The process until now As mentioned, the government will be releasing a discussion document, scheduled for June/July. This is the

start of the public face side of the review, but in reality it marks approximately the midpoint of the full review process.

The process began formally several months before, when LINZ met a series of stakeholders, including the Institute, to begin their research. These meetings sought to identify the problems facing the consumers of valuation services, as well as those facing the profession itself. It was made clear early in this process the potential for significant damage to the public and the overall property market if valuations were unreliable, incompetent, or non-independent. As such, some sort of regulatory scheme was required for valuation, and it would be insufficient to abandon the sector to either self-regulation or no regulation. At the same time, LINZ began preliminary research, looking at foreign legislation and experiences in order to understand international best practice for this sort of occupational regulation regime.

Submissions and feedback Following their research, the production of the discussion document began. The purpose is not just as a statement of policy, but is intended to set forward the current view within LINZ, and then stimulate discussion around issues where more information is needed, or there is not a clear opinion. A discussion document calls for submissions from stakeholders and from the public, and this feedback becomes a vital part of the legislative process.

The initial drafts of a discussion paper are internal government documents, and LINZ is under no obligation to share these drafts. Normally they are kept confidential to avoid pre-empting the submission process and to provide the policy teams with the freedom to think independently without having to worry about broader political considerations. However, due to the Vol 4, Issue 2, June 2014 Property Quarterly 13

Valuers Act review

Institute’s close relationship with LINZ and the statutory roles set out in the current Valuers Act, LINZ offered to share this document on a confidential basis.

It was distributed to the Valuers Council and the Professional Practices Committee for feedback. At this point LINZ was not looking for the policy positions of the Institute, but was soliciting feedback on whether the discussion document was sufficiently comprehensive, whether it adequately covered all the topics it needed to, or whether important problems in the profession had been overlooked. The response to this was not a formal submission, nor did it set out the Institute’s views, it merely addressed the document itself to ensure a useful submission process.The discussion document was then modified and updated and these updated drafts have remained as internal LINZ documents.

Government level consultation At the time of writing, the discussion document is being consulted on at a government level. This involves inviting feedback from other ministries with an involvement in the sector and an interest in occupational regulation more broadly to be sure that the document is consistent with wider government policy and reflects a whole of government perspective.

The work is scheduled to culminate in late May or early June around the time that this issue of Property Quarterly will be published. Releasing a discussion document does not mean that a department simply decides that it is done, it could be delayed for any number of reasons. Most important amongst these is the fact that the document will need approval from Cabinet in order to be released, because its release makes the statements within official government policy. Getting time to be considered by Cabinet is not the easiest of tasks, and it is common for work to be delayed by other competing priorities.

Once released, there will be a defined window of time allowed for submissions to be provided, probably four weeks. I would strongly encourage all members to read the document and consider the implications of everything included.

 How to submit It is important that the Institute’s submission is the united front of all valuers, and the Institute will be 14 Property Quarterly Vol 4, Issue 2, June 2014

consulting extensively with every member and branch.

Some branches intend to collate the submissions of their members into a general branch submission, which will then be incorporated into the Institute’s submission.

Other branches have chosen for their members to submit directly to the National Office for incorporation into the overarching submission.

There are several important things to remember when submitting.

• No submission is too short It is quite possible that you may only feel strongly about a point or two in the discussion document. Do not feel that because you do not have comments on the entire document that you cannot submit. It is vital that we get as authentic a picture of members’ views as possible, and any comment is valuable.

• Submissions to National Office are not formal Feel free to provide submissions to us in any format you choose, a full written submission, a brief series of bullet points, diagrams, or anything in between. The Institute has staff capable of collating everything into a formal submission at the end of the process, so these internal submissions which go into generating the Institute view are not required to be formal.

• Remember the terms of reference There is a number of legal issues which we believe the government needs to address. However, the review of the occupational regulatory regime for valuers has a defined scope, dealing specifically with how valuers are best regulated. Invariably, some submissions on legislation always call for action which is outside the legislation’s scope. These are at best rejected as out of scope, and at worst simply ignored by the government department in question. For example, some discussion has centred on the content of valuation courses at a university level. While this is an important problem for the profession to deal with, it is not something which a new Valuers Act can regulate.

 The process and what to expect Once LINZ have collected and analysed submissions in response to the discussion paper, final policy decisions will be sought from Cabinet and then the review enters the legislative development process. Submissions as well

Valuers Act review

as potentially meetings held with stakeholders will help the government in drawing conclusions about how the regulatory system should operate in future. These conclusions will form the basis of policy proposals which, if approved by Cabinet, will be drafted into legislation.

Any implementation will probably be at least a year away from the release of the discussion document, if not longer.

The discussion document contains a mix of policy and questions. In addition, at the time of writing, the discussion document has not yet been finalised. As with any legislative process, it is difficult to say with any certainty exactly what the contents will be. However, the points below contain our impression of the likely contents.

The end of registration for life Registration will probably no longer be something which is granted once and then held indefinitely. Instead, registration will need to be reviewed on a regular basis to ensure the competency of a valuer. The form which this renewal will take is very much up for discussion, including how regular the review needs to be and how onerous it should be. This is extremely important for the Institute, as it is important that a level is set which sufficiently protects the public, without being too much of a burden on the profession as a whole.

Protected terms The term Registered Valuer will remain a protected term under law, preventing it from being used by those not entitled to. Discussion is needed about whether this goes far enough, and whether more generic terms such as valuer as it relates to real property also need to be protected.

A replacement for the Valuation Registration Board The VRB and disciplinary system as they currently work are expensive and inefficient. There is no doubt that this will be changing in the new regime. However, the Institute has reinforced to LINZ that while the system may have problems, it also has elements which work well. On this basis, the panel which oversees registration and the disciplinary regime will generally remain a valuer-specific panel.

However the constitution will probably change, with LINZ identifying that its makeup being solely of valuers calls its independence into question. As a result, the successor panel will include a minority of non-valuer members which may be drawn from a variety of relevant professions, for example, a lawyer or an accountant may sit on the panel.

A streamlined disciplinary system The replacement for the current disciplinary system will probably include an informal element, along with

the formal hearings of the past. This informal level of complaints handling would allow for complaints that were not severe in nature to be dealt with quickly and without a formal hearing. It could result in informal disciplinary action such as requiring certain education to be obtained, a warning, or simply a conversation to avoid repeat incidents.

Changes for the NZIV In the draft document, LINZ rightly point out that the NZIV’s role as it relates to valuers is unclear. On one hand it has a statutory role, and on the other it has a representative role. This is in general not good practice, as fulfilling a government-backed statutory role focused on the best interests of the public does not necessarily align with representing the best interests of members. As such, vital statutory functions such as the code of ethics will most probably become a government function rather than an Institute function. The Institute would still be able to have a code of ethics which expanded upon the government-required code. However defining the minimum acceptable code would become a function of the statutory VRB-replacement panel.

No Real Estate Agents Authority involvement During the early stages of the review, there was a lot of discussion around the possibility of services being provided by the Real Estate Agents Authority. The Institute’s view on this was profoundly negative. Many times and through many avenues it was expressed to LINZ that any connection between valuers and real estate agents was unacceptable to us, and fundamentally damaged the perception of valuers as independent property professionals, separate to the advocacy role which agents take. LINZ have listened to this advice and it seems highly unlikely at this point that the Real Estate Agents Authority will be in any way involved in the replacement regulatory regime.

ďƒž Provide opinions Obviously these items are just a high level overview of what we expect to find within the discussion document, and the full document will go into much greater detail.

It is for this reason that we need as many members as possible to take the time to read the document and provide their opinions to us.

This review has been 66 years in the making, and it is highly unlikely that the system will be reviewed for quite some time after the completion of this review.

The decisions made during this process will be with the profession for a long time to come, so we need to ensure the voices of as many valuers as possible are heard in formulating the legislation.

David Clarke is CEO of the Property Institute.

Vol 4, Issue 2, June 2014 Property Quarterly 15

Real estate 2020

Real estate 2020 – building the future Chris Leatham As confidence returns to real estate, the industry faces a number of fundamental changes which will shape its future. The views in this article are based on predictions from PricewaterhouseCooper’s recently released report Real Estate 2020 – Building the Future. This examines probable changes in the real estate landscape, and the main trends which are likely to have profound implications for real estate investment and development in the next few years.

Looking forward to 2020 and beyond, the real estate investment industry will find itself at the centre of rapid economic and social change which will transform the built environment. Real estate managers and investors will have to manage a more diverse range of opportunities, with greater risks. These challenges, risks and opportunities are likely to fall broadly under one of the following categories − • The global investable real estate universe will expand substantially, leading to a large expansion in opportunity, especially in emerging economies • Fast-growing cities will present a wider range of risk and return opportunities • Technology, innovation and sustainability will drive value • Collaborating with governments will become more important • Competition for prime assets will intensify further • A greater and more diverse range of risks will emerge.

How do we know what effects these changes will have? How will the industry need to respond? What qualities and capabilities will be required? What are the implications of getting it wrong?

size across fast-growing countries in Asia, Africa, the Middle East and Latin America. Even the developed western nations will be urbanising, although at a slower pace. However, not all cities will prosper. Some become centres of wealth creation, but others will probably fail, with significant consequences for those real estate managers and investors operating in these environments.

It is no secret that demographic shifts are causing big changes globally, and the property sector is no different. The middle-class urban populations in Asia, Africa and South America will need far more housing.

At the same time, the ageing populations of advanced economies will demand specialist types of real estate, while their requirements for family homes will lessen.

What will this mean for the industry? Population growth and ageing will lead to the emergence of several real estate subsectors. Office, industrial, retail and residential will remain the main sectors. However, affordable housing as well as agriculture, healthcare and retirement will become significant subsectors in their own right and be particularly relevant to the market here in New Zealand.

 Real estate’s changing landscape

Even as growth moderates in many emerging markets, the pace of construction activity remains rapid, increasing investment opportunities. However, the rise of emerging economies is also increasing competition among real estate managers and the investment community.

Competition from sovereign wealth funds for prime real estate in the world’s major cities is likely to further intensify as their assets continue to grow.

As emerging markets mature, new regional and local asset management companies with real estate arms are

Global trends are set to change the real estate landscape considerably in the next six years and beyond. Many of the trends that will shape the future of property are already evident, but there is a natural tendency for many of us to underestimate how much real estate will have changed by 2020.

Expansion in cities and shifts in population The 21st century’s great migration to the cities will be well under way by 2020. Cities will be increasing in 16 Property Quarterly Vol 4, Issue 2, June 2014

Emerging market growth

Real estate 2020

forming. Those which have good connections to local developers, and links with regional institutional investors, will be in a stronger position than most western asset managers to take advantage of growth in their home regions.

Sustainability transforms and technology disrupts The pressures to make buildings more eco-efficient are mounting as the world rapidly urbanises. By 2020 it is likely that all buildings in advanced economies will require sustainability ratings. The concept of sustainability will have broadened to mean creating places where people enjoy living and working. The move towards greater sustainability in building design presents opportunities and risks. The sale price reflects a building’s sustainability credentials to a degree, but this is currently limited to certain types of prime real estate in advanced economies. If the pressure to increase eco-efficiency of buildings mounts faster than the market currently anticipates, then many could suffer cheaper rental rates and leases.

By 2020, consumer spending and the culture of work will be dominated by a generation which has grown up in a digital world. How will the real estate industry keep up? In retail, physical stores will always have a role to play, although in sectors such as books, music and home entertainment most goods will be bought online. Meanwhile, as online shopping delivery times become shorter, the need for warehousing close to customers will rise. The requirement for office space is also likely to diminish as telecommuting is likely to grow substantially in the next few years.

Real estate capital takes centre stage Private capital will play a critical role in funding the growing and changing need for real estate and its supporting infrastructure. Just as asset managers, real estate funds and soverign wealth funds find the assets grow under their control, governments will have increasing needs for capital to finance urbanisation.

Studies show that institutional investors are raising allocations to real estate assets. Private capital will step in to fill the gap left by banks and insurers as a result of regulations that require reduction in their exposure to real assets.

ďƒž Implications for real estate strategies The changing landscape will have major implications for everyone in real estate investment and development.

It will increase the size of the asset pool but change the nature of investment opportunities. Real estate organisations will need to adapt early to survive and prosper.

Think globally The real estate market will become far bigger and more global. This expansion will lead to a much greater range of opportunities. Already we are seeing specialists emerge in areas such as agriculture, education, retirement villages, high-end shopping centres and new urban development.

In the future, these themes will become far more established. Economies of scale will also become more important. Some of today’s large global managers will become mega-managers, with a foot in all geographies and channels. However, there will always be a place for local and niche players.

Understand the underlying economics of cities In countries such as China, India and the Gulf States, entire new cities are being built, while in Brazil, Mexico, Nigeria, South Africa and Turkey existing cities are developing fast. These are competing with each other to become dominant regional service centres.

The real estate investment community can deploy urbanisation strategies ranging from higherrisk opportunistic development to lower-risk prime investment. Regardless of which approach they choose, real estate managers and investors will need a clear strategic view of why a city will be successful to ensure their own success.

Technology sustainability and collaboration Rapid changes in technology will continue to reduce demand for retail and office space, while increasing demand for new types of warehousing closer to the customer. Technology will drive customer involvement, obtaining data for information about clients and potential clients, operational efficiency and tax reporting.

Better use of technology will also be the only way to meet increasing customer demands for integrated and tailored solutions. As the cost of improving the environmental performance of buildings falls in line with the lower costs of technological innovations, such as solar panels and efficient heating systems, occupiers will demand these enhancements and be willing to pay a premium for them.

The real estate industry will need to work more closely than ever with central and local government Vol 4, Issue 2, June 2014 Property Quarterly 17

Real estate 2020

to fund and plan the 21st century’s new cities. Only by working with government will it be possible to mitigate some of the risks of these giant projects. Developers of urban schemes will need to have closer relationships with governments, advising and influencing them, as well as being experts in creative ways to structure collaboration.

• • • • • • •

Decide how to compete and assess opportunities The rise of the southern hemisphere economies will lead to far greater competition for assets, in fast-growing developing economies as well as in advanced economies.

Real estate organisations will need to focus on the markets they understand, while concentrating more than ever on the basics of local knowledge and demand.

As the real estate business globalises, increased opportunity will be accompanied by greater and more diverse risks. At the top of the list will be country or city, including political risk and the danger that assets might simply be confiscated. If countries are socially or politically unstable, there might be a danger of physical damage to property. In some emerging economies the shortage of assets will mean real estate managers have to partner with local developers, which carries numerous operating risks, such as delayed completion or even fraud. The more locations you operate in, the more complex the web of tax and regulatory risk will become.

Cost management and the right people The real estate business has become less profitable in most of the world over the past five years, leading many in the industry to try to improve cost management by creating leaner organisations. Having local partners in local markets is one way to mitigate cost, as is acquiring local specialist investors and developers. Outsourcing non-core functions can also help to build scale. Greater automation using technology will play an important part in containing cost in the future.

As the real estate sector grows, we will find ourselves competing for talent. Local knowledge will become even more sought after than it is now. However, relatively few people have the kind of expert knowledge required. Organisations will need to make incentives in the broadest sense as competitive as possible, while also bringing them into line with changing strategies.

The structure and level of pay will need to reflect people’s changing motivations, while helping to encourage the behaviour and financial returns needed.

Depending on their areas of activity, real estate investors might have a need for specialists in sustainability, government relations, social networks or retirement village development.

 Success factors To prosper in real estate’s new world, managers, developers and the investment community will need to ensure they have the right people, capabilities and qualities.

A global network with local knowledge Local knowledge has always been essential for success in real estate, but it will become even more crucial as the investment community looks for value in international markets in an increasingly global market. The investment community need in-depth knowledge of local economies, and also need to navigate planning laws, work in partnership with government, and ensure their strategies align with government policy.

Specialist expertise and innovation Making the most of the opportunities unfolding in the fast-changing real estate world will require specialist skills and an entrepreneurial spirit. The skills needed could include − 18 Property Quarterly Vol 4, Issue 2, June 2014

Sub-sector specialisations Urban economic analysis Deal structuring Asset value management Product development Risk and reporting Regulation and tax.

 What does this mean for the real estate sector?

As real estate is a business with long development cycles with planning to construction often taking several years, now is the time to plan for these changes. The real estate managers and investors with the vision to anticipate emerging trends and to prepare for them will prosper.

The most successful managers of 2020 will have already started to shape their responses to some or all of these fast-evolving trends, while those who elect to wait and see will probably be left behind.

Which do you want to be?

Chris Leatham is a partner and property expert at PwC New Zealand based in Auckland.

Retirement villages

Retirement villages and the ageing population Norah Barlow To the outsider a contemporary retirement village may seem like a country club, a resort, a gated community or simply a rest home. The truth lies somewhere in the middle. The facilities retirement villages provide are good, and so is the care. These villages are vibrant groups of like-minded people who value community and neighbourliness. If you talk to residents they will often describe their villages as family, or that moving into one was the best move they ever made.

They are a unique solution to the ever-advancing silver tsunami and an answer to the questions − how will we provide housing for older New Zealanders, and how will we take care of our ever-increasing number of elderly?

These villages provide a much needed solution to help with the effect of the ageing population.

 Why retirement villages are needed New Zealand’s population is getting older – the latest census figures show there has been an increase of nearly 30 per cent in the number of people aged 85 and over since 2006. Nearly 15 per cent of the entire population is aged 65 and older and the numbers are expected to almost double to more than one million people by 2031.

Retirement village operators have been aware of the growing significance of this country’s ageing population.

Age might bring with it great experience, wisdom and joy but also health problems, mobility problems, a sense of isolation and a loss of independence.

People going to live at a retirement village are often motivated by one or more of these factors. They may find their quarter acre section too much to manage, or have lost a spouse and are feeling increasingly alone in their home. They may be concerned about their health or that their home, with steps or stairs and narrow doorways, is not fit for their needs any more. One spouse may have had a fall or a stroke and they are thinking about what support they need.

Many residents find coming to a village is less about bricks and mortar and more a decision about how to make the most of life in the future.

The lifestyle aspects of a retirement village cannot be underestimated.Villages keep their links with the community with frequent outings and activities, as well as inviting school groups and speakers, musicians Vol 4, Issue 2, June 2014 Property Quarterly 19

Retirement villages

and market stalls into the village. New friendships are formed, and residents take up new hobbies and interests and retain links with old ones.

 Growth and development There has been a change from what might be called a lifestyle retirement village model with attractive grounds, an indoor pool and a communal bar for mobile, independent older people to care-focused communities offering a range of services and support which can be tailored to suit the individual. In a retirement village, residents can usually receive as much or as little care as they need and this is called integrated care or continuum of care.

Usually townhouses, apartments and cottages are provided for those who want to live independently or may need some help with home tasks. Dwellings are fitted with call bells, so help is on hand for residents.

For those who have more advanced needs there are apartments where they can receive rest home-level care in their own home, right through to rest home and hospital-level care. As an example, one spouse might need hospital-level care because of increasing frailty or following a stroke, while the other lives without support in an apartment or villa. Being in the same village means it is easier to see each other daily, and both have support around them.

Village centres are often found in these complexes.

This is the main hub of the village where residents and their friends and family can enjoy a range of amenities such as a café, lounges, library hair salon, and where recreational activities take place.

Some villages are adopting Lifemark standards, meaning buildings are designed to a set of common sense standards which make it safe and easy for people to continue living in their own homes as their needs change. Doorways and entrances are wider and there are no steps to negotiate, reducing the risk of trips, falls and slips. Benches, light switches, door handles, power points and cupboards are all positioned for ease of use.

20 Property Quarterly Vol 4, Issue 2, June 2014

 How residents buy into a village It is sometimes said that entering a retirement village is quite complicated. These villages are covered by specific legislation ensuring that residents as consumers have good protection. The process is that residents at most villages buy a licence to occupy rather than buying the house or apartment itself. This means that the retirement village operator takes care of the maintenance on all property. Residents do not have to worry about the cost of a new roof, dealing with a broken window, landscaping or home insurance.

The licence to occupy gives residents the right to live in their home for life. As well as the initial cost, which is set at about the average market price for a home in the area, residents pay a weekly fee covering rates, home insurance, maintenance and other costs.

When a resident leaves the operator takes a deferred management fee. At Summerset, the fee for a villa is five per cent of the licence to occupy each year, capped at 25 per cent. The deferred management fee is a contribution to the capital cost of the unit and covers costs such as refurbishing the villa for resale. The licence is then sold and the previous resident is refunded the cost of their licence to occupy less the deferred maintenance fee.

 Integrated care and funding The question of how we will look after our elderly in ever-increasing numbers is one that retirement villages are addressing and we are a large part of the answer.

There is increasing concern that the state will be unable to care for the incoming tide of dependent baby boomers. Government statistics show that this country will need an additional 12,000 to 20,000 aged care beds, in addition to the current 32,000, to meet the projected increase in demand over the next 15 years.

Each District Health Board sets the maximum cost of each different type of aged care bed. Nationally, the average cost of a rest home-level care bed is set at $119 a day. Hospital-level care is $203 and dementia-level care $169. If we assume the percentages of each care level

Retirement villages

remain the same, 20,000 extra beds will cost the taxpayer more than $3 million a day. Over a year that figure reaches over $1.1 billion.

This figure does not include the cost of building the facilities which will house these beds. It costs on average $180,000 for facilities to house a single bed, which for 20,000 people is $3.6 billion. These figures do not include the replacement of current stock. A District Health Board and aged care sector commissioned review into aged care was published in 2010 which stated that more than half of the existing bed units were more than 20 years old. The accepted life of a bed in a care home is 20 to 30 years. If we were to need 40,000 new care beds to enable us to look after our elderly population it would cost more than $7 billion.

There to help We are lucky because the state will not be building facilities for these beds on its own. Retirement village operators are there to help and, if the current trend continues, these villages will be a large part of the solution to our ageing population. The sector is already planning for this as the vast majority of new beds over the past two years have been in care facilities attached to retirement villages.

Other aged care providers are increasingly closing their doors. The percentage of beds provided by the traditional holders of aged care, the not-for-profit organisations, fell from 35 per cent in 2005 to 24 per cent in 2009. If it was measured again, there might be an even larger drop, and this is not only because of funding.

The Ageing in Place Strategy introduced in 2001 has meant more people are able to receive care in their own homes. At the same time, to be assessed as needing residential care, your needs must be much higher than they were some years ago.

The review mentioned earlier stated that if we had a sustainable funding system there would be participation from all different providers. Funding is not filling the needs of not-for-profit organisations or single owneroperator aged care providers. Unless that funding is raised we must rely on the public sector to fulfil the promise of subsidised aged care. I would suggest at some

point the funding will have to go up and that will add even more to the $1 billion we will need to care for the increased population.

ďƒž Retirement villages and the housing crisis As cities grow, councils are looking at ways to build at a higher density, making the best possible use of the land and infrastructure available to them. Retirement villages are usually built at a higher density than those houses not in a village, going some way to reduce sprawl. We calculate the population of a village at 1.3 people per dwelling. For example, a retirement village in Manukau which is made up of 89 villas, 71 apartments, 23 care apartments and 52 care beds can accommodate 300 people on 4.3 hectares of land.

When someone sells their house to buy into a retirement village they free up that property to be bought by a younger family or for further development.

This goes towards Auckland Council’s stated goals of providing a range of housing options which aim to help the shortage of housing in the city. Units in our villages are generally priced below the market price in the area, making living in a retirement village an affordable option.

ďƒž The future Part of our mission is to work to make the lives of residents as full as possible, no matter what kind of care they need. It is that attitude which has seen us and other operators push boundaries and work to provide solutions for the enormous range of problems we encounter.

The sector is constantly evolving, and in the future we will need to be innovative and anticipate the needs of our customers. Coupled with increasing demand from the older population this is a big challenge, and helping solve it should provide the sector with potential for future growth.

Norah Barlow is the CEO of Summerset Retirement Villages and Past President of the Retirement Villages Association.

Vol 4, Issue 2, June 2014 Property Quarterly 21

Fire and the Building Act

Why building owners need to know about fire and the Building Act 2004 Peter Thorby Responsibilities of building owners under the Building Act do not stop once their new building has been completed. A building warrant of fitness, which requires maintenance and inspections of certain systems to have been carried out, must be issued annually and displayed in the building. In addition, alterations or additions to the building may trigger a requirement for extra building work on the means of escape from fire or access for people with disabilities.

Valuers and property managers should be aware of the requirements of the Building Act as they relate to existing buildings and consider the implications in their advice to clients. As commercial buildings are frequently altered, it is important that valuers understand that even what seems like a minor suggested alteration may trigger some specific upgrade provisions.

 New Zealand Building Code The New Zealand Building Code contains provisions to protect people in buildings, limit fire spreading to other buildings, and to help firefighting and rescue.

The Building Code does not specify construction details, rather it specifies performance requirements that designers need to achieve.

In April 2012, changes were made to the fire clauses in the Building Code to make the performance requirements clearer and more specific. The previous wording was too general, and had led to disagreements between building owners, designers and councils. As a result, the building consent process was being bogged down in expensive disputes and delays.

The new fire clauses came fully into effect in April 2013. Along with the new Building Code clauses, revised acceptable solutions and a new verification method were published to support designers. Both provide ways to establish compliance with the performance requirements of the Building Code. Acceptable solutions do this by giving specific construction details which are deemed to provide Building Code compliance.Verification methods provide methods of testing or calculation that will result in Building Code compliance. The aim of these changes was to simplify construction and reduce compliance costs, but 24 Property Quarterly Vol 4, Issue 2, June 2014

not to change the expected fire safety in buildings.

One of the main problems in buildings is having confidence that people in the building will be safe if there is a fire. The Building Act gives attention to this under two specific provisions – building warrants of fitness and upgrading the means of escape from fire whenever any alteration or addition is proposed to an existing building.

 Building warrants of fitness Most valuers and property managers will be aware of the obligation for building owners to issue and display a current building warrant of fitness in their building. This requires maintenance and inspections of certain systems to have been carried out, with a prominent focus on systems and features contributing to fire safety. The need for active systems such as fire alarms and sprinklers to be regularly inspected and maintained is probably obvious to most people, but the integrity of passive fire protection systems such as fire walls is also critical. For example, a fire wall with holes punched through it to install security or data cabling no longer performs as the fire engineer intended if the hole has not been properly sealed.

Retrospectively fixing deficiencies in passive fire protection features can be expensive.Valuers should include a review of the building warrant of fitness records when they are providing advice to clients.

 Alterations to existing buildings Under section 112 of the Building Act, a building consent authority must not grant a building consent to alter all or part of an existing building unless it is satisfied that after the alteration the building will comply with the Building Code provisions ‘as nearly as is reasonably practicable’ for means of escape from fire. The definition of altering a building in the Building Act is to rebuild, re-erect, repair, enlarge and extend the building. The definition of ‘means of escape from fire’ in the Building Act covers − • Continuous unobstructed routes of travel from any part of the floor area to a place of safety • All active and passive protection features required to warn people of fire and to assist in protecting them from the effects of fire in the course of their escape .

Fire and the Building Act

Examples include − • Fire-rated walls, doors, floors and ceilings anywhere on the escape route • The surface finishes of walls, ceilings and floors • Escape route lengths and their capacity • Fire detection and alarm systems that warn people of a fire and initiate their escape • Suppression systems that control fire and stop it spreading from its source • Visibility in escape routes • Way-finding systems including signs.

Section 112 has similar requirements to upgrade the access and facilities for people with disabilities, which apply to any building to which members of the public are to be admitted. For both means of escape from fire and access and facilities for people with disabilities the decision about what is ‘as nearly as is reasonably practicable’ is made by the building consent authority.

 Making it easier to comply Section 112 of the Building Act is not new. It has been in force since 2004 and there was a similar provision in the Building Act 1991. However, the changes to the fire clauses and publication of the verification method have shone something of a spotlight on the capacity of the sector to analyse the means of escape from fire in existing buildings.

It became apparent after the changes took effect in April 2013 that there is a shortage of suitably skilled professional fire engineers to carry out the verification method. Some fire designers able to use the acceptable solutions may not be able to use the more sophisticated approach of the verification method. It became necessary to clarify how to assess the means of escape from fire for many existing buildings without the need for an assessment using the verification method by a suitably qualified fire engineer.

The Ministry of Business, Innovation and Employment, along with sector experts, therefore developed extra guidance about how to assess the means of escape from fire in an existing building. This guidance was published in December 2013. It provides a risk-informed process which sees effort focused on those buildings where the means of escape from fire is least likely to comply with the current Building Code performance requirements, or where the consequences of not meeting the current requirements are greatest.

For example, if a structure was built two years ago and is now being altered it is unlikely to need a detailed means of escape from fire assessment. However, for a 40-year-old building that has never been upgraded and for which there is little information about its fire protection systems, the council is likely to require the

kind of quantitative information that only a professional fire engineer can provide.

A benefit of having the means of escape from fire assessed using the verification method is that the owner then has a base assessment for the building that will be an investment for the future. If any alterations or additions are made further down the track there is no need to do a reassessment of the building as the quantitative information has already been gathered.

The main changes to the acceptable solutions which came into effect in December 2013 were − • Simplified surface finish requirements • Removing a requirement for an independent water supply for sprinklers in residential care buildings • Some specific design information provided for the design of early childcare centres in multi-storey buildings • Simplified treatment for vehicles in showrooms and workshops • More flexibility about intermediate floors.

The main changes to the verification method which came into effect in December 2013 were concessions for residential care premises where good management procedures are in place, some specific design information provided for the design of early childcare centres in multi-storey buildings, clarification of some terms, and information to assist computational analysis. Further amendments are being consulted on and are expected to come into effect mid-2014.

 Points for valuers Just as the implications of a building’s earthquakeprone status should be well known to valuers, so should the implications of the requirements of Section 112 of the Building Act. This is particularly if alterations or additions to the building are contemplated.Valuers can often be asked to make an estimate valuation for a building once an alteration or addition has been made, but this could mean more extensive work than originally envisaged. Overlooking section 112 could give a valuer and their client a nasty surprise.

Considerable effort has been made to simplify both the processes around assessing existing buildings, and the construction and design details for some types of buildings such as residential care buildings, showrooms, workshops, childcare centres and multi-storey buildings in general. Nevertheless these matters are not always easy to get to grips with. If you have any queries, or you would like us to come and talk to your group, please contact info@dbh.govt.nz or call 0800 24 22 43.

At the time of writing Peter Thorby was Manager Building Standards at the Ministry of Business Innovation and Employment.

Vol 4, Issue 2, June 2014 Property Quarterly 25

Legal cases

Legal cases

Calling an unsatisfactory piece of gardening equipment a spade Appleton & Anor v Tauranga Law Niven Prasad The Court of Appeal’s recent decision in Appleton & Anor v Tauranga Law CA858/2011 [2013] NZCA 420 highlights the importance of advising a client in a property transaction in a timely and objective manner.

The case serves as a warning not just to legal professionals in the real estate industry, but to valuers, property advisers and other consultants who need be careful not to obscure the magnitude of any risks in the pursuit of getting a deal done.

In the Appleton case, the legal advisor to the purchaser was found negligent and liable for causing his client to lose his deposit despite advising that the loss of the deposit was a transactional risk. The Court of Appeal highlighted in its judgment how the legal advice in this case did not go far enough to bring home to the client the magnitude of the risk. It is interesting to note the take on the nature of the deficiencies by the High Court and the Court of Appeal in this case, who both came to different conclusions in deciding whether the legal advisor was negligent and liable for their client’s loss of deposit.

The case is currently being appealed in the Supreme Court and we await a further decision from that court. Whatever the result is in the highest court, the line of cases tells us that advisors should be careful about advising on all aspects of a transaction within their scope.

Conflicting interests can sometimes colour advice with partiality and erode objectivity, something which is not always easy for an advisor to appreciate without stepping back.

26 Property Quarterly Vol 4, Issue 2, June 2014

 The background The case involved an individual, Mr Appleton, who purchased an apartment, which was yet to be built, from a Blue Chip associated company, Rockfort Limited.

Mr Appleton signed the agreement without legal advice and then passed on the agreement to a law firm recommended by Blue Chip, Tauranga Law, which had been referred by Blue Chip because of their experience in having dealt with Blue Chip property schemes.

The price of the apartment was $356,896 and the deposit payable in the agreement was $101,910.

Significantly, the deposit was payable to a Blue Chip account and not into a stakeholder trust account. The purchase was to be funded by a loan from the Bank of New Zealand to Mr Appleton’s trust. The bank’s loan documents were sent to Tauranga Law and only a week after receiving them did that firm contact Mr Appleton about the agreement and loan documents.

Tauranga Law sent a letter of advice to Mr Appleton as first contact. The letter advised on the unusually high sum of the deposit, the risk of losing the

Legal cases

deposit if the vendor was liquidated, how the finance was to be arranged, and the lease to be entered into after the apartment was built. The letter also commented on formalities such as property inspection and registration.

Loan documents were subsequently signed to allow payment of the deposit which was not held in a stakeholder trust account, but paid by Tauranga Law to Blue Chip and not to the vendor, Rockfort.

Settlement for the purchase was to be 31 August 2005.

After significant delays and no progress on development Tauranga Law requested the return of the deposit in April 2007 on behalf of Mr Appleton. Blue Chip agreed to the refund but nothing was ever paid. The Blue Chip Group ultimately collapsed and he lost his deposit. Mr Appleton consequently sued Tauranga Law for the loss of his deposit.

The issue before the High Court and Court of Appeal was whether Tauranga Law’s advice was negligent, and if it was whether that advice caused Mr Appleton’s loss. In legal speak, Mr Appleton brought ‘an action against Tauranga Law founded on an alleged breach of its duty of care to provide competent legal advice as to the risks associated with the transaction.’

 Decision and reasoning The Court of Appeal decided that the negligent advice had caused Mr Appleton’s loss. This decision contrasted to the High Court’s decision, where Justice Allan had decided that while Tauranga Law’s advice was negligent, the advice did not cause this loss.

Why did the Court of Appeal decide that the advice was negligent to such an extent that it caused Mr Appleton’s loss? The reasoning hinged first round the detail in the letter of advice which Tauranga Law had given to Mr Appleton and secondly on the context surrounding the letter.

The negligent advice − High Court versus Court of Appeal The High Court and Court of Appeal both agreed that the advice provided by Tauranga Law was negligent.

Both courts identified six deficiencies in the advice given to Mr Appleton.

• The right to cancel under section 225 of the Resource Management Act 1991 was not made clear

to Mr Appleton. That right to cancel arose because the appropriate survey plan for the property had not been approved.

• The vendor, Rockfort Limited, was not the registered proprietor and this was not pointed out to Mr Appleton.

• Rockfort Limited was only a $100 company and did not have any apparent independent substance, meaning that there was a greater risk that the company could be liquidated.

• Advice about the deposit was ambiguous and obscured. The court commented that ‘the vendor was to be at liberty to utilise the deposit as soon as it was paid.’ In the court’s opinion, the reality was not spelled out clearly enough to Mr Appleton.

• The agreement did not come with any plans and specifications of what was being built and purchased.

• There were no provisions in the agreement to allow Mr Appleton to compel the vendor or the developer, who were different parties, to actually undertake the subdivision and the development.

It is important to note the context around the legal advice and the commercial influences on the advice, or the lack of advice, given. At the time the agreement was entered into, the Blue Chip Group was a renowned and palatable investment option for a lot of people and ‘Blue Chip’s products were in great demand for a significant period.’ The group had associated itself with reputable auditors, investment banks and credible directors.

In relation to the failure to advise of the right to cancel under the Resource Management Act, the solicitor cited the willingness of the Blue Chip Group to cancel agreements and refund deposits to keep up good public relations knowing they had other investors waiting and willing to take up these investment options.

Mr Appleton himself had had a good experience with a previous Blue Chip investment.

The solicitor’s advice leant towards what happened in practice rather than the specific nature of the risks presented by the agreement Mr Appleton had signed.

The courts commented that Blue Chip’s ‘pragmatic approach to cancellation requests’ could not ‘provide an adequate explanation for Mr Olivier’s [the Tauranga Law solicitor’s] failure … to apprise him of the risks associated with the transaction …’ The advice was therefore deemed negligent by both courts.

Vol 4, Issue 2, June 2014 Property Quarterly 27

Legal cases

Causation – High Court versus Court of Appeal The High Court considered that the negligent advice was not the cause of Mr Appleton’s loss. Rather, ‘the deposit was lost because the Blue Chip Group collapsed.’

The High Court went further to say that even if greater advice was given to him, ‘Mr Appleton was determined to proceed with this transaction, come what may, and irrespective of his legal advice.’

The Court of Appeal viewed the failings in the legal advice as much more serious. The court focused on the fact that Mr Appleton had not appreciated that the deposit was to be held by Blue Chip and not in a stakeholder’s trust account. For the Court of Appeal, this meant that the ‘precariousness of the contractual position’ and any warnings in the letter of advice would have been of greater moment. Considering this seriousness the court found that ‘Mr Appleton would not have continued with the transaction’ if he had known the real magnitude of the risk inherent in the transaction.

Accordingly, the Court of Appeal considered that the loss of the deposit was caused by Tauranga Law’s negligent advice.

 What can advisors learn from the case?

The conflicts in this case are nuanced but can be readily found in both the legal profession and the valuation industry. The case involves a transaction where an advisor has been recommended to a party to act on their behalf while the recommending party is the other party to the transaction. The advisor in this situation has the prospect of return business from the

Legal cases 28 Property Quarterly Vol 4, Issue 2, June 2014

recommending party so has an interest to get the deal done. But that deal may not be what is best for their own client or for the bank providing finance to whom the solicitor also has a duty.

The solicitor from Tauranga Law in this case ‘had acted for between 250 and 300 Blue Chip purchaser clients in all, so he would have been well aware that Blue Chip habitually referred their clients to solicitors who knew the Blue Chip template and documentation.’

Despite this familiarity, the solicitor was found negligent of not having advised of all the material risks in the documents. Commercial experience had shown that the advice given had not caused any major problems. But the lack of problems in the past is not necessarily a testament to the advice being complete and sound.

Similarly, valuers can be consistently recommended by a party to act for another party. Regulations and ethical guidelines have a large part to play in the valuation profession, but again it can be difficult to be objective to the extent necessary and avoid undue risk.

The interest in pleasing the recommending party can influence decisions about advising. The importance of being objective in these situations cannot be overstated.

It is also acknowledged that the commercial realities often mean that objectivity is an approach which is easier said than done. This case serves as a timely reminder that there is an overarching duty to take the sometimes more difficult road to give objective advice rather than the most profitable.

Niven Prasad is an Associate with Simpson Grierson’s Commercial Property Team in Auckland.

Legal cases

Heads of agreement in a caveat supporting role Edith Farms Limited v Providence Lands Limited [2013] Niven Prasad Heads of agreement and other types of preliminary agreements are useful to motivate otherwise cautious parties to get a deal underway. These agreements are usually non-binding, but those involved should be aware of whether an agreement has sufficient substance to make it binding or non-binding regardless of what the agreement is titled.

In the property area, an interesting question arises as to whether a preliminary agreement is sufficient to support a caveatable interest. The case of Edith Farms Limited v Providence Lands Limited [2013] NZHC 3108 demonstrates that care must be taken when heads of agreement are used and that rights seeking protection using a caveat are properly founded.

The Edith Farms case concerned a caveator who sought to rely on a heads of agreement for a farm purchase to support a caveat being sustained. The High Court held that the caveat in this instance should lapse because the caveator did not have a sufficient caveatable interest in the land. This was based primarily on the fact that the heads of agreement, which the caveator sought to rely on, lacked the requisite certainty needed to generate a caveatable interest in the land.

agreement for sale and purchase between the purchaser trust and the vendor. The property was then sold to a third party, at which point the corporate trustee lodged a caveat on the title.

 The background

 Lapsing a caveat against dealings

A purchaser trust, Edith Farms Trust, entered into a heads of agreement with Providence Lands Limited who was the vendor, to purchase a goat farm in Walton in the Waikato. The heads of agreement detailed the purchaser trust’s formal interest in buying the vendor’s property and recorded the purchaser trust’s price offer and intention to lease the property before settlement. The agreement was made conditional on the completion of due diligence by the purchaser trust and the finalisation of the number of goats, amount of machinery and a supply agreement to be included in the deal.

The agreement was signed on behalf of the purchaser trust by Mr Hickey, an employee of Edith Farms Limited, which was the corporate trustee. Mr Hickey was not a trustee of the purchaser trust, nor was he a director of the corporate trustee. Once the heads of agreement was signed, Mr Hickey arranged for lease terms to be prepared and sent these to the vendor.

Neither party signed the lease terms.

After the time period for satisfying the conditions of the heads of agreement had expired, the vendor notified Mr Hickey that the property would be placed back on the market, but this did not produce a formal

The court first set out six well-established principles from case law when considering whether a caveat should be lapsed.

• A caveat should be removed if it is clear that there was no valid ground for lodging of a caveat.

• The onus of proving a reasonably arguable interest for the claim supporting the caveat lies with the caveator.

• The caveat may only be lodged by a person upon whom a right to lodge has been conferred by statute, and it is not enough to show that the lodging and continued existence of a caveat would in some way be advantageous to the caveator.

• The interest claimed must be of a kind described in section 137 of the Land Transfer Act 1952. A caveator under that section must claim to be entitled to, or beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or is transferring the land or estate to any other person to be held in trust.

• The court retains discretion to make an order removing the caveat, although it will be exercised cautiously.

 The decision The issue the High Court had to consider was whether the caveat lodged by the corporate trustee, Edith Farms Limited, based on the heads of agreement, should be lapsed. The court concluded that, ‘there are two specific reasons why the applicant company has no caveatable interest. The first is that it is not described as the purchaser in the heads of agreement and the second is that the person who purportedly signed it as trustee could not, on the material that been placed before the court, be authorised to have done so on behalf of the trust.’

Vol 4, Issue 2, June 2014 Property Quarterly 29

Legal cases

• The court has a discretion to impose conditions in respect of any order made sustaining a caveat.

The court used these principles to look closely at the heads of agreement to ascertain whether it gave rise to caveatable interest.

 Inadequate authority The execution of the heads of agreement was heavily scrutinised by the court. Associate Judge Faire drew attention to the fundamentals of trust law and the requisite authority needed to sign on behalf of a trust.

He made it clear that where either the vendor or purchaser is a trust, the parties to the contract must be the trustees of that trust because the trust itself is not a legal person. Mr Hickey was not a shareholder or director of the corporate trustee, nor was he was a trustee of the purchaser trust, so he did not have the authority to sign on behalf of the trust.

This point alone was sufficient to refuse the application. However Associate Judge Faire further went on to explain that the heads of agreement, even if properly executed, did not provide the purchaser with a sufficient interest in the land to warrant a caveatable interest.

 Lack of an intention to be bound The heads of agreement did not show sufficient evidence of a properly formed contract for three reasons.

• The heads of agreement did not provide an assets schedule to finalise the farm machinery to be included in the contract.

• The heads of agreement provided for the parties to agree to a formal lease. The parties at no time agreed to the terms of any formal lease.

• No deposit was paid. If there had been agreement on the formal terms of the lease, one would have expected the deposit to have been paid as provided by the heads of agreement and that did not occur.

Despite both parties’ contemplation of entry into a more formal contract document, and their instructions to their lawyers in preparation of this, no action was ultimately made. Associate Judge Faire cited the case of Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) to conclude that the heads of agreement lacked the prerequisites to the formation of a contract.

Legal cases 30 Property Quarterly Vol 4, Issue 2, June 2014

In particular, the heads of agreement lacked ‘an intention to be immediately bound and an agreement, express or implied, or the means of forming an agreement on every terms legally essential to formation of the contract or manifested by the parties as essential to their bargain.’ Therefore, even assuming that the corporate trustee was the correct contracting party, no contract had been formed which justified the lodging of a caveat.

 What does the case teach us?

Caveats allow a variety of people to protect interests in an effective, timely and relatively inexpensive manner, but they can cause considerable inconvenience to the registered proprietor. Caveats remain a powerful instrument in the protection of rights, but you must be sure that when using their chance to roadblock a rolling of their rights, that their claim is watertight.

If a caveat is removed from a title, a second caveat for the same interest can only be lodged through the High Court and will fall under the court’s discretion.

If there is found to be no reasonable cause for lodging the caveat, the caveator can be found liable for damages under the Land Transfer Act. These controls on lodging caveats against dealings ensure that this tool is not wielded lightly. The Edith Farms case teaches us that the rights giving rise to a caveatable interest must be formed as clearly as possible, so that if a caveat is ever necessary it is adequately supported.

A party should not rely on loose understandings and contemplations if a deal is important to them. If there has been a preliminary agreement put in place, the formalisation of a more complete agreement needs to be completed sooner rather than later. It is fundamental and obvious to say that the correct parties should sign any requisite documents, but it is important to ascertain a clear distinction about the entities and authorities involved when there are trusts, companies and corporate trustees involved. A caveat should not be expected to play a lead role in protecting interests if these fundamentals are not firm and supportive of a party’s intentions in the first place.

Niven Prasad is an Associate with Simpson Grierson’s Commercial Property Team in Auckland.

Hotel property market

Hotel property market Dean Humphries The New Zealand hotel sector has witnessed a strong resurgence, with increases in occupancy and room rates across many parts of the country. The year 2013 was a significant one for the tourism and accommodation sector in the main cities. This trend is set to continue on the back of improving business confidence and strengthening economic growth – all good news for the hotel property market.

Hotel occupancy across all major markets rose on average by four per cent for the year ending December 2013, according to New Zealand Hotel Council figures.

At the same time, revenue per available room was up seven per cent on 2012. All the main markets performed well over the year with Auckland hotel occupancy up four per cent to 79 per cent and average room rates up five dollars to $140 compared with the same period in 2012.

A similar trend was apparent in Rotorua and Queenstown where occupancy was up six per cent compared to the 2012 year and in Wellington occupancy rates were up two per cent. Revenue per available room remains highest in Christchurch at $122 with Auckland, Rotorua and Queenstown recording strong growth of seven per cent in 2013. International visitor arrivals increased by seven per cent to 2.75 million for the year to January 2014, well above the long term average of three per cent.

 Solid improvement In addition to this strong increase in international visitors the hotel sector has shown solid improvement in trading performance due to a number of additional factors.

• The residential housing boom in Auckland has seen a growing number of inner city apartments, previously used for short-stay accommodation, being sold to owner-occupiers and investors. This has taken a portion of units out of the short-term accommodation pool, reducing supply and boosting occupancy of traditional hotels • General improvement in economic sentiment has resulted in corporate demand for hotels increasing, with a growing number of meetings, incentives, conferences and exhibitions events in 2013 Vol 4, Issue 2, June 2014 Property Quarterly 31

Hotel property market

• An increase in one-off events such as the BMX World Championships held at the Vector Arena in Auckland, which drew 2,000 competitors and 28,000 spectators.

• A change to the composition of international visitor numbers particularly with a larger proportion of Chinese tourists, a visitor group which has grown by 25 per cent in the 12 months to January 2014.

Chinese visitors usually stay in conventional hotel accommodation, as opposed to some of the other traditional visitor groups who use alternative options.

• The growing cruise ship industry, with Auckland benefiting from its status as an important cruise arrival and departure point, guests booking into hotel accommodation before and after their excursion.

international hotel markets. Hotels in the main Asian cities are now exceeding over $1 million per hotel room and yields of just three to four per cent. Five-star hotels in Sydney now reach close to $650,000 a room based on yields of six per cent. This contrasts with New Zealand where hotels are generally priced at between $150,000 and $350,000 a room, with yields of 7.5 to 10 per cent.

With hotel values now on the rise, some hotel owners are looking at reviewing their divestment options to take advantage of the capital gains that will inevitably occur over the short to medium term. This is a main feature of the Australian market where funds and other investors in main cities continue to sell off assets at significant premiums to the values seen just two or three years ago.

 Investors hold on to hotel assets

 New hotel development

Improved forecast hotel earnings across the main New Zealand markets resulted in property transaction activity in the sector remaining at record low levels in 2013 as owners held on to their investments. However, there remains a strong appetite from both international and domestic investors to purchase more New Zealand hotels with demand significantly outweighing supply.

Investors are chasing the attractive returns and yields on offer, combined with the strong medium-term performance outlook and the opportunity to put their capital in a perceived growth sector. Only $75 million of hotel assets changed hands in the 18 months to September 2013, most notably the five-star, Hilton Hotel Auckland. This compares with much higher levels of transaction volumes which occurred in 2010 and 2011 where close to $450 million of assets exchanged hands.

New Zealand hotels are currently perceived as being very affordable compared with Australia or other

With strong demand and a relatively benign supply pipeline over the past five years, new hotel development activity is now emerging in the better-performing cities of Auckland, Wellington and Christchurch. Increased activity is predicted for Auckland in 2014, with property investors moving into the market and considering converting inefficient commercial office space or underperforming assets into hotel developments to take advantage of the fast improving tourism market. Examples include the conversion of the old Reserve Bank building on Custom Street East, the redevelopment of QuBA apartment complex in Quay Park, and the planned conversion of 396 Queen Street to a 250-room hotel.

New development in Auckland is mainly being driven by strategic decisions, including the waterfront regeneration and the proposed new national convention centre. The five star Sofitel hotel, due to open in 2015, will be the first of its kind in Australasia, operated by

32 Property Quarterly Vol 4, Issue 2, June 2014

Hotel property market

Accor Hospitality. In Wellington, a new 130-room Sofitel is under construction and due to open in late 2014. In Christchurch, a number of hotels have re-opened since the 2011 earthquakes, including the 155-room Novotel Christchurch, the 171-room Rendezvous Hotel and the 138-room Rydges Latimer Hotel.

Despite development activity taking place in these three cities, the wider hotel market is unlikely to take part in a broader-based development phase in the short term. The country still requires significant growth in room rates before new hotels become a financially viable option in most New Zealand cities. It is likely that if the current strong fundamentals continue, further new hotel development activity will emerge over the medium term. The planning of new convention centres in Christchurch and Queenstown may be the catalyst for a new wave in hotel accommodation in these places.

ďƒž Hotel market snapshots The New Zealand Hotel Council and Colliers International have produced the following occupancy figures.

Auckland Occupancy increased from 70 per cent to 79 per cent over the period 2009 to December 2013, maintaining the highest rate across New Zealand. Average room rates across all grades have remained relatively stable since 2009 at about $135, with the exception of a spike in 2011 due to the Rugby World Cup. Revenue per available room has increased from $94 to $111, an increase of 18 per cent since 2009.

Wellington Occupancy has increased from 69 per cent to 74 per cent from 2009 to December 2013, reflecting the highest occupancy the city has recorded since 2001.The average room rate across all star grades has been relatively static since 2009, currently equating to $143. Revenue per available room has increased from $98 to $106, an increase of eight per cent since 2009.

Christchurch Occupancy rates increased significantly, as a result of the earthquakes, from 68 per cent in 2009 to 84 per cent

in 2011. The rates reduced to 76 per cent by December 2013 due to a number of hotels re-opening in the city.

Average room prices across all hotels in the city also grew strongly after the earthquakes, increasing from $118 a room in 2009 to $159 for the 2013 year, the highest recorded in the country. Revenue per available room has shown considerable improvement, with an increase of 56 per cent from 2010 to December 2013.

Queenstown Again, occupancy has increased from 63 per cent in 2009 to 67 per cent for the 2013 year. Average room rates across all hotels in Queenstown grew from $132 to $144 over the five-year period to 2013, a nine per cent increase. Revenue per available room in Queenstown has also increased by 14 per cent to $96 since 2009.

Rotorua Hotel occupancy has increased from 61 per cent in 2009 to 68 per cent in 2013. Average room rates across all hotels in Rotorua have fallen five dollars since 2009 to $101 by December 2013. Revenue per available room remained relatively stable over the 2009 to 2013 period, although there was strong growth of seven per cent to $69 compared with the same period in 2012, reflecting initial signs of a recovery to the market.

ďƒž Summary The New Zealand hotel and tourism market is a strategic part of the property sector and a significant contributor to GDP and wider employment. This sector is poised for prolonged and sustainable growth on the back of a wider global economic recovery, further growth in main Asian markets, and strong forecast growth in our domestic economy.

This will translate into further demand resulting in increasing revenue and profitability, which will ultimately push up property values in this sector. As global and domestic capital markets recover, investment demand for these assets will also increase as investors look to place capital in this growth sector. Auckland, as the main gateway to New Zealand will lead the charge, followed by other cities, including the rebuild of Christchurch.

Dean Humphries is National Director Hotels, Asia Pacific, for Colliers International based in Auckland.

Vol 4, Issue 2, June 2014 Property Quarterly 33

Land use in Tanzania

Land use, ownership and investment in Tanzania Donn Armstrong This is a brief account of a study trip of Tanzania undertaken in June 2013 with a group of 20 mainly ruralorientated people and led by a New Zealander who spent many years working in Tanzania.

The East African United Republic of Tanzania dates from 1964 when it was formed out of the union of the much larger mainland territory of Tanganyika and the coastal archipelago of Zanzibar. Tanganyika in more distant historical times was a colony and part of German East Africa from the 1880s through to 1919. Following the end of World War I under the League of Nations it became a British mandate until independence in 1961.

The island of Zanzibar has a complex and colourful history having been controlled by the Portuguese, the Sultanate of Oman and then as a British protectorate in the 19th century. It is famously known for its spices and historically for its involvement over a long period of time in the international slave trade.

 Rural land ownership under threat Tanzania is a big country, with 75 per cent of the population being rural, and generally they have not benefited from the economic successes which are reported to have happened in the last few years. There are significant agricultural mineral and hydrocarbon resources in the country, leading it to being referred to by some as Africa’s sleeping giant. The large rural component of the population finds itself in their traditional rural environment being challenged by international interests endeavouring to acquire arable and horticultural land.

Many of the rural owners of customary land do not fully understand the consequences of the disposition of their traditional common land. This misunderstanding is clearly shown in an observation made by the participant in a community focus group discussion recorded in a report prepared by the Oakland Institute in 2010, Understanding Land Investment Deals and Africa – Country Report Tanzania − We agreed verbally to give our land to the investors because we wanted their promises of social services 34 Property Quarterly Vol 4, Issue 2, June 2014

Land use in Tanzania

in the area but we don’t know exactly how much land per person was taken as we have no documents and plans to let us know where our land starts and finishes. I did not know my land laws and land rights, so didn’t understand what I had agreed to until my land was gone and I received no compensation.

This observation has a very familiar ring in the New Zealand Treaty of Waitangi settlement context. To understand some of the problems as they seem to a casual visitor in Tanzania, it is helpful to take a quick look at what makes up the country, its economy and its people

 Land ownership and investment Since colonial times, land in Tanzania has been administered under two separate types of tenure. This dual tenure arrangement provided a formal legal system to enable non-African settlers to acquire rights to land which was not deemed to be customary land held by the indigenous people. This process has led to different pieces of land being subject to different and sometimes multiple sets of rules.

Principles of ownership Underlying the dual structure were four important principles which have to be adhered to in the administration of land in Tanzania − • Land belongs to the state and not individuals • Rights to land depend upon the use made of the land • Land rights are controlled administratively as opposed to judicially • Land is not a saleable commodity.

Villigisation During the colonial period there was a large number of large-scale investments in Tanzania, and major efforts were made to modernise agriculture and

encourage development of cash crops for export.

After independence, there was a decade of socialist transformation involving nationalisation and efforts to encourage agricultural crop production and industry.

The vision of the president was that of a communal living and working environment, resulting in a concerted effort to move the rural population back into villages.

‘Villagisation’ was made compulsory throughout Tanzania so that by 1975 almost all of its people were reported to be living in villages.

Categories of land Subsequent moves to neo-liberal economic policies led to changes in legislation. In particular, following a review by a government-appointed commission, new land legislation came into force in 2001 which provides an overall framework for the exercise of the administration of land rights under three basic categories.

• Reserved land – land set aside by legislation for national parks and game reserves • Village land – land within the agreed boundaries of any of Tanzania’s 12,000 villages. This is managed by the village council, an elected body answerable for management decisions to the entire adult population of the village.

• General land – land that does not fall into the other two categories and as such is theoretically available to potential investors to lease from the president.

Some commentators report that while these three definitions appear clear, the respective legislation relating to each of the land classes has created some anomalies.

One such anomaly is that the Land Act defines general land as all public land that is not reserved for village land and includes unoccupied or unused village land.

 New limits on foreign ownership Under the provisions of the rules noted above, general land is the only land that can be leased to foreign investors in Tanzania. The standard agriculture lease is for 99 years at a price of 200 Tanzanian shillings, or 15 New Zealand cents a hectare each year. The price per hectare rental does not vary according to location of land or the crops grown. The rent due on the land is collected by Ministry of Lands district staff and the money goes into the consolidated government budget.

Vol 4, Issue 2, June 2014 Property Quarterly 35

Land use in Tanzania

The Tanzanian Investment Centre takes 10 per cent of the rental as its facilitation fee. The leases become invalid if investors do not start production within two years or do not ask for an extension or give an explanation for the lack of production. Prospective purchasers of land have to make application to the Tanzania Investment Centre. This organisation is referred to as a ‘one stop shop’, being an investment promotion agency to identify and provide land to investors. All investors, even if they have identified land, cannot start the land acquisition process without the support of this organisation.

By 2008 it was reported that four million hectares of land had been requested by foreign investors for both fuel and food production, of which 640,000 hectares had been allocated to foreign investors with only 100,000 hectares being formally leased. It would appear that official records in Tanzania are unclear and information as to the actual level of transactions is difficult to determine. Another report by Yefred Myenzi of the NGO Land Rights and Resources Institute suggests that this is because the area taken up by 2008 was 80,000 hectares. On average, in 2012 there were five land disputes daily in the country and three of those involved powerful investors.

Myenzi is the Programme Officer for the Land Rights Research and Resources Institute based in Dar es Salaam. Writing in a 2005 paper, ‘Implications of the Recent Land Reforms in Tanzania on the Land Rights of Small Producers’, he predicts that − … the future of small landowners and users, especially in regard to the rights to access and control land is darkening. The reforms are increasingly delinking them from their natural means of earning and sustaining their living and pushing them to the margins of abject poverty. … poor people, especially in rural areas need land for sustainable subsistence. For them to be able to withstand the waves and pressures of market-driven policies, civil society must chip in to play one of its traditional roles which is facilitation.

The advice provided by Myenzi and others concerned about land grabbing by international and well-connected local investors appears to have been recognised by the authorities in Tanzania. They announced in December 2012 that the country would 36 Property Quarterly Vol 4, Issue 2, June 2014

start restricting the size of land that single-scale foreign and local investors can lease for agricultural use. The news media release on this noted that there has been local and international criticism of major investors grabbing large chunks of land in Tanzania, often displacing small-scale farmers and local communities.

 Reaping the benefits of growth I had set out to write some notes on land valuation and agricultural problems. However I soon realised that the mathematics of the population distribution in the rural community and the challenges to traditional values indicate a vast problem for over 75 per cent of the population of Tanzania. A review of the land administration matters finds problems comparable in a number of ways to the historic ones which occurred in New Zealand, but where the dominant population was not the indigenous people as it is in Tanzania. In New Zealand new settlers quickly dominated the indigenous people leading to problems which are now being addressed in the Treaty of Waitangi settlement process.

Similar problems now appear to be being faced by the indigenous rural people of Tanzania.

A visit to an East African country like this provides an opportunity to gain a close-up view of its economy and the people and a better understanding of some of the development problems facing third world countries.

As noted at the outset, Tanzania has substantial resources in agriculture and other assets and is considered to be the sleeping giant of Africa.

It now appears that the government may have moved to limit land exploitation by international investors and sovereign states. More importantly, it has recognised the effect that any such exploitation is having on vast numbers of its rural people who have not had the benefit of the economic growth that has occurred in the economy over recent years.

Donn Armstrong is a Fellow and Life Member of the Property Institute of NZ, a Life Member of the NZ Institute of Valuers, a Member of the NZ Institute of Primary Industry Management and an Associate Member of the NZ Institute of Forestry. He operated a farm management and rural valuation consultancy and now provides advice to private clients and government agencies on forestry land and Treaty settlement issues.

Census and population changes

Census 2013 and regional population changes Ian Campbell The New Zealand Census of Population and Dwellings was originally planned for 2011, but due to the Christchurch earthquakes was delayed until March 2013. Results of the census are now being released

by Statistics New Zealand and this first in a series of two articles reporting on population changes and movements that would be of interest to the property sector.

• The New Zealand population count was 4,242,048 up 5.3 per cent on the 2006 census, but is slowing as the average annual growth rate is 0.7 per cent and was only half the growth rate recorded in 2006 • Auckland was the fastest growing region, up 8.5 per cent on 2006 census to 1,415,550 • Nelson and Waikato were the second and third fastest growth regions, up 8.3 per cent to 46,437 and 6.0 per cent to 403,638 • Canterbury remains the second largest region after Auckland, growing 3.4 per cent to 539,433 with eight out of 10 territorial authorities experiencing population growth • Christchurch city’s population declined by two per cent to 341,469, but the adjoining Selwyn District gained 10,953 people, an increase of 32.6 per cent to 44,595 and was the fastest growing territorial

authority. Waimakariri District gained 7,155 people during this time, again indicating rapid growth outside Christchurch city • Care needs to be taken when comparing trends as the gap between the 2013 and the 2006 censuses was seven years, delayed due to the Christchurch earthquakes, so changes in data may be greater than the usual five-year gap.

 City ranking Auckland, Christchurch and Wellington remain as New Zealand’s three largest cities by resident population followed by Hamilton, Dunedin and Tauranga. As indicated in the following population counts table, the ranking for each city varied only slightly between 2006 and 2013, with Porirua overtaking Invercargill as the tenth largest city.

Population counts for New Zealand cities 2001 to 2013 censuses City

2001

2006

2013

Rank

Count

Rank

Count

Rank

Count

Auckland

1

1,160,271

1

1,304,958

1

1,415,550

Christchurch

2

324,081

2

348,456

2

341,469

Wellington

3

163,824

3

179,466

3

190,956

Hamilton

4

116,604

4

129,588

4

141,615

Dunedin

5

114,342

5

118,683

5

120,246

Tauranga

7

91,143

6

103,881

6

114,789

Lower Hutt

6

95,490

7

97,701

7

98,238

Palmerston North

8

73,965

8

77,727

8

80,079

Napier

9

53,658

9

55,359

9

57,240

Porirua

11

47,370

11

48,546

10

51,717

Invercargill

10

49,830

10

50,328

11

51,696

Nelson

12

41,568

12

42,888

12

46,437

Upper Hutt

13

36,372

13

38,415

13

40,179

Vol 4, Issue 2, June 2014 Property Quarterly 37

Census and population changes

 Regional areas The next table shows the regional resident population census between 2001 and 2013 and the percentage difference between 2006 and 2013 depicted on an average annual basis. As indicated, the North Island dominates New Zealand’s population with 3,237,048 residents, with the South Island count at 1,004,397. Auckland and Nelson regions are providing the fastest regional growth areas, but other regions such as Manawatu/Wanganui and Gisborne along with the Chatham Islands have contracted, showing nil to negative growth between the 2006 and 2013 censuses.

Increase or decrease 2006 to 2013

Census usually resident population count Regional Council area 2001

2006

2013

140,133

148,470

151,689

Percent

Average annual change percent

3,219

2.2

0.3

Number

North Island Northland region Auckland region

1,160,271

1,304,961

1,415,550

110,589

8.5

1.2

Waikato region

356,346

380,823

403,638

22,815

6.0

0.8

Bay of Plenty region

239,412

257,379

267,741

10,362

4.0

0.6

43,974

44,496

43,653

-843

-1.9

-0.3

Hawke’s Bay region

142,950

147,783

151,179

3,396

2.3

0.3

Taranaki region

102,858

104,124

109,608

5,484

5.3

0.7

Manawatu-Wanganui region

220,089

222,423

222,669

246

0.1

0.0

Gisborne region

Wellington region

423,765

448,959

471,315

22,356

5.0

0.7

2,829,798

3,059,421

3,237,048

177,627

5.8

0.8

Tasman region

41,352

44,625

47,157

2,532

5.7

0.8

Nelson region

41,568

42,888

46,437

3,549

8.3

1.1

Marlborough region

39,561

42,558

43,416

858

2.0

0.3

Total North Island South Island

West Coast region

30,303

31,326

32,148

822

2.6

0.4

Canterbury region

481,431

521,832

539,433

17,601

3.4

0.5

Otago region

181,542

193,803

202,470

8,667

4.5

0.6

91,002

90,876

93,339

2,463

2.7

0.4

906,753

967,908

1,004,397

36,489

3.8

0.5

3,736,554

4,027,329

4,241,448

214,119

5.3

0.7

723

618

600

-18

-2.9

-0.4

3,737,280

4,027,947

4,242,048

214,101

5.3

0.7

Southland region Total South Island Total Regional Council areas Area outside region − Chatham Islands Total New Zealand

 Territorial authority areas The following table shows the resident population between 2001 and 2013 and the percentage change for each of the 67 territorial authorities. The average annual changes are calculated at a constant rate over the seven years between 2006 and 2013. Auckland is the amalgamation of seven territorial authorities. In March 2006, Banks Peninsula District Council amalgamated with the Christchurch City Council, therefore Banks Peninsula data for 2001 and 2006 has been incorporated under Christchurch City.

To the north, Waitako District, Tauranga City and Carterton District have each shown solid increases in resident population growth over the previous seven years. Strong growth was also recorded in Hurunui District, Waimakariri District, Selwyn District, Ashburton and Queenstown-Lakes District in the South. Notably, Selwyn District was the fasted growing territorial authority with a 32.6 per cent increase or an average annual increase at 4.1 per cent since 2006.

38 Property Quarterly Vol 4, Issue 2, June 2014

Census and population changes

Territorial authority area or Auckland local board area

Census count of the usually resident population

Increase or decrease 2006 to 2013 Number

Percent

Average annual change percent

55,734

-111

-0.2

0.0

76,995

2,532

3.4

0.5

18,135

18,963

828

4.6

0.6

1,160,271

1,304,958

1,415,550

110,592

8.5

1.2

Thames-Coromandel District

25,176

25,938

26,178

240

0.9

0.1

Hauraki District

17,475

17,856

17,811

-45

-0.3

0.0

Waikato District

51,843

57,585

63,378

5,793

10.1

1.4

Matamata-Piako District

29,469

30,483

31,536

1,053

3.5

0.5

Hamilton City

116,604

129,588

141,615

12,027

9.3

1.3

Waipa District

38,958

42,501

46,668

4,167

9.8

1.3

Otorohanga District

9,279

9,078

9,141

63

0.7

0.1

South Waikato District

23,472

22,644

22,071

-573

-2.5

-0.4

2001

2006

2013

Far North District

54,576

55,845

Whangarei District

68,094

74,463

Kaipara District

17,457

Auckland

Waitomo District

9,456

9,438

8,907

-531

-5.6

-0.8

Taupo District

31,521

32,418

32,907

489

1.5

0.2

Western Bay of Plenty District

37,995

41,826

43,692

1,866

4.5

0.6

Tauranga City

91,143

103,881

114,789

10,908

10.5

1.4

Rotorua District

64,473

65,898

65,280

-618

-0.9

-0.1

Whakatane District

32,865

33,300

32,691

-609

-1.8

-0.3

Kawerau District

6,975

6,924

6,363

-561

-8.1

-1.2 -0.9

Opotiki District

9,147

8,976

8,436

-540

-6.0

Gisborne District

43,971

44,463

43,653

-810

-1.8

-0.3

Wairoa District

8,913

8,484

7,890

-594

-7.0

-1.0

Hastings District

67,428

70,839

73,245

2,406

3.4

0.5

Napier City

53,658

55,359

57,240

1,881

3.4

0.5

Central Hawke’s Bay District

12,828

12,957

12,720

-237

-1.8

-0.3

New Plymouth District

66,603

68,901

74,187

5,286

7.7

1.1 0.2

Stratford District

8,886

8,892

8,988

96

1.1

South Taranaki District

27,537

26,484

26,577

93

0.4

0.1

Ruapehu District

14,292

13,572

11,844

-1,728

-12.7

-1.9

Wanganui District

43,266

42,636

42,150

-486

-1.1

-0.2

Rangitikei District

15,099

14,712

14,019

-693

-4.7

-0.7

Manawatu District

25,578

26,067

27,459

1,392

5.3

0.7

Palmerston North City

73,965

77,727

80,079

2,352

3.0

0.4

Tararua District

17,859

17,631

16,854

-777

-4.4

-0.6

Horowhenua District

29,823

29,865

30,096

231

0.8

0.1

Kapiti Coast District

42,447

46,197

49,104

2,907

6.3

0.9

Porirua City

47,370

48,546

51,717

3,171

6.5

0.9

Upper Hutt City

36,372

38,415

40,179

1,764

4.6

0.6

Lower Hutt City

95,490

97,701

98,238

537

0.5

0.1

Wellington City

163,824

179,466

190,956

11,490

6.4

0.9

Masterton District

22,617

22,626

23,352

726

3.2

0.5

Carterton District

6,849

7,098

8,235

1,137

16.0

2.1

South Wairarapa District

8,742

8,892

9,528

636

7.2

1.0

Tasman District

41,352

44,625

47,154

2,529

5.7

0.8

Nelson City

41,568

42,888

46,437

3,549

8.3

1.1

Marlborough District

39,555

42,549

43,416

867

2.0

0.3

Kaikoura District

3,480

3,621

3,555

-66

-1.8

-0.3

Buller District

9,624

9,702

10,473

771

7.9

1.1

Grey District

12,891

13,224

13,371

147

1.1

0.2

Table continues on next page >> Vol 4, Issue 2, June 2014 Property Quarterly 39

Census and population changes

Territorial authority area or Auckland local board area

Census count of the usually resident population 2001

2006

Increase or decrease 2006 to 2013 2013

Number

Percent

Average annual change percent

Westland District

7,776

8,403

8,304

-99

-1.2

-0.2

Hurunui District

9,885

10,476

11,529

1,053

10.1

1.4

Waimakariri District

36,903

42,834

49,989

7,155

16.7

2.2

Christchurch City

324,081

348,456

341,469

-6,987

-2.0

-0.3

Selwyn District

27,291

33,642

44,595

10,953

32.6

4.1

Ashburton District

25,443

27,372

31,041

3,669

13.4

1.8

Timaru District

41,964

42,867

43,929

1,062

2.5

0.4

Mackenzie District

3,717

3,801

4,158

357

9.4

1.3

Waimate District

7,101

7,206

7,536

330

4.6

0.6

717

609

600

-9

-1.5

-0.2

Chatham Islands Territory Waitaki District

20,088

20,223

20,826

603

3.0

0.4

Central Otago District

14,466

16,647

17,895

1,248

7.5

1.0

Queenstown-Lakes District

17,040

22,959

28,224

5,265

22.9

3.0

Dunedin City

114,342

118,683

120,246

1,563

1.3

0.2

Clutha District

17,172

16,839

16,890

51

0.3

0.0

Southland District

28,713

28,437

29,613

1,176

4.1

0.6

Gore District

12,459

12,108

12,033

-75

-0.6

-0.1

Invercargill City Total Territorial Authority Areas Area outside territorial authority Total New Zealand

49,830

50,328

51,696

1,368

2.7

0.4

3,737,133

4,027,770

4,241,997

214,227

5.3

0.7

147

177

51

-126

-71.2

-16.3

3,737,280

4,027,947

4,242,048

214,101

5.3

0.7

ďƒž Maps showing changes

Percentage change Less than -5.0 percent -5.0 to -0.1 percent 0.0 to 4.9 percent 5.0 to 9.9 percent Greater than 10 percent

Change in census population count 2006 to 2013

40 Property Quarterly Vol 4, Issue 2, June 2014

The maps show North Island and South Island with growth changes expressed as a percentage change within their respective territorial authority areas. Darker shading indicates a higher resident population change and lighter areas show little or negative resident population change.

ďƒž Some definitions and notes The 2011 census was cancelled due to the Christchurch earthquakes and the gap between the 2013 census and the previous one was seven years. Therefore changes in data between 2006 and 2013 may be greater than the usual five year gap. Care needs to be taken when comparing trends.

Census resident population counts are a count of everyone who usually lives in New Zealand and is present in New Zealand on census night. Excluded are overseas visitors, New Zealand residents temporarily overseas and visitors from elsewhere in New Zealand.

Thanks are due to Statistics New Zealand for providing the data for the article. The next article in this two-part series will report on demographic and social topics showing how life has changed since 2006 and a review of dwellings and home ownership.

Ian Campbell is a Fellow of the Property Institute of New Zealand.

Valuers Registration Board decisions

Three Valuers Registration Board decisions David Paterson and Mark Dow As a result of complaints, the Valuers Registration Board makes regular decisions which have helpful learning material in them for practising valuers. The three most recent cases cover some important concerns for valuers to note.

The first case canvasses valuers duty of care and adherence to the standards. The second case looks at the implications of providing more than one valuation at the same date and the need to explain the differences.

It also raises a number of other matters including fair value in financial reporting. The third case looks at the duty of care when reporting. These are all matters covered in the valuation standards, guidance notes and the NZIV Code of Ethics.

Case 1: VRB:1104.WRE Valuer General v KP Wrenn Hearing date: 8 July 2013 Decision date: 8 July oral This complaint relates to the valuation of a rundown residential property in Taumarunui. The valuation was completed for mortgage purposes for a potential purchaser. The valuation assessed $3,000 for the site and put no value on the dwelling as it was considered to be uninhabitable. Subsequently the sale did not happen as the bank was not prepared to lend funds. The prospective purchasers went on to purchase a nearby property for $70,000.

The complainant in this case was the vendor of the property. Two charges were brought against Mr Wrenn.

One related to a gross under-valuation of the property.

The other was about failing to provide sufficient information to permit those who read and rely upon the report to fully understand its data, reasoning, analysis and conclusions in breach of International Valuation Standard 1, clause 5, Statement of Standards.

Three valuations were used as reference for comparison purposes, one being completed for the vendors and two commissioned by the Valuer General.

The four valuations are summarised in the table below.

Particulars

Wrenn

Doyle

Pawson

Bowler

Date

1/12/2010

10/12/2010

1/12/2010 Retrospective

1/12/2010 Retrospective

Land value

$3,000

$6,000

$10,000

$9,000

Value of improvements

Nil

$56,000

$45,000

$56,000

Total value

$3,000

$62,000

$55,000

$65,000

The board of inquiry considered the evidence of Mr Wrenn’s valuation being out of line was inescapable.

The matter did not proceed to a defended hearing as he pleaded guilty to both charges. The evidence presented to the board could not be fully examined.

The only matter for consideration for the board was the appropriate penalty in accordance with the Act and what costs should properly be payable by Mr Wrenn. When considering the penalty the board made the following observations.

• A percentage basis of comparison between valuations is not helpful where valuations are very low.

• Mr Wrenn’s opinions, both for the dwelling and land, were at odds with the valuations prepared by other registered valuers and the board concluded this demonstrated a lapse of judgement.

• Mr Wrenn sought to distinguish his valuation as an ‘as is’ value, being somehow different from a standard definition of market value. This part of his submission was not considered to be of assistance.

• Mr Wrenn considered the dwelling to be uninhabitable and that sales could not be located of dwellings in a similar condition. The board considered he should have at the very least valued the property on a habitable basis and obtained information, if he could, on the cost that would be required to bring it up to a suitable state.

• When deciding on a penalty the board acknowledged Mr Wrenn’s 29 years without a complaint and his guilty plea.

• Mr Wrenn did not comply with International Valuation Standards and made no mention of them in his report.

Vol 4, Issue 2, June 2014 Property Quarterly 41

Valuers Registration Board decisions

This case is a reminder to valuers that they owe a duty of care wider than just to the client, and must follow International Valuation Standards, particularly with regard to the definition of market value and highest and best use. The board determined a fine of $5,000 inclusive of GST, and a contribution towards costs of $14,500 including GST, which represented 50 per cent of total costs properly incurred.

Case 2: VRB:0517.GRO Valuer General vs Valuer BA Gross Hearing date: 7 to 10 November 2011 Decision date: 10 May 2012 In this case Mr Gross provided six valuation reports relating to three vineyard properties owned by Company K. The matter arose as a complaint lodged by a shareholder of the company alleging that the income approach to the valuation used by the valuer produced a valuation for financial reporting purposes − • Which was not a market value for financial reporting purposes as required by the NZIV standards at the time • That the same firm of valuers for which Mr Gross was a senior director and shareholder undertook a valuation for the principal shareholder of the company some time earlier and was therefore not independent, and had a conflict of interest and breached clause 2.2 of the Code of Ethics.

For a number of reasons there were significant delays in the investigation, and by the time an inquiry was ordered on May 2008, other valuations prepared by Mr Gross had emerged and became part of the bundle for consideration. These valuations were also addressed to the company, all of the same date, all prepared for financial reporting purposes, and all referring to NZIV standards, although notably the reference to standards varied between reports.

Also introduced in these reports was reference to a long-term cooperative agreement in one of the reports and a supply agreement in another report. There was on the face of each document no explanation for the inconsistencies in the standards adopted, the basis on which each valuation was founded or the multiple valuation figures.

In total there were 12 Code of Ethics charges laid against Mr Gross. Overall there were three properties involved, each with four separate charges relating to clauses 1.4, 1.5 and 1.7(b) of the Code of Ethics. The Valuer General presented three expert witnesses to the hearing. As the charges were all ethical matters, no valuations were provided as part of the evidence.

The witnesses were asked to undertake an analysis of 42 Property Quarterly Vol 4, Issue 2, June 2014

the compliance or otherwise of Mr Gross’s reports in relation the Code of Ethics and the applicable valuation standards. The witnesses were Mr G J Horsley, Mr D J Armstrong and Mr C Croft.

There were a number of points raised in the evidence of these three expert witnesses. The most important of these include the following.

• The need to be fully aware of the valuation standards under which you are operating. As stated in Mr Armstrong’s brief of evidence before the board, it is clear that failure to identify the applicable standard and the identification of the wrong standards could only be in his opinion ‘The result of, either a serious lack of competence or a deliberate decision’ and ‘it is impossible for me to say whether the action was deliberate or due to a lack of competence.’

Mr Armstrong went on to state in his brief ‘In other words if the valuer failed to identify the applicable standards but nevertheless complied with the requirements of those standards, or otherwise met the requirements set down by the Code of Ethics, then the failure to refer will (always depending on the particulars of the case) likely be no more than a technical breach of no great consequence.

However, if the valuer failed to identify the applicable standards and, further failed to comply with the requirements of those standards, or otherwise meet the requirements set down by the Code of Ethics, then the failure to identify the applicable standards is serious further evidence of lack of competence.’

• The second point that has come out of the evidence provided by the expert witnesses relates to the fact that property can only have one value for financial reporting purposes at any particular point in time. As stated in PS3, that value is the ‘fair value’ of the assets.

Mr Armstrong noted that by providing two different valuation assessments of the relevant property, apparently completed on two different bases, Mr Gross has not provided the valuation assessment for financial reporting purposes that he was instructed to.

Those actions constitute a fundamental breach of the Code of Ethics.

A further aspect to this point was noted by Mr Croft when he said ‘Where there are changes made to a valuation figure in a subsequent report due to some form of reassessment, those changes should be clearly documented, explained and referenced in the subsequent version of the valuation.’

• The third point highlighted is the need to provide a sound explanation as to the method adopted and the basis for the valuation. With reference to this Mr Horsley commented that ‘A further criticism was that the report lacked supporting evidence, or

Valuers Registration Board decisions

analysis, or a detailed commentary on the cooperative agreement and methodology behind the actual valuation assessment.’ In addition Mr Armstrong notes ‘Unfortunately Mr Gross does not properly explain how he used the findings of his DCF analysis.

Such an analysis could have been used to adjust an unencumbered valuation upon the comparable evidence presented to show the degradation of the value if in fact the agreement was registered as an encumbrance upon the land.’ Mr Croft in his evidence noted that ‘Mr Gross in his valuation did not, in my opinion, provide sufficient information on the income approach methods he used to derive the $32 million dollars of value of the vineyard lands and improvements.’

Board decision and sanction In its written decision the board found charges one, two, four, five, six and eight were proved to the required standard as set out in its decision dated 10 May 2012.

Charges three, seven and 11 relating to breaches of clause 1.7 (b) of the Code of Ethics alleging that Mr Boyd had allowed the performance of his professional duties to be improperly influenced by the preferences of the client were dismissed. In his written decision the board found charges nine, 10 and 12 not proved to the required standard for lack of specific evidence that the report had breached the standard with respect to one of the three properties.

The decision of the board was that Mr Gross be reprimanded and it imposed a fine on him of $5,000.

For a number of reasons the board expenses were very high, totalling approximately $166,880, being the investigation and prosecution costs. In addition to the penalty, the board have awarded costs of $71,000 including GST against Mr Gross.

Case 3: VRB:0823.WIL Valuer General vs KB Wilkins Hearing date: 5 March 2012 Decision date: 15 October 2012 The complaint related to a dairy farm in Murchison known as Mt Ella Station. Mr Wilkins was engaged by the purchaser and produced a valuation dated 15 June 2006. The valuation made a number of criticisms of the owners, the Monks. In particular, it stated several times that the farm has been grossly mismanaged and that they had attempted to mislead prospective purchasers. His valuation concluded that the farm had been set up to achieve a high sale price rather than to be run effectively as a viable business. By way of further explanation, the valuation was used to support a claim for misrepresentation made by the purchaser.

Three charges were laid against Mr Wilkins. All were ethical charges for breaches of − • Clause 1.1 Practice your profession with devotion to the high ideals of integrity honour and courtesy • Clause 1.5 Utmost care and good faith to ensure the maintenance of the highest standards in the preparation of statements, reports and certificates • Clause 1.6 In preparing a valuation of real property, or providing an opinion on a real estate matter, your advice was not prepared to the highest standard of competency nor rendered only after having properly ascertained and weighted the facts.

Mr Wilkins admitted all three charges. As a result, none of the evidence presented to the board was able to be examined or those involved to be cross-examined.

In its summing up of the case, the board noted it was satisfied that the departure was deliberate and sufficiently serious to portray indifference and an abuse of privilege which accompanies registration as a valuer.

The deliberate departure was by providing reports that had not been properly edited and by making derogatory statements about a third party. These departures did not maintain the highest standards expected of a valuer.

This case provides a salient reminder to all valuers of the duty of care required when reporting. In this case the report was a combination of a valuation and farm management report. With the benefit of hindsight the valuer may have taken a different approach to his reporting process.

Following submissions at a later hearing to determine the penalty and the costs, after weighing the evidence presented the board considered a reprimand would be a sufficient sanction. In terms of costs, the board determined that the valuer should pay a contribution towards the costs of $30,000 inclusive of GST, which represented 60 per cent of the total costs of the hearing.

A further aspect of the subsequent hearing was for the board to consider permanent name suppression of the valuer. After hearing applications and submissions from the parties, the board decided that it did not have the power to limit publication and no specific general power to order name suppression. Accordingly, the board removed the confidentiality interim application granted subject to a valuer’s right of appeal.

David Paterson is the National Manager of Rural Value.

He is the southern region representative on the NZIV Council and the NZIV representative on the Professional Practices Committee. Mark Dow is a Director of Dow & Associates Limited in Christchurch. He is a past PINZ board member and is currently a member of the Professional Practices Committee.

Vol 4, Issue 2, June 2014 Property Quarterly 43

Profile

Profile: Malcolm Liddell Malcolm began his career as a clerical cadet with the then Department of Lands & Survey in 1969 on the princely salary of $36 a fortnight. The timing of evening accountancy classes at Otago Polytechnic soon clashed with rugby training and study was put on hold. In 1971 he was promoted to the head office in Wellington. This was located in the old wooden building at the bottom of Lambton Quay, now occupied by Victoria University. He recalls taking for granted the on-site staff car parking at $10 a year.

At this time Malcolm was engaged to be married to Jenny who was completing her studies at university in Dunedin. In those days all government department vehicles were specially produced in Wellington, with no carpet, rubber mats or radios. One of the few perks of working for the public service was to drive new departmental cars to Dunedin or Invercargill, spend a weekend in Dunedin, and then be flown back by the department to Wellington. He recalls in those days that the Cook Strait ferries went to Lyttleton, so Friday night was spent driving the new car on to the ferry, sleeping on the boat and then driving south from Christchurch.

Occasionally he would spend Saturday and Sunday night in Dunedin and then drive a vehicle further south to Invercargill on Monday morning. He describes as interesting driving a brand new Land Rover in freezing fog and having to stop frequently to scrape the ice off the outside of the windscreen because there was no heater.

 Ministry of Works In 1972 Malcolm sought a transfer from Wellington back to Dunedin and soon after was married and settled there.

In 1973 he joined the Ministry of Works & Development as an assistant land purchase officer and for the first few years worked on Southland for Charlie Stapp. Work involved the purchase of land for a wide variety of government departments and included teacher and police housing in Queenstown, farms on the lower Mataura flood plain, marine department sites on Stewart Island and the widening of Dee Street in Invercargill. Trips to Stewart Island in those days were by ferry or flying boat and on one occasion the water in the bay was too rough for the flying boat to take off. An enforced overnight stay on the island was all part of the early adventures of a land purchase officer.

After a number of years studying by correspondence and polytechnic, Malcolm completed professional exams for the Institute of Valuers while 44 Property Quarterly Vol 4, Issue 2, June 2014

working his way up the ranks of the property section at the Ministry of Works. In 1981 he was appointed district property manager for the Ministry in Otago and Southland. He found this a particularly interesting time in his career, being responsible for a staff of 17 in Dunedin, Alexandra and Invercargill.

At that time the Clyde Dam was under construction. Clutha Valley development project property staff had been relocated from Cromwell back to Dunedin, as living in the Cromwell area had become very political. Malcolm says that negotiating the purchase of virtually the whole main street of Cromwell, including petrol stations, banks, shops and hotels for relocation into a new town centre was very demanding.

There was a large amount of work, not only in establishing the value of often fairly basic commercial premises but in the allocation of replacement sites in the new Cromwell town centre. There was a joint town centre committee, with the local authority pushing for new businesses and Ministry staff insisting that the committee allocate suitable sites to ‘compensatees’ so they could be relocated.

Malcolm says that there were many trips to head office in Wellington and discussions with Ministers of the Crown to try and get a reasonable formula under the Public Works Act to establish the difference in value for brand new premises. The reimbursement of costs as part of the compensation package was part of the deal and solicitors knew this so it was not in their interests to have a deal finalised quickly. He says that the preparation of reports to Ministers was very common as a number of owners looked for every possible way of achieving a better result.

The news media took a big interest in the Clutha Valley development and there was a lot of publicity around the acquisition work at this time. He also recalls that land purchase officers, as the government’s agents, purchased land for the proposed Luggate and Queensbury dams.

Profile

 Going into business With the Ministry of Works & Development being disbanded, Malcolm decided in 1987 to set up a new commercial property management business in Dunedin.

Macphersons originally had two commercial buildings under management contract. Using these builidings as a base, Malcolm expanded the business to where he now is, currently managing around 45 commercial buildings and bodies corporate.

Macphersons, now Telfer Young Otago, sold out their interest in the property management company a number of years ago, However, until recently both companies shared the same office suite in Dunedin. For a number of years Land & Buildings Management owned the Christchurch property management business trading as Colliers Property Management before selling this business.

 Challenges After the Christchurch business was sold, and concentrating only on Otago, Malcolm had a second property manager and two support staff until the business was sold recently to Cutlers Ltd. He now heads the new Commercial Property Management division for Cutlers Ltd who already have a large residential property management business.

He finds that managing commercial property has its challenges and that it seems to be getting more involved.

He believes the biggest changes are those caused by the Building Act and the need for most commercial buildings to have an annual warrant of fitness. While there is a reasonable choice of companies to provide specialist inspection services, invariably there is more than one company involved in each building’s checks and sign-off.

The flow-on effect on insurance from the Christchurch earthquakes has also had a major effect and the increased insurance premiums have affected the operating expenses. There has been a move from nett leases to gross leases for a number of properties, and it has been difficult to recover large increases in insurance costs.

Another problem causing a lot of concern is the requirement on building owners for upgrades to all areas of buildings when a building consent is granted for just a small part of the building. Dunedin has a number of older buildings with low structural ratings and owners have yet to feel the full effect of the flow-on effects from problems arising from the Christchurch earthquakes.

Until recently it was not the norm for insurance companies to routinely inspect commercial buildings but this is now a regular occurrence.

Many tasks are now more involved and complicated. He cites the example of running a small body corporate of around four residential units. Under the new Unit Titles Act the body corporate must have a bank account and to open one it must have an Inland

Revenue Department number. Once they see this, they immediately insist on an annual company tax return.

They also insist that this return must be at 31 March, even though the financial year for the body corporate may be an end of June year. The modest fee being charged for body corporation administration may be a bit low.

Malcolm recalls that 25 years ago a number of larger commercial buildings had full-time caretakers but now virtually everything is done by contractors.

He says this is made it a lot easier with electronic locking, meaning opening and closing is automatically done. Being able to check heating, ventilation and air conditioning systems online is also one of the advancements.

 Property Institute membership Malcolm was a member of the Institute of Valuers for many years, serving on the local committee, and was one of the founding Dunedin members of the Property Management Institute. He recalls that in 1979 when the local branch was established, it was felt that property managers were finally catered for under a professional institute. He went on to serve as a national councillor for seven years. Malcolm recalls its early days being an exciting time when he met many varied and interesting people. He recalls as a councillor attending the first national conference held offshore with the Australian Institute in the late 1980s in Sydney and it being well supported from New Zealand.

 Advice to new entrants Malcolm’s advice to new entrants to the profession is that no matter how skilled you are it is essential you understand your clients. Nothing takes the place of regular visits and walks through buildings, and never assume that someone will tell you of a problem because often everyone assumes the property manager has already been told. It is therefore essential to develop good relationships with cleaners and other contractors who are regularly on-site so that you are told of any problems.

You also have to be a good communicator and be able to juggle a lot of balls in the air at one time, as well as recognise priorities with each day as a property manager probably different from the last. Having up-to-date records at all times is very important as clients invariably want specifics about their property by way of a detailed tenancy schedule. Finally, Malcolm says you need to be good with people and be able to relate to all those you deal with from tradespeople and tenants through to clients.

Malcolm Liddell FPINZ is the manager of the Commercial Property Management Division of Cutlers Ltd in Dunedin. He has been involved with property administration and management for 44 years.

Vol 4, Issue 2, June 2014 Property Quarterly 45

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