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NZ Protect lives, not property: Forum

Property Here - Wednesday, March 06, 2013

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Some in survey suggest 34 per cent of NBS enough to save people and any more unfair to property owners.

Government should set a minimum seismic building-strength standard to protect lives rather than the properties themselves, according to most intellectual property respondents canvassed by Bayleys Research.

Every two months Bayleys Research approaches members of the Intellectual Property forum to discuss global or national issues and their effect on the property market.

A question asked was: "Government proposes no change to the current minimum seismic requirement of 34 per cent of New Building Standard (NBS), but [it does propose] tightening time frames for landlords to comply. Does this go far enough?"

A substantial majority of forum respondents said they believed a minimum NBS rating of 34 per cent was sufficient. Among this group, the general consensus was that pushing the level of compliance any higher would be "unwarranted and uneconomic in an ownership context".

"It was generally agreed that the Government should set a minimum standard to protect life, rather than property, and with a 34 per cent NBS requirement it has done that," said Bayleys Research.

One respondent summed up the consensus: "To adopt a more stringent approach on a minimum rating would be to unfairly impact the investment market without any regard to actual, as opposed to perceived, risk."

Bayleys Research says a small minority of respondents thought the minimum standard of 34 per cent NBS was not high enough and it should be raised to two-thirds of NBS.

One respondent said it was important to ensure that each building had an exit strong enough to provide a safe channel outside, which a 34 per cent NBS rating may not achieve.

"Most agreed that tightening the time frames was a more balanced and reasonable measure to ensure that New Zealand's building stock is brought up to a more acceptable level rather than lifting the minimum standard," says Bayleys Research. Some suggested a staged upgrade programme for different parts of the country with shorter time frames in areas of higher seismic risk.

A second question posed to the forum was: "In your experience, what is the market currently expecting by way of minimum seismic standards? Are these reasonable expectations and are they likely to remain, or will the emphasis fade with time?"

According to respondents, the majority of tenants were demanding space with an NBS rating of 65 per cent or greater. However, some suggested it could drop back to around 50 per cent of NBS, but with higher levels for higher risk regions.

One said, "There will of course ultimately be a market for low compliance properties as they will be cheap". At the other end of the spectrum, the forum noted there would always be a class of tenant demanding space of 70-100 per cent NBS. Those tend to be Government tenants to some extent and larger businesses and institutions.

"The impact of all of this will be a further polarised market," says Bayleys Research. "Some landlords will simply choose not to upgrade beyond regulatory requirements, thereby accepting lesser rent from a smaller, less influential tenant.

"[But] at the prime end of the market, to retain big corporate and government tenants, landlords will be willing to upgrade and offer highly rated space. This is already evident in some markets such as Wellington."

Aside from the market-driven minimum standard, there was also the issue of funding and insuring a building which has a low NBS rating.

One forum member said the finance and insurance sectors had "lost credibility in the eyes of commercial customers" and that "the universal approach by insurers to lessen payouts at all costs has been the biggest shock of all".

Seismic building survey

Respondents: Intellectual Property forum members

Subject: Seismic strength of buildings

Majority views

* Minimum 34 per cent NBS rating sufficient.

* Tighten compliance timelines on regional risk basis.