More than a week on from the NSW Government announcement outlining rental assistance measures due to COVID-19, we take a look at the current rental landscape and cover several frequently-discussed topics from conversations we’ve had with investors over the past few weeks.
Is Anyone Looking To Move House In The Current Market?
COVID-19 has certainly had an impact on the real estate market as it has many other sectors. Concerns over physical distancing and Government restrictions around travel and interpersonal contact have resulted in fewer people choosing now as the time to find their new rental property.
The market is in a different place and definitely slower than it was in the earlier months of the year. Tenants who have an option not to move in the current climate are often opting to stay where they are rather than make a move in uncertain times.
However, there are always factors which will impact a person or family’s desire to or need to move, regardless of the current health situation: an existing lease may have come to an end; a previously-leased property may have been sold; number of family members living at home may have expanded; changes in financial circumstances may require revisiting the amount paid in rent each week; etc.
So, while it may not be the most convenient time, moving house is not always a matter of convenience. There are fewer tenants looking to move in the current climate, requiring careful consideration of asking rent to meet lower demand, but the rental market is still very much alive.
Tenant Rental Relief May Be Required
Many industries are running significantly slimmer than they were in previous months, if still operating through the current climate at all. Of course, this has a knock-on effect for some tenants who may have suffered reduced hours, stand-down or job loss.
State governments around the country have worked very hard to come to their own resolutions to the very complex problem of managing rent affordability for impacted tenants. The NSW Government was one of the first to announce rental measures over the Easter long weekend. The key outcomes are:
We are working ongoing with impacted tenants and landlords to assist in negotiations during this time.
Not All Tenants Are Suffering Financial Hardship Due To COVID-19
Many investors have contacted us simply to check in and find out if their tenants are OK in the current climate. In any instance where a tenant has raised a concern with us about their ability to continue paying the rent due to changes in their financial situation, the landlord of the property is notified as top priority.
Very thankfully, for a variety of reasons, many tenants are able to continue meeting their rent payments. Some have been eligible for Government assistance via Job Keeper payments or Job Seeker payments, some have seen reduction in hours but not to the level of experiencing financial hardship or rental stress, while others have been fortunate enough to remain employed and working from home or in a changed capacity.
Landlords Are Not Immune From Financial Hardship Themselves
There is an unfortunate prevailing stereotype that landlords are all financially well-off, able to weather the current economic storm better than tenants can.
As many property investors reading this post would know, this is very often not true. Many investment properties are negatively geared, meaning very basically that it costs the landlord more to own the property than they make in rental income. In addition to any rental income received, the landlord must pay from their own pocket to continue to hold the property.
If there is a reduction or halt in rental income, there is a significant (and often unsustainable) additional amount the landlord must find to meet their own obligations - primarily the mortgage. In such a case, while the landlord may apply to their financial institution for financial hardship consideration and a deferment of their mortgage repayments for a short time, this assistance is not assured - and banks have varying treatments of the continuation of repayments after the mortgage relief period expires.
Equally importantly, there is no more certainty around a property investor’s primary source of income than there is for a tenant. Property investors are just as broad in demography as tenants, and some property investors are themselves employed in some of the hardest hit industries during this crisis.
Negotiation of rent relief requests must therefore be sensitively managed for both parties.
There Are Implications For Rent Relief Arrangements Put In Place During COVID-19
It is important for landlords to be aware that if a rent relief agreement is being negotiated with your tenant, the method of applying rent relief can have implications down the track. For example, there are legislative differences between a rent reduction, rent deferral and rent-free period - and these can in turn impact the process of ending these measures in future and the coverage from your landlord insurance policy.
We recommend that all landlords ensure any negotiation on your behalf is managed by your experienced property manager to ensure all technicalities are considered and any agreement is documented in a compliant manner.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Newcastle real estate agent offering expert property management across Newcastle and Lake Macquarie.