How COVID-19 will affect landlords and tenants

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How COVID-19 will affect landlords and tenants

It is estimated between 2 – 3 million Australians could have some degree of changes to their employment conditions, as a result of social distancing policies that have been implemented. Typically, a person’s mortgage or rent is their most significant expense, so this becomes a key focus when reductions to disposable income are a possibility. Below we discuss the affects that COVID-19 is having on both tenants and landlords.

The Australian Bureau of Statistics estimates that around 30% of Australians currently rent their homes. There is no doubt that some of the rental population have experienced changes to their employment conditions, how severely, will depend on their industry and type of employment.

As part of government stimulus and support packages, each state government has come up with their own rental assistance schemes. These schemes are designed to ease the impacts of the COVID-19 on both landlords and tenants.

Each state will have their own nuances, however the key points are quite standard:

  • A 6-month mortarium on evictions due to financial hardship
  • Rental relief periods if a tenant can prove financial hardship due to COVID19. These include:
    • Loss of employment OR
    • Household income reduction of 25% – 30% – depending on the state

All of the State Governments have outlined their own rent relief strategy; however, the rules and conditions may vary slightly from state to state. For more information on the strategy for the three east coast states please click the following links:

How could landlords  be impacted over this period?

Given the assurances provided to tenants, this has left many landlords wondering how they can be assisted if they are required to pay a mortgage with a reduced rental income. In this instance, landlords are required to reach out to their financiers requesting relief on their mortgage payments. Additionally, State Governments have also agreed to land tax discounts to assist landlords to provide a reduction in rent to their tenants. This is unlikely to be hugely beneficial as most investment properties are owned by Mums and Dads with one investment property, who fall under the land tax threshold.

For Australians who have been affected by COVID-19 from an employment perspective, eligibility for the JobKeeper and JobSeeker payments will ease the burden and most likely mean that the vast majority of tenants continue to pay some or all of their rent.

Can opportunistic tenants not impacted by COVID19 simply stop paying or reduce their rent?

If a tenant has not experienced financial hardship due to COVID19, then it is business as usual and normal tenancy rules still apply. If a tenant seeks to gain an advantage during this isolation period by reducing their rent without proving financial hardship, then they can still be evicted within the 6-month window.

How many tenants have been impacted?

Feedback we’ve received so far from property managers we’ve surveyed is that the actual percentage of tenants requesting rent reductions remains quite low. Nicole Stojcevski of Woodward’s in Melbourne says, ‘of our portfolio of approximately 3,000 managements, we’ve only had enquiry from around 200 tenants looking to pay reduced rent during this period. That represents less than 10% of our total rent roll and most of those are students who are casually employed”.

We also chatted to Rebecca Thatcher from Rout Brothers Property Management in Brisbane who says that, ‘the majority of tenants to date have continued to pay their rent as normal. There were a few opportunistic tenants early on requesting reductions, however to date we’ve had 5 genuine hardship enquiries from approx. 240 property lets.”

The feedback in many areas seems relatively consistent. Theresa Day from Day by Day Property Solutions in Newcastle said’ ‘so far we’ve had 12 genuine enquiries from a portfolio of 300 properties. The typical reduction agreed by the landlord and tenant has been around for 20-30%’

How are traditional short-term rental markets holding up?

With state governments announcing a crackdown on people accessing short term rentals, this has obviously had a major impact on those markets with the highest proportion of short-term accommodation.  A great example of this is Sydney’s eastern suburbs, typically one of Australia’s strongest rental markets. With its attractive beaches, cafes, and shops  – the area is also a hotspot for Airbnb and short-stay accommodation servicing a short and medium term tourist market. With drastic falls in tourism due to Australia’s travel bans and an exodus of foreign students/workers to their homelands, many of these Airbnb’s have now been converted to traditional rental accommodation, at least temporarily.

Rosio Flynn is a leading rental agent for Bondi Beach International Agency, “many rental properties in areas like Bondi are empty due to the evacuation of tourists. Unless landlords are willing to discount rentals, they will remain empty. A lot of owners are instructing us to reduce the price just to get the property filled with tenants”. This comment confirms that there is currently an oversupply of rentals forcing rents down in these tourist markets, however once the tourists return Rosio commented that a tightly held market like Bondi should bounce back quickly.

Is this a short-term win for opportunistic tenants?

Rachel Eveson has been living in Gladesville for the last few years but decided to move back to Sydney’s eastern suburbs after noticing numerous apartments online we’re going cheap. “We came across a rental in Darlinghurst within our budget that we feel would have been much more expensive pre-COVID. The apartment was previously an Airbnb, but the owners had decided to offer the property as a long-term rental due to the lack of tourists.”

Does this mean all current and future landlords have difficulty renting their properties?

A genuine concern for landlords and prospective investors has been “will the rental market collapse?” Given the government assistance to both tenants and landlords during this period, it’s unlikely we’ll see a situation where a flood of rental properties hit the majority of our property markets. Whilst some markets will inevitably be impacted more than others, it’s important to remember that property markets with a high proportion of owner occupiers rather than investors, are less likely to suffer falls in rental demand.

Locations with a high supply of investors and renters will also fall harder in difficult times, especially when compared to tightly held markets with limited rental supply. An example of this would be the outcome for two Binnari Property clients who recently settled on their 4 bedroom townhouses in Greenslopes, Brisbane. The properties were priced at $700,00 in a block of 9 townhouses, with the majority of purchasers being local residents buying as owner occupiers. Our investor clients had their properties on the market for less than 5 days, before both townhouses were rented pre-settlement for $620 and $650 respectively. There are currently only 5 properties available for rent in Greenslopes with 4 bedrooms or more, proving that supply can vary greatly between location and property type.

So, who is being most affected by COVID-19?

At this stage the majority of rental markets around the county are holding up reasonably well, as most property managers surveyed have reported that approximately 90% – 95% of tenants are continuing to pay their rent in full. The 6-month moratorium on rental evictions only applies to tenants financially impacted by COVID19, so for the many landlords and tenants the standard tenancy rules apply.

New investors into the current property cycle have the added advantage of selecting from a pool of tenants that have either not been impacted by COVID19 or who’ve already had their incomes reduced and are searching for a more affordable rental solution. Additionally, we’ve noticed that many purchasers of off the plan properties have been successful in negotiating 12-month rental guarantees, without any impact to the purchase price.

Click here to get in touch with the Binnari team to learn more or begin your investment journey.