In just a matter of weeks COVID-19 has already had a significant impact on all aspects of the Australian economy, though the full ramifications are still playing out.
The residential property market has seen sales volumes drop, and property analysts CoreLogic are reporting that rental listings spiked in late March, just after lockdown measures came into force. With Westpac’s Chief Economist Bill Evans predicting that unemployment could reach 11.1% by June 2020, the implications for the rental market are cause for concern. In the first instance job losses and/or reduced work hours are going to force rental prices down as tenants are forced to find cheaper, or alternative, accommodation. There is also likely to be a glut of rental accommodation on the market, which will also impact rents moving forward.
If you are one of the 2.5 million landlord’s who own a residential investment property, you – and your property manager – are going to require some measure of flexibility to deal with this unprecedented challenge. These include:
- Determining your own financial position
- Managing tenants with financial hardship
- Renewing tenancies in a tough market
- Marketing your property effectively to limit vacancy
Managing a tenancy during COVID-1
One of the obvious and most confronting aspects of managing a tenancy at this time will be dealing with financial hardship. This could apply equally to you or your tenants.
Help for landlords
If you personally require financial relief talk to your home loan provider about this as soon as possible. Many banks are allowing customers to make changes to their home loan or pausing their loan repayments. There are also concessions available for landlords in some states, with Victoria offering a $500 million Land tax relief package for landlords who offer rent reductions to their tenants. This is also the time to contact your landlord insurance provider for clarification around their policy criteria, and what exactly you are covered for.
Tenants experiencing rental stress
If your tenants are experiencing rental stress you – or your property manager – should engage in a dialogue with them to explore a solution to their circumstances. This could be a short/medium term rental reduction – say for 6 months – assuming your own finances allow this. Some tenants could even ask to end a lease due to financial distress – and one should be sympathetic to these requests. Evidence of this can be in the form of proof of job termination/stand-down, loss of work hours or proof of Government income support.
You should also be aiming to avoid going to tribunal and terminating the tenancy. If you are considering an eviction be aware of the current (temporary) moratorium on evictions. The conditions do vary depending on where you live. In NSW for example, tenants will need to demonstrate they have been substantially impacted by COVID-19, with a reduction in household income of 25% or more. Overall tenants not impacted by coronavirus should be expected to honour their rental agreements.
Tenants should also be made aware of government financial assistant packages designed to help with short term financial commitments like rental payments.
Government assistance for tenants
Government financial assistance for tenants includes the:
- JobSeeker Payment (formerly NewStart) – for people who have lost their jobs.
- JobKeeper Payment – for people retained by their employer.
Individual states and territories have also produced assistance packages specifically aimed at tenants.
Most states have banned evictions for the next six months, if tenants have been impacted by COVID-19. The NSW government is also asking landlords to negotiate a rent reduction with their tenants. Victoria has introduced payments for some tenants impacted by COVID-19. Queensland’s coronavirus-related assistance has been in the forms of grants for tenants (now closed), while SA and WA have gone as far as preventing landlords from increasing rent. Meanwhile, the NT Government is developing measures to create ‘fairer terms’ for new tenants.
If your tenants lease is up for renewal now or in the near future, you need to be strategic and aware of the current dynamic of the market.
Renewing a tenancy during COVID
You should be looking to renew any existing tenant, primarily to avoid having your property sitting vacant.
If you have model tenants who pay their rent on time and look after your property, the sensible thing to do is discount their rent as an incentive to renew. A reduction in the rent will only apply for 12 months, whereas the possible vacancy costs for finding new tenants in a tough market could add up very quickly. The key takeaway here is having your property rented slightly below market value is preferable to a vacant property with no income at all.
If you are unsure what a fair and realistic rent is in this market, an experienced property manager with local market knowledge can help.
Leasing a property during COVID-19
It is undoubtedly tough times for the rental market, with CoreLogic reporting that the number of rental listings have risen sharply in some inner city locations. This has been as much as +36.2% (Melbourne) and +34.1% (Sydney) over a four week period from 22nd of March. With the wider market also expected to experience oversupply it is critical you market your property effectively.
Marketing your property effectively
With a glut of properties on the market your listing really needs to stand out.
Here the overall quality of your listing on Realestate.com.au or Domain is crucial to ensure your property impresses and features in the search results. This means having a premium listing, quality images, and providing a virtual inspection – via a video or VR walk through – to support current social distancing measures.
You could also consider offering a shorter term lease (6 or 9 months), to give you the flexibility to review the rent sooner – rather than the standard 12 month term. In this market be prepared to field offers under the listing price. People will be aware of the impact of COVID-19 and know rents are falling, so are in a strong position to press their case for a reduction. Here an experienced property manager can help you negotiate a fair price, which could save you thousands over the term of a lease.
Ultimately the focus should be on the quality of tenant, rather than achieving the highest possible rental price. You should also be looking to do the right thing and support your tenants through these difficult times.
As full service property agents, embracing the latest and greatest in real estate estate technology, propper are well placed to best assist Australian property investors through the COVID-19 crisis protect their property investment interests. To learn more about how propper can help you, click here to book a call with a propper expert today.