John McGrath - The Rental Market And COVID-19
It has often been said that our home is our castle and Australians have never felt this more acutely now that many of us are having to stay there almost 24/7 while the Coronavirus pandemic plays out.
For renters, the proposed six-month moratorium on evictions has given them security and comfort. Even if they lose their jobs, they’ll have a roof over their heads during this public health emergency.
This is an important protection, however as the Prime Minister said last week: “There is a moratorium on evictions. That doesn’t mean there is a moratorium on rents.”
This is an important message because many residential landlords are facing the same threat of job losses or reduced wages as a result of Covid-19. Most landlords are ordinary earners with just one investment property. They are not affluent and they, too, have an obligation to pay their mortgage.
We’re currently waiting for the National Cabinet to provide more direction and details on a rental relief package. For now, the Prime Minister has asked people to work together to resolve problems.
So far, about 10% of tenants on our company-owned rent roll in Queensland have requested rental reductions due to financial distress. There have been fewer requests in NSW.
I asked McGrath’s Head of Network Property Management, Michael Conolly to give us some insights.
Q: What advice are you giving to landlords when tenants ask for help?
Michael Conolly: Currently, we are recommending short term rental reductions. We have agreements in place ready for both parties to sign, if approved.
We are also recommending that landlords engage with their banks, who are offering short term deferrals on loan repayments to eligible customers.
Q: What if a landlord wants to move into their investment property?
Michael Conolly: This is one of many issues not addressed with the moratorium on evictions. We do expect this situation to arise, especially with younger rentvestors. If they can’t pay their rent, it might make sense for them to move into their investment property and defer the loan repayments.
Q: Can landlords’ insurance help?
Michael Conolly: There is some confusion here, so much so that many insurance companies have stopped writing new policies until we get clarity from the National Cabinet.
At this stage, if a tenant leaves a property without notice, McGrath’s main provider, EBM insurance, will pay the rent loss component as per their policy. However, what is not clear is what rent loss component a landlord can apply for during a moratorium on evictions scenario.
Q: What does a tenant have to do to get a rent reduction?
Michael Conolly: Tenants need to provide documentation, such as an Employment Separation Certificate or a letter confirming redundancy, business closure or a change of working conditions from their employers.
Tenants are also asked if they will be applying for government assistance. Our property managers also review other documentation, such as the original application form, before giving landlords a recommendation.
Despite the current challenges, I think residential property will again come into its own as a preferred investment for most.
Both capital values and rental income have been predominantly preserved. Both in the GFC and now Coronavirus, we’ve seen share markets decline by 40-50% in most parts of the world and yet property values in Australia continue to hold up well, with 5-10% corrections in some markets.
People get reminded of the importance of capital preservation and cash flow in these times. Everyone needs a roof over their head and therefore, in extreme times, investment property is protected.
See you next week. JM
This article originally appeared in The Real Estate Conversation (April 7, 2020)