Chance for tenants to renegotiate as rental market still uncertain
How will the impact of the pandemic on investors affect rent? Source: iStock
The most asked question of me as the 2021 property year gains momentum is whether investors will stay, or seek to exit the apartment rental market.
And then the questioning continues as to whether a new bunch of investors will become active buyers this year.
At last count there were 2.2 million property investors across Australia. Around 1.6 million hold just one investment, according to the 2017-8 tax year data, the latest statistics available.
We won’t know how the pandemic truly impacted for a few years, but last year ranked anecdotally as one of the toughest years for landlords, with the disruption likely to continue this year to a lesser extent.
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Around 1.6 million investors hold just one investment.
Rental income has taken a big hit. Vacancies soared in the first COVID-19 wave when many tenants lost their jobs. Landlords who kept their tenants often wisely dropped their rents. Some landlords relet but at reduced rates especially in the inner city ring.
Falls in asking rents I spotted included a Kings Cross studio down from $395 a week in 2019 to $290 in late 2020. There was a two-bedroom Melbourne offering at $570 a week in 2018 that sought tenants last year for $400.
In Brisbane’s West End, landlords recently sought $425 for a two bedroom that had initial $475 hopes last July. They’d had it as a $500 offering in 2015.
Of course, investors in regional towns typically saw their returns soar. There are many separate rental markets, but collectively investors face many similar challenges.
Remember there was the interest only (IO) mortgage repayments cliff, faced from 2017 onwards, that arose when banks, under pressure from regulators, sought to strengthen their loan portfolio by moving lenders to principal and interest loans.
From the 2017-2018 tax year onwards, investors lost their travel expense deductions for maintenance of negatively geared properties, along with some depreciation entitlements in initiatives by then Treasurer Scott Morrison.
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The mooted end of negative gearing was feared of a Bill Shorten ALP government being elected in 2019.
Landlords have dreaded the so-called pandemic JobKeeper cliff as they feared their remaining tenants would depart whenever the Federal Government’s support packages get reduced. The dread is still alive. And the big pressing issue is what happens if these tenants on six monthly leases do exit over the next few months.
Many landlords may choose to sell and put their money into their own homes.
Will these landlords want to go through the vacancy wringer again, or will they seek to sell? I sense a sizeable number will aim to do the latter during autumn.
They won’t however all be lost to property as many will reinvest their proceeds back into real estate. Not another pure investment property, but rather directing funds to instead help family members enter or upgrade their homes. And others will buy a weekender for themselves.
Much depends on how secure they feel in their jobs or businesses. The elephant in the room is when and by how much interest rates jump.
But no doubt despite all the pending dire prophecies, most investors will get through their challenges.