There are three groups of landlords, the very well off, the employed and the retired living off the rental income. Most landlords, have day jobs, and the monthly rental income from their investment properties usually just covers the mortgage repayments, rates, and insurance. There is very little money left over for significant unexpected events. If the rent doesn’t come in, outgoings can not go out.
Landlords who have managed to leave their day jobs and live off their rental income are worried. If the rent doesn’t come in, they don’t have money to pay for their private living expenses.
The third group of landlords are multi-millionaires, so if the rent doesn’t come in, they can afford to carry on. Remember this group is the minority, yet the assumption is if you’re a landlord, you’re probably in this group. Therefore you can afford to carry over significant losses in rent. Wrong! Recent events are profoundly concerning to most property investors, and they are nervous they will eventually lose their rentals which are their retirement fund.
During COVID-19 lockdown lenders are encouraged by Governments to offer support and relief with mortgage holidays; however, Landlords fear tenants see this as a way out of paying rent! Frustrated landlords still up for monthly expenses with few options available to them may look to sell as soon as they are able and that will cause property prices to drop and increase rental property demand.
New Zealand Landlords
The coronavirus pandemic and the harshest of measures to contain it have come at the worst time for New Zealand’s landlords who have recently had additional expenses imposed on them. There has been amendments to the Residential Tenancies Act 1986 including a rule where rent increases can only occur once a year. Also adding to landlords’ expenses is the compliance with the Healthy Homes Guarantee. Even before COVID-19 Landlords have been grappling with costs they can not get tax relief on, nor depreciate.
For example, insulating a residential property is a non-tax deductible expense, and it can not be depreciated. Hence, landlords only recourse is to get the cost back via rent increases retrospectively.
Seldom would one rent increase cover the additional costs outlaid during the previous year and therefore it can take two or threes years for the full recovery of significant expenses like insulation and heating. Consequently, it’s easy to see why not just in New Zealand but also in other parts of the world like the UK, USA and Australia, property investment has lost its shine due to lack of profit.
If we thought we’d seen the worst of it, we were mistaken now the global COVID-19 pandemic is in full swing. Panic is settling in; however, some relief can be found in mutual agreements that tenants can not be evicted, lenders need to work with their mortgagees and Governments must fill the wages gap for households affected by the coronavirus.
In a recent news item on 7news.com.au, the Real Estate Institute of Queensland says. In essence, around two million people will be carrying the burden of, on average, $9516 each in unpaid rent over the next six months and there will be loan defaults as investors fail to see it through.
A suggestion for the Australian government is that they use last year’s collection of land taxes, circa AUD$10.4b to provide relief to landlords struggling to make ends meet and that they also pass some of whatever they receive onto tenants. Rent-holidays are a better outcome than no tenant!
The Residential Landlords Association say The Coronavirus Bill 2020 ensures buy-to-let lenders allow a three month mortgage holiday to landlords as long as they offer a similar holiday to tenants. This raises the question what about rates, insurance and all the other monthly expenses landlords are up for – will they also be holidayed? And that question applies everywhere, will the local governments, and insurance companies assist struggling landlords in their hour of need?
In California, Landlords are keen to offer a rent holiday to tenants if they can get mortgage holiday from their lender. While the San Diego Tenants Union organiser says:
Some landlords are shedding crocodile tears about not being about making millions off tenants,” he said. “We’re not going to shed a tear if a mega landlord loses a complex.
While some landlords will weather the pandemic with ease, the majority will find it a battle and statement like the one above are not helpful and set the wrong precedent that all Landlords are land barons.
In these unusual times, we’re all under pressure, and many of us are struggling to cope with the speed of change as well as the uncertainty of COVID-19. The fallout of this event will be felt by businesses, jobs, and housing markets for months, maybe years to come. Now is the time to work together to contain COVID-19 and then we will also need to work together to recover too.
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