As social isolation measures continue indefinitely, with no clear answers around when the lockdown period will have sufficiently ‘flattened the curve’ for the government to allow people to return to their pre-pandemic lives, concerns are mounting over the long-term economic impact.
Stimulus packages and a loosening of restrictions around early access to superannuation funds are two of the most talked about measures.
And then of course, there’s the push to introduce “emergency” legislation and policies, to protect property owners and tenants. Essentially, to shield our housing markets from a massive downturn.
One thing the government and property investors agree on, if little else, is that as a true essential commodity; real estate always endures, in one way or another. Hence, it’s often good leverage to help prop up economies, which might be ailing in other key areas.
But as some state industry bodies, such as the Real Estate Institute of Queensland (REIQ), rally against the proposed COVID-19 protection measures for tenants, a general air of confusion reigns.
Many tenants and landlords feel locked in a sort of “information” limbo; not quite knowing how to interpret the patchy, plug-a-gap here, whilst leaving-a-gaping-hole there, approach to recommended legislative measures.
Confused? You’re not alone!
Despite the government attempting to render protection for tenants, from potentially unfair circumstances surrounding future evictions – ie. they’ve suddenly, and due to no fault of their own, lost the majority (if not all) of their household income and were already perhaps struggling to “make ends meet” – are they actually making matters worse?
PM Scott Morrison loudly declared a six month “eviction ban” for residential and commercial tenants alike, in late March. However, until that’s all set in stone with the passing of necessary bills through each state and territory parliament, it’s just a warm, fuzzy, “We’re here for ya mate!” campaign slogan.
The government is also encouraging tenants who find themselves in sudden financial hardship to negotiate a rent reduction with their landlords.
Whilst on the other hand, many mum and dad investors (the majority of landlords) will be feeling the pinch of their own tightening purse strings, and facing the prospect of losing their rental property portfolio altogether.
It’s the ultimate Catch 22.
Speeding up the suffering?
According to some, Morrison “shooting off at the mouth” before having the necessary ammunition to make any type of impact, has potentially sped up the inevitable economic and social stress that will come of this situation.
Managing solicitor of Darwin Community Legal Service Tamara Spence, told ABC News last week, “Tenants are already vulnerable and there is a distinct power imbalance, so landlords are not likely to concede in a negotiation.”
Spence reports that evictions are still occurring across Darwin, as confused tenants fail to realise they are not protected by any formal laws at this time.
“Nothing has changed despite (tenants) thinking that it has changed, so they are confused and terrified of eviction,” she said.
“This is a public health issue and it serves no one to have tenants on the street homeless and empty properties for landlords.”
Similar concerns were raised by principal solicitor for the Tenants’ Union of Tasmania, Benedict Bartl, who foresees problems down the track with the premise of simply “pressing pause” on all evictions, and landlords’ mortgage repayments for 6 months.
“The problem in Tasmania with the Government its similar to that around the nation, it’s passed the buck,” said Bartl.
“In three months, six months down the track when all these tenants have accrued thousands of dollars in rental arrears…what’s the plan to sort that out?”
So, what changes should you be aware of regarding your rights and responsibilities – and your tenants’ for that matter – and how can you protect yourself from long-term financial strain, whilst being compassionate towards your current lessees?
Break it Down…
In New South Wales, proposed new protective measures are intended to find the best possible outcome for all parties. Landlords are obligated to negotiate a rent reduction “in good faith”, and can only start eviction proceedings after 60 days in “fair and reasonable” circumstances.
Minister for Better Regulation Kevin Anderson said Fair Trading can act as an intermediary to these negotiations, requesting supporting documents from both parties throughout the process.
“This may include evidence that the landlord has negotiated with their lender,” he said. “NCAT (the NSW Civil and Administrative Tribunal) is also able to consider the financial position of the landlord in their consideration of any orders it makes, including any mortgage relief that has been provided by their bank.”
Last week the Victorian government announced a temporary ban on evictions and rent increases for the next six months, whilst offering land tax relief for investors providing rent reductions on compassionate grounds.
Premier Daniel Andrews also announced a $500 million relief package for both tenants and landlords across Victoria, impacted by COVID-19.
Queensland’s yet-to-be-passed, 6-month eviction and rental increase ban will be backdated to 29th March, with forced negotiation between tenants and landlords already being part of the Sunshine State’s laws.
The state has also offered a $500 per week rental relief payment for up to 4 weeks, until boosted Centrelink entitlements start to trickle into claimant’s bank accounts. As well as land tax relief for landlords.
Tasmania was the first state to pass laws shielding tenants from eviction, due to coronavirus related loss of income. They also quickly banned entry to the premises for inspections and non-essential maintenance, and made provision for either party to end a fixed-term lease, without penalty, if they’re experiencing financial hardship.
In the ACT, landlords are encouraged to negotiate, rather than forced to do so. Landlords who agree to reduce rents by 25 per cent can apply for tax relief, while households that have experienced a 25 per cent drop in income can defer their rates for 12 months.
Ultimately, it behooves each landlord to speak with their property management team at this time, to seek clarity on any changes to legislation – proposed or recently passed – that will potentially impact you and your income.
Also keep in mind that any payments you defer – be it the mortgage or rates – will likely have to be “made up” at some stage in the future. This should be an important consideration as you weigh the pros and cons of any financial decisions right now. The same goes for draining your superannuation fund.
Before you act, seek advice from those professionals “at the coalface”, whose job it is to stay informed and understand what’s occurring across the industry right now, as well as the potential long-term impacts these changes could have on your investment portfolio.
That includes you’re financial and investment advisors. We certainly don’t want to see our clients making knee-jerk decisions right now. Be informed, not alarmed. And if you need some clarification around your portfolio’s financial longevity as all of this plays out, give us a call.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).