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Delta makes the investment balancing act delicate

Tim McKibbin near the Sydney Harbour Bridge
4 min read
Tim McKibbin says while residential property investment is currently challenging for many landlords, it still stacks up against other assets. Photo: REINSW

Delta makes the investment balancing act delicate

For first-time or seasoned investors, buying a property means weighing up many factors, each with the potential to influence what, where and even how to buy. In these unprecedented times, that balancing act becomes even more important - but investors are not alone.

For first-time or seasoned investors, buying a property means weighing up many factors, each with the potential to influence what, where and even how to buy.

In these unprecedented times, that balancing act becomes even more important. But investors are not alone.

It’s not just investors looking to grow their portfolio who must get the balance right in the current climate.

Governments, too, are walking the tightrope on various issues, some with the potential to impact investors.

For instance, the New South Wales Government is attempting to balance the need to help tenants during the current lockdown while, thankfully, acknowledging that the financial responsibility for this rests with the government. 

On principle, this is in contrast to the lockdown of 2020, when landlords were left to foot the bill.

Still, the balance isn’t quite right. The band-aid is treating the symptom but the cure remains elusive. 

No-one begrudges tenants in need receiving the protection they deserve in these worrying times.

However, the current rental protection scheme has a $3,000 limit which in many cases will be rapidly exhausted.

And that’s only after landlords jump through the required hoops. With the expectation that landlords provide the rental reduction up front to impacted tenants, they must then become administrative experts.

Landlords must educate themselves on the grants program, ensure they apply correctly, obtain consent from the tenant to share their personal information with Fair Trading, obtain separate consent from the tenant that their changed circumstances qualify for the landlord to ask for a rebate, then hope Fair Trading agrees the tenant’s claim is valid.

Success for landlords in this context is a zero position. Those who successfully unravel the red tape to reclaim their lost income are rewarded, in the best-case scenario, by breaking even. Not exactly an even balance for effort.

Of course, if and when the $3,000 threshold is passed, any financial stress experienced by tenants and landlords which was temporarily alleviated will return. 

There’s no JobKeeper this time around. In order to promote the balance needed, the state government will need to commit further funding in recognition that a secure rental accommodation environment requires support on both sides, for landlords and tenants.

This is one example of the uncertainties associated with lockdown. Yet there is one constant: the bank repayments investors must make have deadlines attached.

The Real Estate Institute of NSW is on hand to help investors through these administrative requirements as we know from experience the challenges involved in dealing with Fair Trading NSW.

It’s why we’re so invested in changing the regulator through supporting new legislation which will remove the regulatory oversight of the real estate industry from Fair Trading’s remit. 

The Property Services Council Bill 2021 will install an industry-experienced, wholly-dedicated, independent regulator to oversee the industry in a way that creates better outcomes for consumers and a better engagement environment for all.

When Parliament resumes, the Bill will be debated in the Lower House, having passed the Upper House earlier this year. It’s one the entire industry is keeping a close eye on.

Just as we are the NSW Treasurer’s balancing act in weighing up the proposed move to a property tax and away from stamp duty.

Lockdown has put this issue on the backburner somewhat too, but it has major implications, even though at a base level it represents the swapping of one bad tax for another.

The decision as to which tax to pay could soon be weighed up by purchasers but the lack of clarity with this proposal is a concern.

It potentially adds further complexity to the choice all property investors have to weigh up: to buy now or wait. 

For investors to arrive at the best answer to this question, there are plenty of factors to balance. 

They’ll need to balance the prospect of flat rents in some areas, which might impact their yield, against the strong capital growth being experienced in most markets.

Certainly, at present, low vacancy rates are in their favour.

They’ll need to weigh up whether the market is at its peak, whether there’s room left for further price growth, whether interest rates will remain as low as the Reserve Bank has previously stated, whether their own financial institution will move out of step with the RBA’s rate decisions, whether they fix their rate, and more.

They may also need to weigh up whether they invest in metropolitan locations, which may have typically been their strategy, or investigate regional markets, which have grown in popularity due to COVID.

In considering these factors, investors would be justified in expecting encouragement from the government.

After all, last financial year the real estate industry contributed $10 billion in transfer duty revenue to the NSW economy. 

Property purchases are vital to the state’s bottom line and investors, in the current buying cycle, have the capacity to play an increased role.

But instead of encouraging investors, the state government is stacking more responsibilities at landlords’ feet, including financial and administrative ones.

If anything, it could be considered discouraging. Investors who choose other investment classes, such as the equities market, are not being asked to contribute to the broader economic support effort from their own pocket, notwithstanding any rebate they secure.

So, against these challenges, why should investors continue to look at residential property when as an asset class, it appears to carry a disproportionate financial and administrative burden?

The answer is familiar. Housing is one of life’s essentials. Bricks and mortar has proven its value time and again, and it is proving its value again now. 

There are simply not enough homes for people and this undersupply is set to become more pronounced when, eventually, borders reopen and people start visiting again, whether to study temporarily or relocate permanently.

The fundamental demand-supply imbalance means that, on balance, property remains a sound investment.

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