Investors face bill for COVID-19 hardship

Residential investors in New South Wales are facing additional costs to provide rent reductions for tenants affected by the COVID-19 crisis, with new legislation being considered by the NSW state government providing little support for property owners.

Proposed amendments to NSW’s Residential Tenancies Act will be considered by the state government on May 12, putting into law a six month moratorium on evictions and providing guidelines for tenants and landlords to negotiate rental reductions.

To qualify for a rent reduction, a tenant must demonstrate they have experienced at least a 25 per cent reduction in household income due to COVID-19.

But Real Estate Institute of New South Wales president Tim McKibbin said the legislation did not consider that landlords may also be experiencing financial hardship due to the novel coronavirus pandemic.

The only support on offer for landlords in NSW is a reduction of up to 25 per cent on land tax, but a qualifying criteria for the discount is that any savings must be passed on to the tenant in the form of a rent reduction.

Mr McKibbin said the proposed changes to the act effectively transferred financial difficulties from tenants to landlords, without any regard to the property owner’s capacity to provide rent relief.

“That is where the problem exists in my view, it is this misguided or erroneous view that the financial difficulty evaporates by transferring it to the landlord,” Mr McKibbin told Australian Property Investor Magazine.

“When in truth, what happens is the financial difficulty that the landlord may be in multiplies. 

“If the landlord has lost their job, then what happens when they don’t receive any rent?”

Data from the Australian Banking Association showed more than 643,000 loans had been deferred across Australia as of May 8, collectively valued at around $200 billion.

In the past week, 100,000 loans were deferred, including 50,000 home loans.

However, residential investors that defer mortgage payments remain obligated to pay interest over the deferment period, while also having to continue paying additional costs such as council rates, water rates and maintenance expenses.

For a six month deferral of loan payments on a 10-year, $750,000 loan at an interest rate of 6.5 per cent, an investor would have to pay more than $15,000 in additional interest, according to research by REINSW.

“Essentially, landlords are paying for the privilege of providing their property at a reduced rent or for free, it’s actually costing them money to do that,” Mr McKibbin said.

While REINSW remained mindful of the need to provide support for tenants affected by the crisis, Mr McKibbin said governments needed to be more mindful of the financial capacity for landlords to bear the costs. 

Research by Queensland-based buyers agency Propertyology released last year showed there were 1.5 million investors in Australia that derived income from a single rental property, with 43 per cent of those having an annual income of less than $50,000 per year.

“They are not super-wealthy people and they are not some faceless corporation that isn’t going to be impacted by not receiving the income,” Mr McKibbin said.

“It’s disturbing to think that the government has said that the burden here is going to be shouldered by a part of the community that has the least resources to actually do it.”

Mr McKibbin urged the NSW government to consider including a definition of an impacted landlord in the legislation, with similar criteria to its definition of an impacted tenant.

“That would be a good start, so if a mutually agreeable outcome can’t be achieved and it goes to mediation, then the mediator is on notice that the landlord has difficulties as well,” he said. 

“What also has to come into that discussion is all of the other costs that come with owning property. 

“The landlord may not be in a position to be able to do anything.”