A survey of property professionals conducted on CoreLogic’s RP Data platform over the past two weeks found that 82% of residential property managers have seen a rise in requests from tenants wanting to defer rent payments because of COVID-19.
Similarly, 83% said they had experienced an increase in tenants wanting to reduce their rent, while 48% stated that they had experienced a rise in tenants wanting to cancel their lease.
Meanwhile, Tim Lawless from CoreLogic says house values could decline by 10% from peak-to-trough, presenting a further challenge for landlords.
From The AFR:
Property Investment Council of Australia (PICA) chairman Ben Kingsley said most investors would not be able to afford a reduction or loss of rental income while still paying their mortgages, tax commitments and repairs and maintenance.
“This health and financial crisis is also impacting the job of mum and dad landlords, so if they are financially stretched, we may see some property investors being forced to sell their properties,” he said.
“We expect the risk of possible bankruptcies for those over-leveraged with debt and unable to meet their commitments.”
Nerida Conisbee, chief economist with Realestate.com.au, said… “The six-month ban on evictions has led to greater certainty for renters but has transferred the problem on to investors,” she said.
The prospect of a fall in property value is also a growing challenge for landlords.
There’s no doubt that Australia’s army of negatively geared landlords are facing a harsh reality check, wedged between falling rents and prices.
The headwinds are enormous, given:
- the pipeline of construction is still huge;
- immigration is going to turn negative as temporaries go home, given no jobs;
- AirBnB will flood the long-term rental market; and
- unemployed people everywhere will return to parents or move into share houses to reduce rental costs.
Moreover, this enormous rental shock will be equally prevalent across commercial property as a large number of enterprises go bust.
This mass rental property glut will last for the rest of this year and could easily extend through 2021.
The 30-year tail wind from falling nominal mortgage rates is also over, given they are already at their lowest possible level. Thus falling interest rates won’t come to the rescue this time around.
Finally, the political economy surrounding immigration will remain soured by structurally higher unemployment, resulting in less housing demand going forward.
I couldn’t think of a worse time to be a highly negatively geared property investor.
