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State of rental market and tips for rent relief discussions

State of the Rental Market in Sydney and Tips for landlords when dealing with rent relief requests from their tenants.
Today, I would like to share an update on the rental market in Sydney AND some tips on Rent Relief reductions which are useful to all. As everyone knows by now, we are indeed living during unprecedented times and the rental market in Sydney is no exemption. The last few weeks of the Rental Market in Sydney, can only be described as full of turmoil and uncertainty. Personally and through discussions with my colleagues, this is what I am seeing…
1. Middle and outer ring suburbs in Sydney are still “relatively healthy“. Relatively healthy means that vacancy rates are increasing at a manageable rate but properties are still renting out quickly, often at market value but usually with a 10-15% rent reduction. The tenant demographic in those suburbs has remained stable and existing tenants, partly due to no open for inspections until 2 weeks ago and everyone being spooked by covid-19, have stayed put. That means that if you have a good, long term tenant right now, they are most likely not going to go anywhere – which is a good thing. Still, I can confirm that prospective tenants are still out and about every weekend (especially those that can see that they can get a much better property for the same money) and there is a healthy turn up at opens with most properties renting within 2-3 weeks.

2. The same can’t be said for Sydney CBD though. Sydney CBD and some parts of the Eastern Suburbs on the other hand, can only be described as the toughest they have been in a long time. Vacancy rates are now upwards of 10% in some areas due to short term accommodation apartments entering the long term market and a massively reduced pool of tenants. Tens of thousands of international students that UTS, UNSW and the University of Sydney would have had at this time of the year, are simply missing. The same is also the case for all the international travellers – whether business or tourists – who are missing…. Simply put, there are fewer people wanting to rent in or around the CBD and I have personally seen properties staying vacant for weeks even though the rent has been reduced by $100-$250 a week. I do feel for those landlords! The CBD market will be tested hard, so if you have a vacant property there, you are probably competing with 500 almost identical properties right now – and probably with 10 or more in your own building!!! sorry… Make sure to keep your property manager on their toes. They will not invest new tenants for you but they need to be alert to snatch the few that still exist. 

Landlord support and handling Rent Relief Requests

I also wanted to share some tips on tenant rent relief requests… Most agencies in Sydney continue to report a large number of rent relief requests from residential tenants. Anecdotally, 1 in 10 tenants (10%) have requested rent relief – but the true number will never be known. As you can imagine, these discussions – if done properly – take most of the time of property managers at the moment. This is a new type of work that a lot of property managers are not prepared to handle and I believe – intentionally – there has been very little support from the state governments, who know that residential investors have buffers and can play a big part in providing relief carrying the load.
Rent relief discussions, require a combination of new negotiation skills, knowledge of what you can and can’t do in a very challenging non-eviction environment, common sense, empathy, tough love, a self-invented process and keeping up with the almost daily announcements.
Unlike other states, the NSW government has offered little direct financial support for landlords. Even though there have been discussions about introducing a $2,500 grant for impacted landlords (like other states), I have not seen it come through formally (if I missed please let me know).
The only support I know for sure NSW landlords have, is the land tax relief (details here https://www.service.nsw.gov.au/transaction/apply-covid-19-land-tax-relief).
Rent reductions usually take the shape of either 10-25% temporary reduction (for say 4, 8 or 12 weeks with an option to extend) which the tenant doesn’t have to pay back OR larger reductions of up to 50% which the tenant agrees to pay back. There is no right or wrong answer and it depends on individual circumstances (both tenants and landlords) but the general rule of thumb is that rent should not exceed 30-35% of the reduced take home household money.
Below are some useful tips if your tenant has requested a rent relief…

1. Make sure your property manager follows a formal process from the start and there is a formally documented record of the agreement. I have seen too many verbal agreements which are leaving everyone confused and tenant ledgers looking weird!

2. Make sure your property manager confirms eligibility before they go too far and they share with you. Requesting bank statements and payslips is uncomfortable at the time of someone’s need, but it is only fair and it is no different to when tenants applied for the property in the first instance.

3.Make sure any agreement has at minimum a start date, an end date, the reduction amount during this period, the amount the tenant needs to repay in the end (OR not), and what happens at the end of this period. At best it is a digitally signed document… At worst an email. Both are considered legally binding in the current environment and be used as evidence at Tribunals.

4. Make sure the agreement has regular reviews (ie monthly) embedded – which require the tenant to continue to provide evidence.

5. Check your statement that it reflects the new rent during this period so it is easy to see what period the tenant has paid for under the new arrangements.

6. For rent repayment agreements, a major sticky point in the negotiations will be when the tenant will commence paying back. This is because no one knows right now when they will be able to. Don’t get hung up on a date, but make sure that your property manager raises immediately future dated invoices for the tenant – to be paid following the end of the agreed period – but are subject to the tenant’s ability to make repayments. This is hardly any protection for the landlord but it is the best under the circumstances.

7. What and if insurers will cover rent loss has not been probably tested because of the 60 day moratoriums in place. Most insurers will not accept claims until the tenants have vacated and the loss is known. Most insurers though proclaim that there is some protection, as long as there is an agreement for the tenant to pay back any shortfalls… time will tell…

8. Most insurers are advising that a rent relief cannot be claimed. It is considered the landlord’s gift to the tenant. If you do intend to use your landlord insurance for shortfalls, you are better off opting for a rent repayment plan.

9. If an agreement has not been reached with the tenant, the next point of call is to refer the matter to the department of Fair Trading for mediation. The form to do this is https://www.cas.fairtrading.nsw.gov.au/icmspublicweb/forms/Tenancy.html. It is not a hard form to complete. Stick to the facts and attach documents that will demonstrate your efforts to negotiate.

10. Last but not least, you can still apply to NCAT for termination, if you believe you have been fair in your approach considering your circumstances and you have done all you can to reach an agreement.

There is plenty more, but that is all for today.
Thank you and Stay safe!

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