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Landlords Rein in Rents During Covid

Landlord Reins Rents During Covid

Landlord Reins Rent During Covid

Plenty of data suggests certain rental markets have deteriorated amid Covid-19 with a new survey suggesting landlords are starting rein in rental agreements.

Corelogic data showed a 0.8 per cent decline in national rent values from the end of March to the end of August, with more acute falls in the unit markets of Sydney and Melbourne, where rent values have fallen 4.2 per cent and 4.4 per cent respectively over the same period.

The closure of international borders has created a shock to rental demand, as most migrants rent when they initially come to Australia.

An estimated 21.1 per cent of payroll jobs have been lost across food and accommodation services since the onset of the pandemic, an industry where people are more likely to rent.

The exposure of inner city areas to overseas migration, and inner-city workforces to accommodation and food services, has made these markets particularly susceptible to a rise in rental stock, and lower prices.

But less data exists on the current dynamics between investors and landlords which is becoming increasingly important as we approach the expiry of a moratorium on evictions, which have already been extended in some states.

Corelogic conducted a survey of property managers, and other real estate professionals using the RP Data Professional platform.

The survey provides some insight into rental conditions across the rental properties overseen by these professions.

About the survey

Each survey question had an average of 169 respondents. Against the wider population of property professionals using the application, it suggests a margin of error in the responses of 7 per cent at a 95 per cent confidence interval. Respondents were surveyed over mid-to-late August.

Of the respondents, the majority were located in the most populous states of Victoria, NSW and Queensland. Nearly half (48.6pc) were real estate principals, while a further 35.8 per cent were property managers. Across the larger states and territories, respondents by role were fairly uniform.

Furthermore, respondents managed rental portfolios of varying sizes. The majority of respondents (60.3pc) managed a large portfolio of 100 or more rental properties, while a further 14.4 per cent managed between 50 and 99 properties.

A majority of agencies noted stable tenancy conditions

While the majority of respondents noted they had not seen a deterioration in rental conditions over the last two weeks, there is a sizeable portion of agencies that had.

Almost a third of real estate professionals had seen an increase in requests for rent reductions, over a quarter had seen an increase in rental delinquencies, and 8.8 per cent had noted an increase in evictions.

Of the real estate professionals who had noted an increase in rental delinquencies, 56.8 per cent were based in Victoria, suggesting renewed restrictions across the state has impacted tenants’ ability to service rent.

Rental Survey

Despite almost a third of real estate professionals noting an increase in rent reduction requests across Australia, the highest number of respondents (48.5 per cent) noted that in recent weeks, no landlords had agreed to a reduced rent paid by tenants.

Of 83 respondents who had noted that none of the landlords had reduced rents, 66 had said this was less than, or about the same as, March this year.

The second-highest response indicates that a relatively low portion of landlords had agreed to rental reductions (less than 25pc). Of the 84 respondents that had indicated some landlords agreeing to reduce rental payments, 51 (60.7pc) indicated that this was around the same proportion, or a slightly lower proportion, than in March.

Q: Over the last two weeks, what proportion of landlords in your rental portfolio have agreed to a modification to a rental agreement to reduce the rent paid by tenants?

Despite almost a third of real estate professionals noting an increase in rent reduction requests across Australia, the highest number of respondents (48.5 per cent) noted that in recent weeks, no landlords had agreed to a reduced rent paid by tenants.

Of 83 respondents who had noted that none of the landlords had reduced rents, 66 had said this was less than, or about the same as, March this year.

The second-highest response indicates that a relatively low portion of landlords had agreed to rental reductions (less than 25pc). Of the 84 respondents that had indicated some landlords agreeing to reduce rental payments, 51 (60.7pc) indicated that this was around the same proportion, or a slightly lower proportion, than in March.

Q: Over the last two weeks, what proportion of landlords in your rental portfolio have agreed to a modification to a rental agreement to reduce the rent paid by tenants?

Rent

Rental delinquencies seem contained

Over August, 73.5 per cent of respondents (125) had noted delinquencies in their portfolio. However, 66.5 per cent of respondents indicated that less than 25 per cent of their portfolios were in delinquency.

Q: Over the last two weeks, what proportion of rental properties had rent outstanding (delinquency) across your rental portfolio?

landlord

Of the respondents that has noted delinquencies in their portfolio, 75.2 per cent (94 respondents) suggested the portion of properties in delinquencies were the same, or smaller than in March, before the onset of Covid-19.

This largely aligns with an earlier question in the survey, which found that around a quarter of respondents had seen an increase in delinquencies over the past few weeks.

Of the 125 respondents that noted delinquencies, 72 per cent indicated that on average, tenants were less than four weeks in arrears.

However, over a fifth of respondents (22.4 per cent) indicated that average arrears were more substantial, at five weeks to three months.

Responses to the survey suggest that a more common occurrence in the rental market through Covid-19 has been the early termination of leases, rather than modifications to existing rental agreements.

The relatively low level of property professionals that have observed an increase in evictions, a reduction in rents or a change in the state of arrears, supports other Corelogic metrics about rental market deterioration being more localised.

It is worth noting Corelogic rental value data is based on advertised rental property rather than changes to existing leases, and may not directly capture leniency from landlords.

However, a distressed rental market that saw rent reductions, early termination and evictions would presumably see an increase in vacant properties, indirectly lowering the price of advertised rental stock.

Currently, newly-listed properties are only showing more exaggerated declines around inner city areas. Rental listings data shows only six of 88 SA4 markets analysed saw an increase in total advertised stock since the start of the pandemic.

Interestingly, the recently released GDP data showed an increase in household incomes of 2.2 per cent. The increase is largely the result of JobKeeper and JobSeeker stimulus, which is set to taper at the end of the month.

The end of this stimulus could see a broader decline in rental market conditions, particularly across Victoria where many businesses remain closed.

 

This article is republished from https://theurbandeveloper.com/ under a Creative Commons license. Read the original article.

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Brisbane

Unit oversupply remains an issue in Brisbane CBD: RiskWise’s Doron Peleg

oversupply issue in Birsbane

Unit oversupply remains an issue in Brisbane CBD: RiskWise's Doron Peleg

EXPERT OBSERVER

The inner-city Brisbane unit market, already hit hard by unit oversupply, continues to remain a huge danger zone for investors since the advent of COVID-19.

Not only is equity risk the major issue for investors, increased vacancy rates and risk to cash flow are also heavily impacting the market.

According to RiskWise Property Research CEO Doron Peleg, things have not improved in the market since the pandemic hit and, if anything, have become worse.

“RiskWise reported in July 2018 that there were 14,813 units in the pipeline in inner-city Brisbane for the next 24 months, being an addition of 20.1 per cent of the current stock,” Mr Peleg said.

“Two years later and there is still a very high level of supply with 5,431 units in the pipeline, making up an addition of 5.9 per cent of the current stock.”

Pete Wargent, co-founder of Buyers Buyers, a national marketplace now offering affordable buyer’s agent services to all Australians, said that rental demand had been weak for CBD apartments for some time.

“The trend has been exacerbated by the pandemic, and CBD rents have been very soft” Mr Wargent added.

Analysis by RiskWise in 2018 showed unit over-supply in inner-city Brisbane had created weakness in the market leading to an elevated level of risk for investors and, therefore, lower valuations and rising defaults on settlements.

“The issue of oversupply is not a new problem and has been there for a few years and the continuous weakness of the unit market in inner-city Brisbane should raise red flags for developers and lenders,” Mr Peleg said.

“Defaults have been rising and will continue to do so.

“One of the key factors has been developers’ lack of foresight regarding unit oversupply as well as the impact of lending restrictions introduced from 2014. It seems there has been no methodological and structured risk-management approach including identification, assessment, and mitigating action plans to address those risks.

“This takes us back to the feasibility stage which includes the assessment of the projected fair market value and the likelihood of defaults and their potential consequences. Developers and lenders must find the right balance between taking risk and making profit.

“COVID-19 has only served to increase the risk. Currently, there are many high-rise properties being offered to a smaller number of investors. This is because there are less investors in the market due to the pandemic.

“The point is that if developers and lenders had put more proper risk-management practices in place, this could all have been avoided.”

Mr Peleg said it must also be remembered the value of off-the-plan property could decrease between the original contract date and settlement resulting in capital loss, as the equity in the home could be reduced, and this was well known in inner-city Brisbane.

He also stressed that investors buying rental apartments unsuitable for families were taking an enormous gamble, with both equity and cash flow risk expected to materially increase. Serviceability is also a major factor for investors who rely on a stable rental income to cover the costs associated with property and particularly the mortgage.

Mr Wargent of Buyers Buyers said houses for investors often carried significantly lower risk for those with the right budget because renters, especially in the more established suburbs, included families and, in many cases, those with permanent full-time jobs. They were also more likely to deliver good medium and long-term capital growth.

Additionally, as rental properties are not fully substitute products with owner-occupied dwellings, there is inherent risk associated with them as they do not appeal to families looking for three bedrooms, with outdoor space, close to schools, transport, and employment hubs.

 

This article is republished from https://www.propertyobserver.com.au/ under a Creative Commons license. Read the original article

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Brisbane

Green Goals Halve Council Charges

green goal property charges
Green Goals

Brisbane developers who reach high green standards will only have to pay for half of council’s infrastructure charges under a new incentive scheme.

The Brisbane Green Buildings Incentive Policy was announced in the council budget in an effort to encourage the construction industry to keep building through Covid-19.

Applicants who receive approval on a building—greater than 3-storeys—between July 2020 and June 2022 will be eligible to lodge a request for the payment.

Residential buildings, or mixed-use developments with dwellings will have to achieve a 5-star green rating, UDIA six leaf certification or one of the same criteria as commercial buildings.

Commercial office buildings will have to comply with the buildings that breathe design guide, have a carbon neutral certification and achieve a minimum green plot ratio.

However this incentive only applies to the council component for transport, stormwater and the community; and does not apply to infrastructure charges levied by Urban Utilities for water supply and sewerage networks.

Lord mayor Adrian Shrinner said the housing industry is a major employer, and if the predicted 40 per cent drop in new home starts eventuates half of those employed in the industry could lose their jobs.

“By incentivising the construction of high-quality and environmentally sustainable homes, we’ll also be making further steps towards our future blueprint goal of promoting best practice design in Brisbane,” Shrinner said during the 2020-21 budget speech.

“In addition to our 100 per cent rates rebate for first home buyers purchasing a new home, we will further support the home building industry by providing a 50 per cent rebate on infrastructure charges for the greenest and most energy-efficient buildings.

“This will be an incentive to those who are currently in the planning process or may already have an approval to make a commitment to getting on with the work, and creating jobs in our city.”

Upon commencement of the project and verification of the installation of specific design elements council will make the 50 per cent payment providing funding is approved in the budget.

Council will consider requests made for the Brisbane Green Buildings Incentive Policy until the end of 2023.

This article is republished from https://theurbandeveloper.com/ under a Creative Commons license. Read the original article.

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Brisbane

Vacancy Rates Reflect Shift From Cities to Regions

vacancy rates
vacancy rates

Major improvements have been made on national vacancy rates, with levels tightened to below or close to pre-Covid-19 rates across most capital cities in Australia.

The residential vacancy rate dropped from 2.2 per cent to 2 per cent compared to August 2019 and 2.1 per cent in July, according to the latest report by SQM Research.

Perth, Brisbane and Darwin made the biggest improvements compared to last year, while Sydney and Hobart were slightly worse-off.

Melbourne was the outlier, which again recorded an increase from 3.1 per cent in July to 3.4 per cent, this was up from a 2 per cent vacancy rate in 2019.

Residential vacancy rate

CityAugust 2020August 2020July 2020August 2019
Sydney3.5%25,8283.6%3.4%
Melbourne3.4%20,8913.1%2.0%
Brisbane2.1%7,1542.2%2.5%
Perth1.1%2,2941.3%2.9%
Adelaide0.9%1,6990.9%1.0%
Canberra0.8%5691.0%1.2%
Darwin1.1%3491.4%2.9%
Hobart0.7%2050.7%0.6%
National2.0%69,9712.1%2.2%

 

The SQM Research also shows most regional locations have recorded falls in vacancy rates, with Sydney’s Blue Mountains and Melbourne’s Mornington Peninsula dropping to 0.7 per cent, while just outside Brisbane, in Ipswich, rates fell to 0.9 per cent.

Asking rents levels painted a different picture: despite being up nationally for houses at 4.5 per cent and units 1.4 per cent compared to 2019, across capital cities houses rent prices were down 2.8 per cent for houses and down 5.5 per cent for units.

The worst-affected cities were Sydney, down 8 per cent on last year, Melbourne down 1 per cent for houses and 6 per cent for units, and Brisbane was marginally down 0.4 per cent for houses and 0.2 per cent for units.

Rents were up for both houses and units in Adelaide, Perth, Canberra, and houses only in Darwin compared to last year.

SQM Research managing director Louis Christopher said population shifts were a driving force in this data.

“The shift towards regional living continues at pace, largely at the expense of higher inner-city rental vacancy rates, I suspect there will have to be a high point in this move soon.

“However, I also suspect there will be a degree of permanency with the massive population shift,” Christopher said.

“Meanwhile, Sydney and Melbourne rents continue to fall providing leasing opportunities for tenants who have chosen to stay in town.”

International arrivals impact Sydney, Melbourne

Immigration has also had an impact on vacancy rates with the low levels of arrivals and returning residents recorded in the Australian Bureau of Statistics August data.

Arrivals dropped in August down 15.5 per cent on July and down 99.1 per cent on 2019.

According to ABS visa group data there were 2,670 people arriving on permanent visas and 2,880 on temporary visas last month compared to 119,990 permanent visas and 680,190 temporary visitors in August last year.

Charter Keck Cramer national director of research and strategy Rob Burgess said overseas migration has fallen off a cliff, impacting the residential market.

“In the last nine or 10 years of course NSW and Victoria—Sydney and Melbourne—have been the main beneficiaries of overseas migration,” Burgess said at The Urban Developer’s The Housing Demand Dilemma webinar.

“This translates directly into the demand for residential dwellings moving forward, and will fundamentally impact the demand and supply equation for the national residential market.

“It’s almost a halving of dwelling demand otherwise required in Sydney and Melbourne [in the next five years].

“Interestingly, Brisbane is far less impacted and clearly that’s a reflection of the fact that the housing market is much less reliant and dependent on overseas migration, including international students.”

This article is republished from https://theurbandeveloper.com/ under a Creative Commons license. Read the original article.

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