The coronavirus pandemic is having a major impact on both the economy and the rental market.

We take a look at what it means for investors and explore ways to make sure your property stays leased and your return on investment is maximised.

The impact of COVID-19 on the rental market 

There’s no sugarcoating it: the coronavirus pandemic has been bad news for most landlords who own NSW residential property. According to the REINSW, total vacancies across NSW rose every month between March 2020 and June 2020.

The NSW vacancy rate now stands at 4.5%, up 0.4% from May and 1.5% since March.

REINSW’s data also reveals that Sydney’s inner suburbs have been hardest hit. The vacancy rate rose 0.8% to 5.8% over June and has now gone up 3.3% since March. Anecdotally, we’ve noticed this has largely been the result of decreased demand from professionals, overseas students and service workers who often choose to live close to the city centre where they work or study.

Interestingly, demand for rental properties has actually increased further away from the city centre. The vacancy rate has fallen 0.4% in outer Sydney over the past four months and 0.7% in the Illawarra.

It seems in these areas, where a higher proportion of people are employed in sectors such as healthcare, construction and manufacturing, the effect of closedowns and social distancing has been less pronounced.

While these figures seem unfavourable, they may not even tell the full story. In October, we’ll start to see JobKeeper wage subsidies start to tail off and the current JobSeeker boost reduced. We’ll also see the end of many mortgage pauses - most banks have allowed borrowers a maximum freeze of six months.

This means many tenants may find it more difficult to pay the rent, at exactly the same time as landlords with a mortgage who’ve been suffering financial hardship must begin meeting repayments again. 

Rental Demands across Australia 

For a broader view on the rental demands across Australia Realestate.com.au have released their latest report written by Cameron Kusher, Executive Manager, Economic Research. REA Rental Demand Report July 20.

Avoiding a vacancy in your investment property 

As a landlord, vacancies are often the enemy. The average vacancy costs an investor around $2,700 and, with the market as it is right now, you may be staring down the barrel of a bigger loss.

That means if your rental property becomes vacant, there are many things you should do - some of which is mandated by law. 

Until 15 September 2020, there’s a moratorium on evicting tenants who are financially disadvantaged due to COVID-19, unless you first attempt to negotiate a rent reduction.

There are also extended notice periods for terminating a lease in certain other circumstances, such as where there’s a fixed-term lease or periodic agreement.

In cases where a residential tenant is suffering genuine financial hardship as a direct result of COVID-19, insurers have indicated they won’t pursue the tenant for unpaid rent.

From a practical point of view, you should be prepared to be flexible when it comes to negotiating rent if it means securing a long-term lease. After all, the average loss when a rental property stays vacant is $2,700, which is the equivalent of around a $50 rent reduction per week taken over 12 months.

If your property does become vacant

If you do need to advertise your property to the market again, it’s vital that you have professional photos and that your property is presented well. That means replacing tired carpets and repainting, if necessary. Tenants will have greater choice of properties and you need to make sure yours is presented in the best possible light.

Speak to your property manager about what tenants are looking for and how you can meet their needs. For instance, many renters will specifically look for a property with modern appliances, air conditioning or an NBN connection.

If your kitchen or bathroom is outdated or not functioning as well as it is, this may be the time to carry out that deductible renovation. 

Claiming the maximum deduction

Speaking of which, another thing every landlord should be doing to protect their income right now is to make sure they claim the maximum deduction. If your depreciation schedule is out-of-date or not comprehensive, you’re leaving money on the table. After all, after mortgage interest, depreciation is the highest deduction available.

For instance, a lot of investors with an older property don’t know they’re eligible for depreciation. Many also fail to realise they can often boost their cash flow by claiming an immediate deduction of up to $300 on eligible purchases. Nor do they understand that they can often claim depreciation on assets valued under $1,000 at an accelerated rate.

If you’d like to know more about depreciation, get in touch.

NSW residential laws have changed

On 23 March 2020, the NSW Residential Tenancy Laws changed, with a range of amendments made to the Residential Tenancies Act 2010 and also the new Residential Tenancies Regulation 2019.

These changes are far-reaching - from water efficiency requirements to smoke detectors, new agreements, more disclosure requirements, and tenants being allowed to make changes of a ‘minor nature’.

If you’re not across these changes, click here Fair Trading NSW new residential tenancy laws.

View The Agency Winter 2020 Property Management Market Report here.

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