COVID-19 has seen many tenants across the country negotiating their rent, irrespective of experiencing financial hardship due to the health pandemic.
For the first time in a long time, the rental market has flipped and without as much competition among renters, landlords and property managers have been finding tenants across the board are not only wanting to negotiate the price on new rental agreements, but they are attempting to re-negotiate existing ones.
Now that renters have the upper hand, landlords risk their chances of securing tenants, or indeed losing them, if they don’t budge on price, the quandary leaving property managers and tenants unions at loggerheads.
Anthony Webb, chief executive of PhilipWebb Real Estate, which manages a large portfolio of rentals in Melbourne, said the practise is “not fair play” because it doesn’t take into consideration whether the landlord has been financially struck.
But Tenants Union of New South Wales chief executive, Leo Patterson Ross, said tenants should be able to bring a new offer to the table in a “free market”.
Negotiating a rent reduction in a “free market”
Requesting a rent reduction has been commonplace since the pandemic hit with many tenants being stood down from work.
Property managers have requested tenants fill in hardship forms to present to their landlord to decide on a fair reduction based on their new financial situation.
But there is no standard amount in reductions being asked for by tenants, said Mr Webb.
“The process at the moment and when COVID-19 struck was those tenants who are suffering genuine hardship were explaining what they can afford to pay, and this would be negotiated with the landlord,” he said. “Also taken into account were the landlord’s financial situation and the rental reprieve they themselves could afford to give tenants.
“There have been situations from landlords agreeing to complete rent-free periods to landlords who couldn’t afford to reduce rent at all. If agreements could not be reached, both parties would enter a mediation process.”
However, it’s not just tenants experiencing hardship due to COVID-19 who have been requesting a review of their rental agreement – as new rentals come on to the market at a better weekly rate, existing tenants have been presenting property managers with similar rentals in terms of size and location that are on the market for less than their own, and requesting a price match.
“Just because the tenant hasn’t been impacted, doesn’t mean the landlord hasn’t,” Mr Webb said.
“Essentially [the tenant] signed a lease which is a legally binding contract, so if they haven’t been in hardship, then they shouldn’t ask for a discount, especially while they’re in a leased agreement.”
But Mr Patterson Ross said this new process is the way of the future.
“For a long time, tenants have been negotiating how much the rent would go up, but essentially the rent was always going up,” he said. “Now we are in unfamiliar territory, and I think it’s going to take some time for the industry to get used to the idea that prices are falling and they will have to adjust.
“The industry needs to decide whether we in a free market where prices go up and down and things have to adjust, or do they actually want a price-controlled system where the price would be set and stay as it is. If you want a free market, then you have to accept it will go up and down.”
If the landlord decides not to accept the rent reduction from a tenant who is not experiencing financial hardship, then the tenant may decide to move out, which means a headache for both the property manager and landlord to find a new tenant.
In addition to the money lost from the home being vacant, there’s also advertising costs and maintenance costs to adhere to. For the majority of landlords, it works out cheaper to accept the reduced rent proposed rather than have their tenant move out, especially in the difficult rental climate.
Stefan Joannides, business development manager at Belle Property – Melbourne said he has seen tenants move within the same apartment development for a better deal.
“I had tenants move out of an apartment in St Kilda and I asked them where they were moving to – they said they were just moving downstairs for a better deal, which is totally fair enough,” he said. “It was a pretty similar apartment, just at a cheaper price.”
Low-ball offers on new leases
Rental bidding may have been a popular way to get into a rental prior to COVID-19, but now, tenants are undercutting advertised rental prices and negotiating at rates they think are fair given the current unstable climate.
Landlords are also advertising their properties at discounted rates and on shorter-term lease agreements to weather the virus storm.
The property at 71B/24 Little Bourke Street, Melbourne has a listing price of $630 per week, but according to the description the rent is ‘negotiable’ signalling potential tenants should make an offer.
Rebecca, who chose not to disclose her surname, recently came across a short-term rental in a premium suburb in Melbourne’s southeast and was able to negotiate a top deal by leveraging the current state of the rental market.
“The first apartment I saw was advertised for $1,200 per week, I offered them $950 a week, they declined it. Then they came back maybe two weeks ago and said ‘we’ll give it to you for $950 if you want to move in,” she said.
In the end, Rebecca decided to apply for another apartment in the same complex and the landlord accepted her offer.
“It was advertised for $1,500 per week, and we went back and forth and I ended up getting it for $975 per week with a six-month term, they wouldn’t agree to a 12-month lease. But now we’ve moved in I love it and now I’m sitting here wondering how much will they want after the six-month mark?” she added.
While this may seem like a win for Rebecca, Mr Patterson Ross said it’s actually just the rental system correcting itself.
“With more properties available and with a [higher] vacancy rate, there’s a potential that the prices will correct,” he said. “Some commentators are saying that they’re falling and that it’s a crashing market when probably it’s correcting back to where it always should have been which is about the price that people can actually afford.”
Tenants are being encouraged to do their research during this time of coronavirus, to understand the market value of the rental they are considering leasing.
They can do this by comparing it to other similar properties in the area or looking at the rent tracker and rental bond data of a home. This way, tenants can see if the rental is fairly priced and have more information to negotiate better rent.
How long will this negotiating period last?
The rental market has very much swung in favour of the renter and it is likely to remain that way for some time, according to executive manager – economic research at realestate.com.au, Cameron Kusher.
This comes down to high vacancy rates, less competition and tenants not being in the financial position to pay the previous rental benchmarks.
In April 2020, there was a recorded 3.8% vacancy rate in Sydney measured by the Real Estate Institute of New South Wales and in Victoria it was 2.5% according to the Real Estate Institute of Victoria.
Just last month, Mr Joannides reported a huge number of additional rental listings within Melbourne’s CBD.
“I think we’ve gone from 800 [listings] to 2,400 in the [Melbourne] CBD and surrounding suburbs and it’s so competitive to find someone good for these homes,” he said.
As inner-city developments continue to be completed and first home buyers take advantage of the government incentives and vacate their rentals, it’s expected that even more properties will come on to the rental market.
Tenants will also be seeking cheaper weekly rates due to the unpredictable environment and with government support packages eventually drying up.