The Bleak Road Ahead For Inner-City Landlords

As more Australian tenants vacate properties across inner-city suburbs as a result of COVID-19, landlords are grappling with the prospect of tough times ahead.

Inner-city Melbourne landlord, Hannah Weste’s tenants recently requested a rent reduction after suffering financial blows due to the health crisis.

Ms Weste said she understood her tenants’ predicament and did some research after speaking to her property manger as well as fellow landlords who were in a similar position. 

“[My tenants and I] agreed to a 15% rent reduction, which has now been in place for three months,” she said.

However, with Victoria this week announcing a second round of lockdowns, Ms Weste said she expects her tenants will continue to need the adjusted rent longer term.

For now, she has been able to tap into a mortgage repayment freeze – which is being offered by most banks and lenders – to counter the lost rent, but once that expires Ms Weste could find herself in a financial predicament of her own, particularly if her tenants move out and she is unable to secure new ones.

“Ultimately, if [my tenants] did decide to leave, I would have to continue to discuss arrangements with my bank and cover mortgage and interest costs through my base salary,” she said. 

“Once things settle down, I could either rent it out to new tenants or move back into the place myself,” Ms Weste added. 

Rental vacancies continue to rise

Since the health pandemic took hold in mid-March, there has been an increase in rental listings on realestate.com.au within major cities, particularly in the week commencing 20 April.

Hobart was hardest hit with an increase of 121% year-on-year in rental listings, followed by Melbourne (66%), Sydney (52%) and Canberra (50%).

With demand low, vacating tenants are leaving empty rentals in their wake and landlords are finding them difficult to fill, according to Sam Nokes, head of department – property manager at Jellis Craig. 

“We are experiencing one of the highest vacancy rates across the board,” Mr Nokes said. “There are more properties on the market, more properties vacant, and they’re taking a lot longer to lease out as well. So that’s creating quite a lot of stress for our landlords who are finding their time without rent is [now] a lot longer.”

Tenants who have found themselves stood down from work and unable to meet the requirements for government employment supplements have been vacating their rentals throughout COVID-19, some moving back in with their parents or friends to save money.

While most tenants are giving the required notice to vacate, some are in such desperate situations that properties are being abandoned without notice.

In these cases, the rental home is likely to sit untenanted for longer than anticipated in addition to incurring advertising and agent costs.

In Victoria, where Stage 3 restrictions have been put in place again for the next six weeks, it’s likely that even more tenants will vacate as workplaces struggle through a second wave of coronavirus cases.

Landlords are hard-pressed to find new tenants

While the inner-city rental market is usually highly competitive, the tables have well and truly turned during the health crisis.

Not only is local demand down but with international borders closed for the foreseeable future, foreign students and travellers are unable to help fill the void and landlords are being left with no choice but to slash rental prices or offer deals to lure tenants.

“All landlords are willing to negotiate on rent at the moment,” said Mr Nokes.

Landlords are slashing rents and offering top deals to lure tenants. 2506/33 Rose Lane in Melbourne comes with 1-week free rent. Picture: resalestate.com.au/rent


“The inner-city rental market is really difficult at the moment … some owners are having to go quite low on the rent that they’re charging just to get a tenant in, which will cause longterm issues because that rent won’t just be for the next three months, it’s for a lot longer than that.

“Some [landlords] have a minimum they’re able to charge before the property is unviable and we’re seeing some having to sell, but it’s not in particularly large numbers. Although having a property vacant is an issue, it’s not at the point that they’re willing to risk a high capital loss.”

Landlords and tenants encouraged to negotiate rent reductions

More from news

First-home buyer enquiry surges as buyers navigate the COVID-19 market
The home buyer 'must-haves' post-COVID-19

The government has encouraged landlords and tenants to work together during the pandemic, which has seen property mangers receive an influx of requests for rent reductions or deferrals on payments.

Housemates renting in inner city

Landlords have been encouraged to work with their tenants during this time, however, not all of them are able to do so financially. Picture: Getty.


While some landlords, including Ms Weste, have been able to come to the negotiating table with their tenants, others simply can’t.

“Some of our landlords are in as bad or worse positions than the tenants, there’s a lot of stress out there and some are getting desperate,” said Mr Nokes.

What will the future hold for the rental market?

As lockdowns continue to be enforced and businesses struggle to re-open, tenants who work within certain industries may not be re-entering the rental market anytime soon.

Regaining a sense of normalcy within the market will be difficult, especially for inner-city landlords, which realestate.com.au’s director of economic research, Cameron Kusher, said will last for the coming months, if not year.

“With international borders closed for the foreseeable future, the HomeBuilder grant seemingly being very successful at pulling forward purchases by first-home buyers and younger people being more likely to lose jobs due to COVID-19, attracting and maintaining tenants is likely to be a challenge,” Mr Kusher said.

This will likely lead to landlords continuing to offer rent discounts or deals to lure tenants, causing financial strain.

With international borders closed, there is no demand in the rental market from international students. Picture: Pixabay


With the six-month moratorium on evictions and loan holidays ending soon, some tenants could be asked to move out because the landlord cannot afford to keep them in the property. However, there’s little assurance the landlord would be able to find a new tenant if that happened.

“The rental market is going to be interesting over the next six months,” said Mr Nokes.

“If we see an influx of tenants, then we should see the market substantially normalise, but if they stay away for a bit longer, then that will mean a longterm impact on the expat and executive client market.”

Source link