How the coronavirus is already affecting the rental market

As the escalating COVID-19 outbreak grips the nation, early signs are showing that the property market is beginning to feel the impacts of the coronavirus.

While it is too premature to say property prices have moved as a direct result of the pandemic, the likely recession and consequential rise in unemployment could put pressure on housing prices, according to AMP Capital analysis.

In an effort to support the economy during this period of uncertainty, the Reserve Bank of Australia reduced the official interest rate for a second time in March to 0.25 per cent. This comes less than a week after the Federal Reserve’s move to cut the US interest rate to zero.

RBA Governor Philip Lowe said in a statement that the cash rate will not move up until the unemployment rate has been brought down and inflation ticks closer to the target range of 2-3 per cent.

It is the first time the RBA has made a rate cut out of the usual cycle since 1997.

Anecdotal evidence from property managers indicates that both landlords and tenants are starting to feel the crunch.

Alana Sorensen, property management specialist, has seen about 3 per cent of tenants in her portfolio break their lease in the past week and another 1.5 per cent have requested rent reductions.

These tenants, which are all either self-employed or earn commission-based income, have cited the need to manage their financial risk in uncertain times, Ms Sorensen said.

“They are concerned about their financial position therefore (they are) cutting their losses now as they don’t believe they will have money to pay rent over the next few months,” she said, adding that many are now looking at moving in with family or home sharing options.

Ms Sorensen, who manages properties predominantly in Sydney’s eastern suburbs, expects the number of tenants breaking leases or asking for rental discounts to surge.

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“We have been inundated with calls and email requests for information on what happens if the tenants do not pay their rent, whether we have any delayed payment options and/or options for rent reductions,” she said.

The property manager noted rental property enquiry numbers are low and people are avoiding open-for-inspections to distances themselves from others, which could mean landlords are at a “high risk” of rental income loss and property vacancy.

While the market was “quite strong” before the coronavirus outbreak, inspection numbers have been lower than usual and there have also been complaints about holding open homes during the coronavirus outbreak.

For landlords looking to secure a tenant for a vacant or soon-to-be vacant property, Ms Sorensen suggested them to advise their property manager to:

  • Schedule inspections by appointment
  • Ask questions about the attendee’s health status before the appointment, including:
    • Do you have coronavirus?
    • Are you waiting on coronavirus test results?
    • Do you have any symptoms of coronavirus?
  • Offer gloves and sanitiser at inspections
  • Control the number of people in a property at one time during open-for-inspections

Looking ahead, Ms Sorensen offered the following tips to prepare ahead for a period of uncertainty:

  • Communicate with your tenant to understand their health status and financial position to be aware of any risk of arrears.
  • Speak to your bank and find out what your options are if your tenant has issues with paying the rent.
  • Confirm what is covered by the landlord insurer if the tenant does not pay their rent.
  • Remember that even if the tenant is not paying rent in full, landlords are still responsible for repairs and maintenance, so it’s best to keep funds aside for any emergencies.