Covid-19 Impact on the Rental Market

Written on the 14 August 2020

How Covid-19 has Impacted the Rental Market

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 sugar-coating 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. 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.

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.

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.

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.

*** Table above is the Concentration of workforce in industries highly impacted by COVID-19, and portion of renting households - SA4 Regions, Australia.

^ Source: CoreLogic, ABS catalogue 6291. Note employment data of the portion of the workforce in arts and tourism is derived from the four quarter average to February 2020