As the Coronavirus (COVID-19) continues to disrupt the way we live in New Zealand, property owners and real estate firms need to adapt to navigate all these COVID-19 implications. This is not just for the short-term, but possibly for the long-term as well.
Even as the lockdown comes to an end, we are still in the thick of this crisis. Nobody as yet knows when life will get back to a sense of normality. Although New Zealand has not had to deal with the same level of cases as other nations have, the economic impact is still going to be a gut punch for many.
One question that is probably lingering in everyone's heads is - what will be the situation, both in terms of defaults and price, for rents?
The initial response by the government was to protect the right of tenants and allows them the choice to move during this crisis. This remains up for debate whether this was a good move or not, as landlords have been left vulnerable to sudden vacancies. To many, it seems unnecessary to allow tenants to move unless there were certain circumstances such as the threat of domestic violence. Some unfortunate landlords have faced the prospect of zero income for the next few weeks as their properties sit empty during the lockdown.
Due to the current economic climate, traditional practices of a zero tolerance to rent will be hard and potentially illegal to impose. This is largely due to lay-off’s and business operations shutting down. The government is right to continue to help its citizens in the midst of most challenging times but this should also include landlords. If things continue this way, some tenants and landlords will likely need some form of bail-out or assistance.
Unfortunately, there will be cases of people who will attempt to take advantage of the situation. Some may refuse to pay without communication with their Property Manager, claiming hardship when they’re not affected. Now that appealing for termination is no longer applicable unless the tenant is 60 days or more in arrears, what can you do? This is not an easy question to answer. RentalsCo have sought guidance and have been seeking evidence of loss of income and hardship in line with MBIE regulations to protect landlords and importantly those tenants who genuinely need support.
People’s income as well as supply vs. demand of rental properties are the main dictators to what rent will be. Tenants will likely struggle with their rent payment if it exceeds more than 40% of their net income. When income falls, rents will likely follow suit.
Rise of unemployment and no salary increases put rents on the edge
As people continue to lose their jobs due to the ongoing crisis, unemployment will likely increase in the coming months. Some economists are even suggesting we will see a double-digit unemployment rate. With this, it can put a downward constraint on wages as a vast supply of skilled workers will be looking for jobs.
As the locals continue to cope with their net income reduction, a potential increased supply of rental properties could lead to a drop in rents. Whangarei is better suited than most regions across New Zealand to deal with such an issue. This is due to our diverse economy as we are not solely dependent on tourism as is the case in many parts of New Zealand. What we will endeavour to do is work with landlords if this does happen. Whangarei and the Northland region are somewhat sheltered from potential drops in rental income.
Other factors that we will need to take note of are young renters who are losing their source of income will choose to move back with their parents to save money.
It will not be surprising to witness commercial office space being converted to a residential as people will remain working from home post-pandemic. Also, some commercial tenants will likely fall victim to the crises, resulting in a surplus of available commercial property.
Will landlords endure or sell in bulk?
Realistically speaking, we believe it will be highly unlikely to imply that landlords will sell on mass amidst the COVID-19 crisis. At RentalsCo we are advising against any knee jerk reactions. Long term, property has always proven to be a safe and solid investment. In particular, with record low interest rates we can only see this continuing.
We are the first to admit that it is truly tough to predict the future situation of sales volume and house prices. We suggest that you take stock, choose what you read carefully and do your homework.
Many potential vendors will understand this is a waiting game, and at this juncture, quite risky to make any capital investment of any sort (unless they stumble across an obvious bargain). Similar to the situation in the 2008 post-GFC, some vendors may rent out a property they would have normally sold if the property market falls.
It can also open opportunities as there will be several landlords holding plenty of assets with minimal debt. Add the low-interest record rates; many cashed-up investors will be finding a way to re-enter the market.
Good luck and as ever, we are here to help you with anything regarding your property investment portfolio.