Will rent reductions put landlords at risk?
LANDLORDS who show leniency to struggling tenants as a result of the coronavirus pandemic could void their right to claim on insurance.
The Federal Government last week placed a six-month ban on evictions for tenants who are unable to pay rent due to COVID-19.
Prime Minister Scott Morrison called landlords and tenants to work together to come to an arrangement around rental payments.
That request has since raised concerns as to the impact on Landlord Insurance, which typically covers landlords for a period of weeks when a tenant can't pay rent.
Real Estate Industry of Queensland (REIQ) last night sought to address rising panic among property owners, some of whom face the double whammy of job loss and lost rental income.
REIQ CEO Antonia Mercorella said it was their understanding that private arrangements made between landlords and tenants would impact insurance.
"Each policy will differ but as a general rule, Landlord Insurance will not respond where landlords have reached a mutual agreement with a tenant about rent reduction," she said in a live Facebook briefing.
Furthermore, the moratorium effectively prevents landlords from meeting policy obligations to mitigate their loss by issuing default notices.
"As we understand it, the process of issuing that default documentation can't occur where the rent default is happening as a result of the coronavirus," Ms Mercorella said.
"I know that's probably not the information that landlord's want to hear, but it's important we provide what we believe is accurate information."
The blow comes as multiple insurers this week stopped offering landlord cover altogether as a result of the coronavirus, meaning no new policies could be issued.
Some of the country's largest insurers, including Terri Scheer, Suncorp and NRMA, pulled Landlord Insurance products amid COVID-19 uncertainty which could leave insurers exposed to mass payouts.
Originally published as Rent cuts put landlords at risk
Should landlords support hardship tenants?
The Real Estate Institute of Queensland (REIQ) strongly challenges the inference that landlords can burden the costs in the same way billion-dollar institutions and governments can.
According to the REIQ, the Prime Minister is asking over 2 million Australians to cover $9,516 each (on average) of unpaid rent over the next six months.
With the average property investor earning less than $80,000 p.a., this represents over 30 per cent of their annual take-home pay during those six months. In fact, with the average employed renter earning $77,761 p.a., they are in the same income bracket as the average property investor and are both equally at risk of losing their job as a result of the coronavirus (COVID-19).
It’s not enough to just defer a landlord’s mortgage obligations as the banks have done with small-business loans, according to Antonia Mercorella, CEO of the REIQ.
“The rise in property prices we’ve seen in the last few years has not been matched by wage increases, so by removing mum and dad investors’ rental income for any period must correspond with the subsequent waiver of their mortgage obligations for that same period for any protective measures to be sustainable,” she said.
“We welcome measures that support the safety and stability of housing for all Australians and urge the government to consider the downstream effects of any direct action they take with regard to tenancies. Any relief in hardship conditions should also include protections for landlords.”
Real Estate Institute of Australia president Adrian Kelly highlighted the concerns the industry has for tenants, noting that the body “absolutely understands the stress and anxiety that you may be feeling at this time”.
That being said, Mr Kelly said if a tenant is unable to pay their rent due to income loss, the situation might be further exacerbated, causing problems down the line.
“A larger problem on the horizon is in the case of a property owner who cannot afford to make mortgage repayments because their tenant can’t pay their rent. We already have property owners, particularly in Melbourne and Sydney, whose tenants are overseas students currently locked out of the country,” Mr Kelly said.
Mr Kelly also called for postponement of mortgage repayments as the big four banks — Macquarie, Bendigo and Adelaide, Heritage Bank and Suncorp, among others — offer mortgage relief for impacted customers.
The major banks have outlined how they are supporting those affected by the coronavirus pandemic and its economic impacts, including mortgage repayment relief and interest rate reductions.
On Thursday (19 March 2020), the Reserve Bank of Australia (RBA), the federal government and the Australian Prudential Regulation Authority (APRA) announced a raft of new measures to support the domestic economy in the wake of the coronavirus outbreak.
In response to these measures, the Australian Banking Association (ABA) announced that its members would suspend principal and interest loan repayments for distressed small-business customers for six months.
All four major banks have announced they will also extend the ABA’s initiative to distressed home loan customers, enabling them to defer repayments for up to six months.
The big four banks also announced other measures for personal and business customers, including interest rate reductions.
