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Options for landlords in financial distress

There can be no denying that strata landlords are doing it tough as the bite of COVID-19 continues to be felt.

In a report released mid-September on the impact of the pandemic on the rental market, The Reserve Bank of Australia noted that landlords had been hit by a double whammy of issues related to the economic fallout of border closures.

As a result advertised rents for apartments have fallen by much more than for houses, with the declines particularly pronounced for units in Sydney and Melbourne, the report’s authors stated.

“In the wake of the pandemic, the rental market has experienced shocks to demand and supply. Weak labour market conditions, including the temporary closure of many service businesses, have reduced demand for rental properties as households have consolidated to save money and requested rent reductions or deferrals. The closure of international borders magnified the demand shock, as the flow of international students and other migrants (who typically rent) has slowed.

“On the supply side, with the number of international tourists and domestic travellers falling, a large number of short-term accommodation providers have shifted their properties onto the long-term rental market. The vacancy rate has increased sharply in some markets,” the report noted.

According to the findings of UNSW’s City Futures Research Centre, of the 2.6 million strata titled households in Australia, 48 per cent are occupied by owner/occupiers and the remainder are rented out.

To help ease the burden placed on strata landlords by the pandemic, governments in several states have introduced land tax relief measures.

Government Assistance

In NSW, SA and QLD these mean eligible strata landlords who have reduced their tenant’s rent can apply to reduce up to 25 per cent of their 2020 land tax liability (or the value of the rent reduction provided, whichever is the lesser) and in NSW defer the land tax payment for up to three months.

South Australian strata landlords paying land tax quarterly in 2019-20 will also be able to defer payment of their third and fourth quarter instalments for up to six months while for 2020/21, the Land Tax Transition Fund relief will be increased from 50 per cent to 100 per cent, based on existing relief criteria guidelines.

In Queensland impacted strata investors may also be eligible for a three-month deferral of land tax liabilities for the 2020-21 assessment year while foreign entities may be eligible for a waiver of the two per cent land tax foreign surcharge for the 2019-20 assessment year.

The Victorian government has come up with a similar package where impacted landlords are being offered a 25 per cent discount on their land tax obligations if they can prove their tenants have enjoyed rent discounts. In addition, any remaining land tax obligations can be deferred until March. The scheme is even more generous to landlords who provide a 50 per cent or more outright rent waiver of at least three months’ rent, as this group can then claim a 50 per cent waiver of the property’s 2020 land tax.

Financial Institution

Some banks initially agreed to offer strata landlords a mortgage repayment reprieve to help minimise the fallout, however this option has now run out for many landlords.

Experts suggest strata landlords should consider talking to their bank about what other options might be available, including a rate reduction or reduced repayments for a limited time.

Re-financing may also be an option with several banks offering cash incentives of between $2,000 and $4,000 to property investors looking to switch banks.

Landlord Insurance

It may also be worth checking out the finer details on your landlord insurance policy to see if it will pay for lost rent due to COVID-19.

Depending on the rental default provisions of the policy, landlord insurance may cover loss of rental income.

Policies typically state a claim will only be paid if the tenant is evicted or terminated by the tribunal, or they leave without notice and default on payments after vacating with no warning. Some do not have this provision.

Owners Corporation / Body Corporate

Strata committees, depending on their independent situation, may offer financial hardship assistance to individual owners who require temporary relief.

This can come in many forms, such as:

  1. Offering a payment plan;
  2. Revising and/or postponing the debt recovery process;
  3. Waiving penalty interest on arrears (where legislation allows);
  4. Honouring discounts (where applicable) even if payment is made after due by date.

Each strata committee must decide the level of assistance they can offer, balancing compassion and ensuring adequate cash flow to cover essential expenditures like cleaning, insurance and keeping the lights on. If you are a customer of Smarter Communities (ASCM, CSM, EBCM, STM & VBCS) you can apply for assistance using our Financial Hardship Assistance form.

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