Lockdown Means Potential Selldown
Property investors are being hit by a “perfect storm” that is predicted to drive many out of the market during the lockdown.
Rents have been frozen and evictions are on hold for the next three months as the country responds to the Covid-19 outbreak and lockdown.
Tenants can still terminate their tenancies if they wish, but they can revoke termination notices their landlords have already given them.
They cannot be forced out of a property until their rent is at least 60 days in arrears.
A survey of New Zealand Property Investors Federation members found that 2 per cent of their tenants had stopped paying rent. Another 6 per cent had left their rental properties. The average amount of rental income lost after one week of lockdown was $1059.
Landlords had cut rent for 5 per cent of tenancies – at an average reduction of 43 per cent.
Economist Tony Alexander said landlords’ concerns were a significant problem for the housing market.
He recently conducted a survey of real estate agents around the country.
“There are deepening fears that absence of cash inflows set beside an inability to quickly get new paying tenants and continuing cash outflows will cause severe short-term hardship for the mainly Ma and Pa investors. This is seen as potentially causing extra properties to be placed on the market once the lockdown ends, as opposed to high debt servicing costs being the traditional cause of forced selling,” he said.
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“In fact, existing small investors reliant on rental income have pulled back quickly from contemplating new purchases. There is a feeling that on top of legislative changes this will be the final straw for some – a prospect seemingly relished by the well capitalised professional long-term investors.
“A number of investors have become newly active in the market, hoping for some bargains, focussed on the long-term which has worked for them in the past, and looking to lock in at current very low-interest rates. They feel that listings are going to dry up and the properties on the market will mainly be distressed sales.”
Sharon Cullwick, executive officer of the New Zealand Property Investors Federation, said it seemed unfair that tenants could leave a tenancy but landlords were not allowed to replace them.
She said landlords were being understanding for tenants who were in trouble. Many property investors were under the same pressure as everyone else, she said, facing job losses and cash flow concerns.
David Pearse, managing director of Pukeko Rental Managers, predicted a “mass sell-off” of rental properties in the coming weeks.
“I’m already hearing reports of some wanting to sell but having to wait until the end of the lockdown.
“Not only have some seen their rental income drop with no chance of government relief, but there’s a huge concern that the government won’t reverse the lockdown policy of making no-cause terminations illegal.
“It’s like the perfect storm for mum and dad landlords, who are the vast majority, and they can’t see an end in sight.”