Landlords advised to revisit budget as tenants move to negotiate rents

By Stephanie Aikins

January 11 2019
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With recent data finding rental affordability has improved across all states and territories except Tasmania and Victoria, one financial adviser says landlords should be prepared for tenants to move to negotiate rental prices in the near future.

Wealth Enhancer’s Rebecca Pritchard said falling rent prices across Australia is opening up opportunities for existing renters and those on the market for rentals to negotiate price, a discussion landlords should expect.

“As there are changes in higher vacancies, landlords are dropping rents, which means that renters have a choice if they want to pursue it,” Ms Pritchard told Nest Egg.

“Rent represents one of the largest expenses for most households, so if you can be making any sort of optimistation on that, it does represent a good opportunity to accelerate in other areas such as saving for holidays or building an investment portfolio.”

She said it is crucial for investors to prepare for their tenants approaching them to negotiate by conducting research into their rental properties’ local area to know what comparable properties are being offered for, as well as the current stock level.

“Make sure you’re armed with information. If there is a flood of comparable properties in your area that are cheaper, it’s likely that your tenant would move if you don’t budge. You need to understand that,” Ms Pritchard said.

She recommended that investors revisit their finances sooner rather than later to decipher if or how much they are willing to lower the rent by or, indeed, if they can afford the potential upset of a tenant leaving in the current market.

“It’s a really good opportunity now, rather than waiting until a tenant approaches you, for landlords to check their own budget, check their own finances and see if they do actually have cash flow that if this [a tenant vacating] is to occur,” Ms Pritchard said.

“It’s really important that as a landlord, you can absorb that impact of a 5, 10 or 20 per cent reduction in your rent. Because if you can’t do that, you need to batten down the hatches quick-smart.”

Leo Patterson Ross, senior policy officer at the Tenant’s Union of NSW, encouraged landlords to consider their options before offering a straight refusal to negotiating tenants.

He said while it was understandable if a landlord cannot absorb the cost of a rent reduction, often there are other incentives that can be offered to a tenant to ensure their voice is heard and keep them in the property.

“I would encourage landlords to really consider their options,” he said.

“Offering relatively minor improvements to a property – an aircon unit, which costs a thousand dollars per say – can put the relationship on a very good stead.”

“Tenants are going to be less likely to want to move quickly if they feel like you’re offering a good service and respecting them,” Mr Patterson Ross said.

“It can be worth it beyond the immediate money issue. If you’re looking for long-term tenants staying in the place, then you do need to make your place more attractive than the next alternative.”

The facts

According to Real Estate Institute of Australia’s most recent Housing Affordability Report, released in December last year, average rental affordability improved over the September quarter of 2018 with the proportion of income required to meet rental payments decreasing to 23.9 per cent.

This signified a 0.5 per cent drop in rental prices compared to the same quarter in 2017.

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