Why negatively geared landlords are going to struggle the most with reducing rents for tenants

Discussion in 'Property Market Economics' started by Peter2013, 22nd Apr, 2020.

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  1. Peter2013

    Peter2013 Well-Known Member

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  2. Biggbird

    Biggbird Well-Known Member

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    That just seems like common sense, doesn't it? If it costs more before rent and prices take a dive, it probably isn't going to cost any less afterwards!

    I guess the one potential positive factor is that a negatively geared property may be more likely to be found in an affluent area (costs more, lesser yields) and hence may be somewhat protected from vacancies/tenancy issues if the tenants are more likely to keep their jobs. Having said that, people are losing jobs in lots of industries, so that's far from a guarantee. And this also may not be the case in inflated markets like Sydney and Melbourne I suppose, perhaps just my Hobart/small-town ignorance coming through!
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member

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    The article is logical in its conclusions, but it leaves out a lot of 'soft' data.

    Most landlords that are highly geared also have quite a few other variables which make affordability easier.

    Many will have decent amounts of depreciation. That gives you gearing benefits without immediate cashflow losses.

    They tend to be wealthier than average, in white collar positions. They're statistically less likely to loose their job in the current crisis.

    Serious investors tend to be good at money management. They have savings and emergency buffers. It's kind of sad that 'rich landlords' are expected to have buffers, yet 'poor tenants' are expected to get into trouble within 1-2 lost pay cycles.

    The IO->P&I cliff that everyone worried about didn't really have the impact that was expected. Some got into trouble, but most adapted and overcame. I suspect the same will be true here.
     
  4. inertia

    inertia Well-Known Member

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    not sure about "sad", just a fact. The further down the income scale you go, the less discretionary spending there is, and lower ability to save. The same reason why attempts to boost the economy are best targeted at low income earners - they spend it!

    Cheers,
    Inertia.
     
  5. The Y-man

    The Y-man Moderator Staff Member

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    I see a pretty widespread impact beyond the realestate market.

    Tenants can't pay rent (but can't be evicted)
    leads to:
    Landlord can't pay bank
    leads to:
    Bank can't pay dividends
    leads to:
    Retirees etc who rely on dividends get no money
    leads to:
    (Even) more pressure on gov welfare

    The Y-man
     
  6. balwoges

    balwoges Well-Known Member

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    Tenants cant pay rent (but cant be evicted)
    for 6 month or limited period
    Landlord cant pay bank
    Bank will foreclose (eventual mortgagee sale)
    Banks wont lose and dividends will flow again easing pressure on welfare.
     
  7. The Y-man

    The Y-man Moderator Staff Member

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    I see this as unlikely for now - bank will capitalise the interest, thereby deferring their income.

    The Y-man
     
  8. craigc

    craigc Well-Known Member

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    Agree - article refers to 2016/7 data. Think interest rates and a lot of other things have changed since then.
     
  9. Fargo

    Fargo Well-Known Member

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    That is a big statement - have they got any facts to back it up. I am not losing money, lower interest rates mean a many fold increase in profit margins add in levarage = large increase in ROI. The amount of negative geared property should be negligible. The last time I checked, 4 years ago only 10% of property investors had negative geared property. It should be a lot less now and almost impossible to have a negativly geared property with 2% interest rates, when a sensible investor and servicabilty requirements use 8% for evaluating viability. Greedy land lords should be able to reduce rents considering they are benefiting from the current circumstance with cheap money. eg, If you were making 1k p/a on a property and now pay 16k less interest you now have 1500 % more profit which may be a 30%p/a yield on invested capital instead of less than 2%.
     
  10. wylie

    wylie Moderator Staff Member

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    @Fargo why should "greedy" landlords reduce rent in the circumstances you've described. Should the banks reduce their charges because they are now making big money?
     
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  11. Omnidragon

    Omnidragon Well-Known Member

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    Greedy landlords vs greedy tenants?
     
  12. TangibleGoodwill

    TangibleGoodwill Well-Known Member

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    Hard working landlords vs freeloader loader tenants

    Theres quite a lot of schadenfreude going around thats for sure.
     
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  13. Antoni0

    Antoni0 Well-Known Member

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    Can't see this staying true for a lot of people with unrented homes and some people will have acreage property with low rents.


    downloadssd.jpg
     
  14. The Gambler

    The Gambler Well-Known Member

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    Personally, I wouldn't call it more profit. It's just less debt.
     
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  15. Buynow

    Buynow Well-Known Member

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    The banks’ share prices suggest otherwise
     
  16. skater

    skater Well-Known Member

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    Why when speaking of Landlords do some feel the need to insert the word 'greedy'?

    Being a Landlord is just like being a business owner in many ways. Is it greedy to expect to make a profit after injecting significant capitol into a venture? When you go to the supermarket you pay the price asked. You pay interest to the bank. You pay your phone charges, car leases etc. and you pay in full, no matter the economy. Why do you consider a Landlord, who is often just an ordinary person, not a multinational company like the above, to be greedy to expect the same?
     
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  17. wylie

    wylie Moderator Staff Member

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    Exactly. The whole aim is to slowly make rent cover all outgoings, and as the mortgage reduces, there's more money to provide for our old age.

    Seems like some think as our mortgage reduces, we should lower the rent. :rolleyes:
     
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  18. TMNT

    TMNT Well-Known Member

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    [​IMG]

    Tall Poppy Syndrome
     
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  19. skater

    skater Well-Known Member

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    What? We're not a charity?
     
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  20. MB18

    MB18 Well-Known Member

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    The sentiment generally comes from a reluctance from some landlords (majority in my experience) to spend any money on repairs or preventive maintenance.

    The property 'investment' has been made entirely on speculation of capital gains so any maintaince comes directly out of the landlords pocket rather than the rent.

    I've had some great landlords that have treated the rental property as thier own home (on occasion it was) but those cases are rare.
     
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