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

https://www.domain.com.au/news/why-negatively-geared-landlords-are-going-to-struggle-the-most-with-reducing-rents-for-tenants-948993/amp/

Most landlords are already losing money on their investment, which may explain the hesitance to cut rents for struggling tenants, experts say.

We have the world's 2nd largest debt fuelled housing bubble. Australia now faces a depression.

Could Negative Gearing cause the crash in the housing asset bubble to be much more severe and prolonged?

 

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!

 

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.

 

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.

 

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.

 

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

 

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%.

 

Greedy landlords vs greedy tenants?

 

Hard working landlords vs freeloader loader tenants

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

 

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

 

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

 

The banks’ share prices suggest otherwise

 

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?

 

Tall Poppy Syndrome

 

What? We're not a charity?

 

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.