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A business leader warned the rental crisis is set to tighten its grip on Victorian tenants as rental property owners are now near their “breaking point.”
Stockdale & Leggo co-director and chief executive Charlotte Pascoe voiced her concern that the new Victorian government tax to recoup hundreds of millions of dollars in COVID-19 debt is “damaging” the rental market by leaving already frustrated owners no choice but to sell up.
Ahead of the new land tax scheme taking hold, Ms Pascoe warned it was already having a negative impact on the rental market, citing reports from within her network of a marked increase in owners wanting to offload their investment properties.
“Our agents have been inundated by mum and dad investors, hardworking first-time investors and retirees saying it’s just not worth the extra cost and hassle to retain a second home,” she stated.
She cautioned this trend is “creating a perfect storm that would see further tenants given notice to vacate with nowhere to go.”
“That now means more tenants may potentially not have a roof over their heads,” Ms Pascoe added.
The latest on-the-ground insights from the business leader comes as a recent survey conducted by the Real Estate Institute of Victoria revealed that 90 per cent of agents have fielded an increase in calls from landlords concerned about their finances in the wake of the state’s new taxes.
Concerningly, findings of the survey also showed that at least 70 per cent of agents say that those calls are from investment property owners who are seriously looking at selling.
Ms Pascoe estimated the number of rental properties would continue to shrink even further, with fewer investors willing to put their hand up and more properties selling to owner-occupiers.
While property owners are now “near breaking point” due to the new land tax, Ms Pascoe emphasised that the burden on the proverbial camel’s back has been gradually building, with various factors contributing to this critical juncture.
The executive underscored that the current land tax — compounded by preexisting challenges — had created an environment where aspiring individuals faced extraordinary obstacles in their pursuit of securing their future through investment properties.
During the pandemic, Ms Pascoe explained landlords faced financial distress as the pandemic moratorium prevented them from taking action when renters couldn’t pay rent, while mortgage payments still had to be made.
She noted rental reforms also added to the financial burden associated with holding a rental property, leading many owners to sell.
Recently, Victoria was also labelled as the “worst” state or territory across the country for renters by Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA), thanks to relentless onslaught of tenancy reforms that forced landlords to abandon the market and unleash a full-blown rental crisis.
Adding to the slew of headwinds faced by property owners are the recent interest rates rises, which Ms Pascoe said are making it unsustainable for home owners to maintain the second mortgage.
The executive further warned talks of a rent rate cap is also impacting “a fragile situation.”
In a desperate bid to gain support from the Greens for tax reforms included in the state’s upcoming budget, it was reported by REB that the Andrews government is heavily considering several renter safeguards, including rent caps.
“The new land tax, and the current discussions of rent caps, have left investors hanging on by a thread with no option but to sell,” the executive said.
Ms Pascoe criticised the Victorian government for not “thinking about the big picture and considering all the unintended consequences.”
“If it is serious about its concerns about housing affordability, which includes affordable rental, it needs to take appropriate steps to manage it. Accountants are now telling them to put their money elsewhere,” she stated.
Ms Pascoe added the current housing strategy, including putting weight behind build-to-rent (BTR) developments, was likely to fail.
“Build-to-rent is the focus but this is very short-sighted and only assists a small number of renters in the market and has a key focus on inner Melbourne not the rest of Victoria,” she remarked.
Echoing statements made by REIV president Quentin Kilian in his recent op-ed criticising the state government’s plan of action on rent caps, Ms Pascoe also took aim at the often-held notion that a significant portion of Victorian property investors are wealthy individuals, stating “that’s just not the case.”
“Many just cover their mortgage with the rent. They are paying more in expenses, rates and it’s not surprising with this new land tax that many are electing to sell,” Ms Pascoe concluded.
Originally Published: Zarah Torrazo | Real Estate Business | 11 July 2023