Brisbane landlords: life as a property investor is about to get tougher
Our real estate agency is a vibrant and positive place. We’re definitely glass half-full kind of people. But our business is built on serving property owners including many Brisbane landlords, and right now it’s hard for them to love their investments. And it’s hard for us to paint an optimistic picture. Rents have dropped over the past 3 years while expenses have risen; values have fallen (apartments) or risen only slightly (houses); interest rates are flat but many of us have been forced to make extra principal repayments on our loans. Landlords’ net returns have almost all dropped and there’s been little to celebrate.
And positive as we are about the future of this magnificent city, and especially real estate in the inner-city, there are powerful forces about to make things tougher for Brisbane landlords.
“Open Doors to Renting Reform” is the state government’s current program to tip the legislative scales firmly in favour of residential tenants in Queensland. The ‘consultation’ (we’re being generous calling it that), was headlined recently with the suggestion tenants should be able to keep pets without landlord consent, and plenty of you had a view on that. But there’s lots more in this review that’s raising concerns for Brisbane landlords including the idea that a tenant should be able to stay in a property for as long as they like. There’ll be limited grounds for termination – rent breaches for example, or if you’re selling or moving back into the property. But what if a landlord decides they’re just not happy with the tenants for regular late payments, lack of care for the property etc? Too bad. Unless they actually breach the agreement, you’re stuck with them.
This isn’t a new policy brain-snap, with the idea floated then shelved in 2012 and again in 2016. And we want to be really clear in saying this: landlords (and their property managers) want good tenants to stay long term. Tenants’ advocates like to argue that agents encourage changing tenants because we get a fee when that happens. But the work involved, the vacancy (when we get no income) and risk of losing a client all far outweigh any benefit to us. A happy tenant who stays long term, pays their rent and takes reasonable care of the property is by far the best outcome for everyone.
If you wanted to make marriages work better, would you outlaw divorce? That’s what the Housing Minister is proposing, arguing that a landlord’s right to end a tenancy should be limited. Landlords, he says, sign a “social contract” when they put their property up for rent, offering it to tenants with apparently far more non-commercial obligation than any of us expected. Are we really there to do the government’s job and house tenants we don’t want?!
You can weigh into the public debate and provide your own submission by November 30th. We will be. But we expect the government will push ahead regardless – pets allowed, no ending tenancies without grounds, tenants able to make cosmetic changes to the property without consent. The list goes on. Landlords should brace yourselves.
Now to the Federal Labor policy to remove negative gearing (other than on new properties) and halve the capital gains tax discount. Importantly the ALP say current investment properties will be excluded from the change until sold, but it’ll be a huge change in the financial decision on investing in real estate. Borrowing to buy is getting harder; the cost of holding/owning a property will go up significantly if the ALP take office; and if you achieve what we all aim for – growth in the asset value to help fund your retirement – you’ll pay more of that profit in tax.
One insider described this today as “the perfect storm for property investors”. State and federal policies combining to raise your risks and diminish your returns. Add to this we have a Brisbane market that may be some time away from worthwhile price rises. Those Brisbane landlords who’ve been on the fence about holding their investments are starting to head for the exits. This might well be a defining point in time, when only the seasoned and determined landlords stay the course.
Others will naturally see this as a buying opportunity. If you secure an investment property before Bill becomes PM you’ll be able to keep it negatively geared. And many share our optimism on inner-Brisbane’s future. The scale of the major projects to be completed in the next 5 years is phenomenal (including Queens Wharf $3.6b; Cross River Rail $5.4b; Brisbane Metro $944m; Brisbane Live $2b; Second airport runway $2b) We’ve already seen growing interstate migration and if that continues Brisbane may be entering a ‘golden age’.
Brisbane landlords have decisions to make. Sell up or hold on? We’d love to hear what you think.
Bring it on. Making life harder for landlords means less rental properties, then higher rents and the cycle begins again.
I recently sold up in Brisbane inner city at a significant capital loss. I’ve been lucky enough to have my apartment %95 tenanted for the last 10 years. I do not see any positives in the years to come for inner city landlords. Negative gearing is no longer a sound investment while capital growth is in decline.
Full credit to BeesNees, they did warn me 5 years ago to make a decision given the rapid development plans for multi-storey units. I wish I taken their advice and sold up back then.
Thanks for the latest update on the Dept of Housings plans. It’s quite horrific. I have previously emailed you in response to your last newsletter and sent an online feedback to the Dept of Housing PLUS a letter expressing my concerns.
I would appreciate what suggestions you may have for me as an individual landlord to increase my pressure on the government to prevent these outrageous policies becoming legislation..
I am happy to do anything to prevent this. I look forward to hearing back from you.
There seems to be very little media coverage on all of this so far. November 30th is not far away!!!!! Will they then close the books on protests?
I would like to congratulate you on taking such a strong stand and informing your readers of what the real story is. Keep up the good work. One of my favourite mottos is: World War 1 and II were not won initially but radical ideas and bullying eventually were defeated.
Hi Rob
Just an afterthought on my earlier email this evening.
Are they going to try and freeze rents? Whether landlords would need to very carefully state in lease their ability to increase rents?
Perhaps this could be a topic I could raise in a further letter to the Dept of Housing if they haven’t mentioned anything on it???
Regards
Carole Jilek
Those are serious changes as proposed. No landlords want vacant properties. Good tenants and responsive landlords. It’s a renters market in Brisbane for some time now, what other major city has seen rents decrease?
We are looking at purchasing another property in the Brisbane area but after reading your article having second thoughts. It is insane to take away the owners rights like that. It’s bad enough now if you have a bad tenant but if these laws come into play I would say it will drive owners to sell up.
After 14 years of renting before we could buy our own home and a commercial investment property, we gained a lot of experience on both sides of the fence. As tenants, we always left a rental property better than we found it (with photographs as proof), often at our own cost (e.g., install a deadlock, clean up and re-contact grotty cupboard shelving, put up curtain rods, etc.), but with approval from the owner. We felt like caretakers rather than tenants. On the other hand, it was incredibly unsettling, stressful and disrespectful if a property manager did not respect our privacy, security, need to live in an environment fit for human habitation or respond to our attempts to contact them for maintenance (e.g., leaky taps). The number one thing we felt when were finally able to buy our own home was how settled we felt. It literally took us two years to get used to this feeling. We could live the way we want (e.g., get a pet), not have to worry about 3 or 6-monthly inspections by strangers (having to lock up/hide away valuables, keys or private papers), not worry about finding a For Sale sign outside when we come home from shopping (this actually happened to us without notice just weeks after having a newborn), have tradies come when it suited us and not have to shift because the landlord/agent wanted to put the rent up excessively or put it on the market. To the landlords/agents who were decent, we were very grateful for their consideration and kindness. Their example gave us something to aspire to. It was a valuable learning experience to learn about the different types of maintenance required for the different types of homes we lived in and this strongly influenced the type of home purchase we eventually made later on. We would never dream of doing anything to a property that did not belong to us without getting permission first, pets included. As the saying goes, what goes round comes around. Perhaps the middle ground is that if a lease of 5-7 years is signed and substantially paid up front, then the tenant could make alterations on the proviso that they will be up for the full cost of returning it back to its original state, similar to defence force homes. Alternatively, if people want to alter a property, then they could perhaps focus on saving up for their own instead of altering something that does not belong to them. If this is not possible, just both parties being kind and considerate would go a long way. On the other hand, if capital gains don’t at least cover the costs of holding a property, cover depreciation, dollar devaluation over time and the time compensation required to deal with the numerous responsibilities which go with owning one, what incentive is there to own one? The stockmarket would be easier to deal with.
Rob – Excellent article. I have been renting out property in the USA, New Zealand, and Australia for 45 years and concur 100% with what you write It is now almost imperative to have either no mortgage on an investment property, or nearly so. The city councils seem to be involved in things they should not be involved with. Left leaning governments at all levels forget that property investors take great risks. Moreover, it is getting harder by the year to make the validity of traditional property investment work. Frankly, I would think that the greatest reason for an owner to buy property based on my 45 years of experience is the potential capital gain.
Using the “Rule of 72,” if you keep an investment property for say10 years, at a compounded rate of 7% per annum appreciation, the investment would double in value. This was almost the normal expectation over the past several decades. There now seems to be a tendancy not only having tax deductions substantially reduced, but there are terrible hassles with tenants, animals, hooks on the walls, car spaces, noise, etc. Additionally, the constant linear growth pattern of annual incremental progression is no more a given.
By way of example (again using the “Rule of 72,” a modest, but realistic 3% growth rate per annum, would take 24 years of holding an investment property for it to double in value. That seems more the road that many people will need to face in the years, and possibly decades ahead. It is a different reality than some of us over 60 years of age have faced over many decades.
Rob, your article is very well made and ought to be read by all who have anything to do with property investment – most importantly politicians.
Kindest Regards, Dallas Hensley
Why is this not in the press? PLEASE do more to educate the masses!