Dublin - Significant reduction in rents coming?

beauf · 26-09-2020 2:28pm

Edgware wrote: »

Because the amateur landlords have not grasped the Law of Supply and Demand and insist on getting the "market rent". They do not want to accept that the "market rent" is what the market is willing to pay and can rise or fall.

Two cases I know both relating to 2 bed apartments in South Dublin.
1. Advertised six weeks ago at 2,300. Still vacant and few enquiries
2. Advertised 4 weeks ago at 1900. Taken after 4 days by a family moving from a 2 bed 300 dearer in same estate.

Apartments are like taxis. Not earning unless occupied

It's their apartment they can leave it empty for 20yrs if they like. It will have appreciated in value probably in that time. So not like a taxi.

"Buy to Leave Empty " is a thing

Edgware · 26-09-2020 2:29pm

Dav010 wrote: »

You don’t understand RPZ’s do you?

Rents cannot rise based on demand, and they are not falling as much as they should because LLs know it may take years to go back up even when demand picks up again.

It will take 5 years for the 1900 to recover to 2300 level.

I do understand but some landlords prefer no bread rather than half a loaf. No need to worry what the other landlord is getting. These are different times and dont tell me it is sensible to give up 12 x 1800 in the hope that in two or three years time you can charge 12 x 2200.

Edgware · 26-09-2020 2:32pm

beauf wrote: »

It's their apartment they can leave it empty for 20yrs if they like. It will have appreciated in value probably in that time. So not like a taxi.

"Buy to Leave Empty " is a thing

It will appreciate over 20 years but hardly to the level that it is equal to 12 x 1800 x20.
If rented the LL has access to the incoming funds to do as they wish. Invest elsewhere, pay down the mortgage.

beauf · 26-09-2020 2:32pm

Claw Hammer wrote: »

What makes you think the market rent will rise to 2,300 before that? How long before that will the market rent be at or above 2,300?
Will the loss occasioned by getting no rent at all for a period of time be recovered?
If the market rent does not reach 2,300 ijn 5 years the place will have been empty and earned nothing for 5 years!
How stupid is that?

Who cares. Just rent somewhere else..

Claw Hammer · 26-09-2020 2:37pm

Dav010 wrote: »

Renters will go back into the market when colleges/offices return to normal, Airbnb’s will return when tourism resumes, not enough properties are being built to increase supply when normal service resumes, that is why I think rents will rise again over the next 12 months.

What are the chances of rents rising in the next 12 months? What is the benefit of RPZs now? Do away with them and LLs will drop rents knowing that they can increase them when demand returns.

You think normality is going to return in the next 12 months? It is a certainty that there be still restrictions for at least the next 6 months. It will take a very long period of time to unwind the situation after that. Tourism is not going to return suddenly. Work from home is not going to end suddenly. Closed down hotels, pubs and restaurants are not going to reopen suddenly with all of the old level of business. Rents are not going to jump suddenly back either. They rise and fall gradually.To answer your questions, number 1, I would give long odds on there being no rent rises in the next 12 months.
Number 2, I believe RPZ's are worse than useless at the moment.

I do not have the power to do away with RPZ's.

beauf · 26-09-2020 2:37pm

Edgware wrote: »

It will appreciate over 20 years but hardly to the level that it is equal to 12 x 1800 x20.
If rented the LL has access to the incoming funds to do as they wish. Invest elsewhere, pay down the mortgage.

I like the way you forget the costs incurred of renting, and tax, and potentially over holding, getting no rent, and damage and wear. The time taken for all this etc.

Not everyone wants the hassle or work associated with renting.

Might not even be long term, maybe they want the place for a family member and realise the have to leave it empty if they want the family to have use it when needs be.

Maybe they are waiting to see what more rules the govt will bring before getting back in the market.

beauf · 26-09-2020 2:39pm

Went are you obsessed with empty places. If supply is increasing and rents falling. Why not just ignore the empty places. Just rent what is available.

NuMarvel · 26-09-2020 2:43pm

Dav010 wrote: »

They were in Ireland.

They're covered in first year economics, even in Ireland. So no, they're not new concepts.

And there have been instances of controls in the Irish rental market before this as well. And not just the ones from the 80s, but prior to the RPZs, the FG/Labour government had introduced the two year rent freeze.

Smouse156 · 26-09-2020 3:27pm

Dav010 wrote: »

You don’t understand RPZ’s do you?

Rents cannot rise based on demand, and they are not falling as much as they should because LLs know it may take years to go back up even when demand picks up again.

It will take 5 years for the 1900 to recover to 2300 level.

Hmm ðŸ€” assuming that things won’t be back to normal before early 2022 and that’s assuming a vaccine is developed early next year (highly optimistic) which would take a year to roll out to everybody, let’s look at what sticking at 2300 asking will result in:

1900 let rising @ 4% annually
Year 1 - 1900 * 12 = 22,800
Year 2 - 1900 * 1.04 * 12 = 23,712
Year 3 - 1900 * 1.04^2 * 12 = 24,660
Year 4 - 1900 * 1.04^3 * 12 = 25,647

Total = €96,819

Sticking at 2300 asking
Year 1 - 2300 * 0 * 12 = 0
Year 2 - 2300 * 0 * 12 = 0
Year 3 - 2300 * 1 * 12 = 27,600
Year 4 - 2300 * 1.04 * 12 = 28,704

Total = €56,304

Looking for the 2019 “market rent” vs the actual 2020 market rent costs €40,515 over the next 4 years. The compensation for that is the rent in years three & four is about 10% higher.

So again, unless you are selling, it’s mad to leave the taxi ðŸš• empty

beauf · 26-09-2020 4:24pm

Doesn't include costs, or falling rents.

beauf · 26-09-2020 4:28pm

Also if it's falling market you want to leave it empty to sell it, vacant possession. Also after a certain amount of time your not bound by the RPZ. Which makes its worth more to a BRL buyer.

Taxi...lol...

dotsman · 26-09-2020 4:33pm

Smouse156 wrote: »

Hmm �� assuming that things won’t be back to normal before early 2022 and that’s assuming a vaccine is developed early next year (highly optimistic) which would take a year to roll out to everybody, let’s look at what sticking at 2300 asking will result in:

1900 let rising @ 4% annually
Year 1 - 1900 * 12 = 22,800
Year 2 - 1900 * 1.04 * 12 = 23,712
Year 3 - 1900 * 1.04^2 * 12 = 24,660
Year 4 - 1900 * 1.04^3 * 12 = 25,647

Total = €96,819

Sticking at 2300 asking
Year 1 - 2300 * 0 * 12 = 0
Year 2 - 2300 * 0 * 12 = 0
Year 3 - 2300 * 1 * 12 = 27,600
Year 4 - 2300 * 1.04 * 12 = 28,704

Total = €56,304

Looking for the 2019 “market rent” vs the actual 2020 market rent costs €40,515 over the next 4 years. The compensation for that is the rent in years three & four is about 10% higher.

So again, unless you are selling, it’s mad to leave the taxi �� empty

But, most good investors are investors for life (or, at the very least a large portion of their life). It is not about the profit over the next few years, but the profit over their lifetime.

Leaving the property empty also means spending less in wear & tear and no letting agency fees etc.

So, let's assume that €200 of the rent per month is eaten up by those expenses, let's look at those figures again:

Year|Monthly Rent|Annual Rent|Total Rent Collected
1|1,700|20,400|20,400
2|1,768|21,216|41,616
3|1,839|22,065|63,681
4|1,912|22,947|86,628
5|1,989|23,865|110,493
6|2,068|24,820|135,313
7|2,151|25,813|161,125
8|2,237|26,845|187,970
9|2,327|27,919|215,889
10|2,420|29,036|244,925

Now, let's look at leaving it empty for 2 years. 2,300 - 200 = 2,100 per month
Year|Monthly Rent|Annual Rent|Total Rent Collected
1|2,100|0|0
2|2,184|0|0
3|2,271|27,256|27,256
4|2,362|28,347|55,603
5|2,457|29,480|85,083
6|2,555|30,660|115,743
7|2,657|31,886|147,629
8|2,763|33,161|180,791
9|2,874|34,488|215,278
10|2,989|35,867|251,146

So, after 10 year's you are better off having left it empty for 2 years.

But, what about 30 years from now. How better off will you be?

Well, if you reduce the rent to 1,900 (so 1,700 contribution), after 30 years, that is €1.144M in rent. If you don't reduce, but leave empty for 2 years, then you will end up with €1.361. That's over €200K better off for leaving the rent as is.

Now, of course there is a lot of assumptions in all the above. And that is the challenge for landlord. With so much uncertainty at the moment, it's a difficult one to call. But it helps explain why some landlords are panicking and reducing rent, while others are choosing to look at the long term picture and not to reduce the rent.

It all boils down to the stupidity of the "rent controls". Rather than trying to fix the market, the government, having given in to popular (uneducated/unintelligent) demand, have ended up distorting the market for the worse. And, thus, our 30-year-old property crisis will continue to worsen.

rocketspocket · 26-09-2020 4:34pm

Bring in a tax that takes 10% of potential rent yield if vacant > 6 months - that would stop the REITs from hoarding empty apartments for investment yield..

26-09-2020 4:45pm

As a landlord of one property the agency I let through advised me I am now in a position to legally raise the rent by 4% if I wished, and of course I declined. They said a lot of landlords like myself are doing the same, not attempting to ask for a legal increase at this particular time. Would be in terrible taste.

beauf · 26-09-2020 4:57pm

rocketspocket wrote: »

Bring in a tax that takes 10% of potential rent yield if vacant > 6 months - that would stop the REITs from hoarding empty apartments for investment yield..

More regulations... Worked out so well in the past.

beauf · 26-09-2020 5:01pm

[Deleted User] wrote: »

As a landlord of one property the agency I let through advised me I am now in a position to legally raise the rent by 4% if I wished, and of course I declined. They said a lot of landlords like myself are doing the same, not attempting to ask for a legal increase at this particular time. Would be in terrible taste.

They could bring in no increase in rents for 10 yrs rule. They could bring in any sort of rule tbh.

Smouse156 · 26-09-2020 5:35pm

dotsman wrote: »

But, most good investors are investors for life (or, at the very least a large portion of their life). It is not about the profit over the next few years, but the profit over their lifetime.

Leaving the property empty also means spending less in wear & tear and no letting agency fees etc.

So, let's assume that €200 of the rent per month is eaten up by those expenses, let's look at those figures again:

Year|Monthly Rent|Annual Rent|Total Rent Collected
1|1,700|20,400|20,400
2|1,768|21,216|41,616
3|1,839|22,065|63,681
4|1,912|22,947|86,628
5|1,989|23,865|110,493
6|2,068|24,820|135,313
7|2,151|25,813|161,125
8|2,237|26,845|187,970
9|2,327|27,919|215,889
10|2,420|29,036|244,925

Now, let's look at leaving it empty for 2 years. 2,300 - 200 = 2,100 per month
Year|Monthly Rent|Annual Rent|Total Rent Collected
1|2,100|0|0
2|2,184|0|0
3|2,271|27,256|27,256
4|2,362|28,347|55,603
5|2,457|29,480|85,083
6|2,555|30,660|115,743
7|2,657|31,886|147,629
8|2,763|33,161|180,791
9|2,874|34,488|215,278
10|2,989|35,867|251,146

So, after 10 year's you are better off having left it empty for 2 years.

But, what about 30 years from now. How better off will you be?

Well, if you reduce the rent to 1,900 (so 1,700 contribution), after 30 years, that is €1.144M in rent. If you don't reduce, but leave empty for 2 years, then you will end up with €1.361. That's over €200K better off for leaving the rent as is.

Now, of course there is a lot of assumptions in all the above. And that is the challenge for landlord. With so much uncertainty at the moment, it's a difficult one to call. But it helps explain why some landlords are panicking and reducing rent, while others are choosing to look at the long term picture and not to reduce the rent.

It all boils down to the stupidity of the "rent controls". Rather than trying to fix the market, the government, having given in to popular (uneducated/unintelligent) demand, have ended up distorting the market for the worse. And, thus, our 30-year-old property crisis will continue to worsen.

Those points make a lot of assumptions such as rents increasing at 4% from last years rate indefinitely which is highly unlikely given they were completely unaffordable. Most landlords don’t lower the rent as they are purely thick headed and can’t see past “that’s what I got last year”.

The rent controls don’t help the situation of course but aren’t likely to stay forever either.

The logical thing to do would be to accept the market the way it is now and not what they hope it to be. What if rents fell for the next 10 years at 4% annually? How does it look then?

Edgware · 26-09-2020 5:39pm

beauf wrote: »

I like the way you forget the costs incurred of renting, and tax, and potentially over holding, getting no rent, and damage and wear. The time taken for all this etc.

Not everyone wants the hassle or work associated with renting.

Might not even be long term, maybe they want the place for a family member and realise the have to leave it empty if they want the family to have use it when needs be.

Maybe they are waiting to see what more rules the govt will bring before getting back in the market.

Renting is a business. Like any other business it will always take a certain amount of time and effort. The secret is good selection of tenants. Don't do the research on potential tenants and you will more than likely get a bad one. If you know the business you will do fine.

Dav010 · 26-09-2020 5:52pm

Smouse156 wrote: »

Those points make a lot of assumptions such as rents increasing at 4% from last years rate indefinitely which is highly unlikely given they were completely unaffordable. Most landlords don’t lower the rent as they are purely thick headed and can’t see past “that’s what I got last year”.

The rent controls don’t help the situation of course but aren’t likely to stay forever either.

The logical thing to do would be to accept the market the way it is now and not what they hope it to be. What if rents fell for the next 10 years at 4% annually? How does it look then?

There is no doubt LL would accept the way it is now and lower rents, if the option was there to raise rents to market rate when demand increases. Rental demand is way down now, it will rise substantially when students return to colleges and offices return to some normality. People keep going on about wfh, that only applies to those who use a computer for their jobs and there is no guarantee that most businesses will not want workers to return to offices when it is safe to do so. There will not be a huge increase in new units, a lot of development sites have slowed or closed, others may not commence building until they see that demand increases.

I would suspect the “amateur” LLs with one property are feeling this more and are more likely to reduce rents than institutional investors who may be more inclined to ride out the current crises in the belief that demand will rise again within the next 12 months.

Dav010 · 26-09-2020 5:53pm

Edgware wrote: »

Renting is a business. Like any other business it will always take a certain amount of time and effort. The secret is good selection of tenants. Don't do the research on potential tenants and you will more than likely get a bad one. If you know the business you will do fine.

So only people who don’t know the business get bad tenants? What does a bad tenant look like?

GocRh · 26-09-2020 6:20pm

While I don't particularly agree with RPZ regulations and the rather arbitrary 4% rate, it's worth noting that if rent inflation eases an area should no longer be subject to RPZ:

"The annual rate of rent inflation in the area must have been 7% or more in four of the last six quarters."

If the rules don't change, maybe it is possible that areas under RPZ will no longer meet the RPZ threshold.

Does anyone know how the rent inflation is calculated? Is it based on new tenancies or on listings?
Is there a review process or once an area goes to RPZ it stays in RPZ "forever"?

beauf · 26-09-2020 6:32pm

Smouse156 wrote: »

....Most landlords don’t lower the rent as they are purely thick headed and can’t see past “that’s what I got last year”.
....

How are rents falling if most Landlords won't lower the rent?

Edgware · 26-09-2020 6:44pm

Dav010 wrote: »

So only people who don’t know the business get bad tenants? What does a bad tenant look like?

In any business there are risks but if you know the business the likelihood of taking a bad tenant are far less. Too many landlords are amateurs who thought "this is a handy way of making money"

Smouse156 · 26-09-2020 7:05pm

beauf wrote: »

How are rents falling if most Landlords won't lower the rent?

Because some are and most aren’t but the most aren’t raising either

no.8 · 26-09-2020 7:11pm

GocRh wrote:

While I don't particularly agree with RPZ regulations and the rather arbitrary 4% rate, it's worth noting that if rent inflation eases an area should no longer be subject to RPZ:

Simply put, what else is there in place that protects against the greed in this country with our undeveloped rental market? We don't have the stability or model in place like a lot of Europe so basically unrestricted rental markets here would cripple our main cities in order to line a few pockets

beauf · 26-09-2020 7:14pm

Smouse156 wrote: »

Because some are and most aren’t but the most aren’t raising either

That seems to run counter to the theme of this thread. Either rents are falling out they are not. If only a handful of people lower rents it would not have any significant effect on the market. But if rents are falling in the volume claimed in this thread, there would have to be a lot of people lowering rent.

beauf · 26-09-2020 7:19pm

no.8 wrote: »

Simply put, what else is there in place that protects against the greed in this country with our undeveloped rental market? We don't have the stability or model in place like a lot of Europe so basically unrestricted rental markets here would cripple our main cities in order to line a few pockets

Why is it underdeveloped?

Which countries in Europe do not have a housing/rental crisis?

Why a few pockets. Most Landlords have one property. So that would be a lot of pockets. Maybe you mean REITs.

The issue across Europe (and a lot of the world) is Govt stopped building social housing. At the same time housing was turned into a Commodity. It was out sourced to the private sector.

beauf · 26-09-2020 7:25pm

Edgware wrote: »

In any business there are risks but if you know the business the likelihood of taking a bad tenant are far less. Too many landlords are amateurs who thought "this is a handy way of making money"

That would suggest that REITs never have to evict anyone. Yet they do. They also are mostly in the higher end of the market, which should have a lower risk profile. Yet they still get caught out.

Dav010 · 26-09-2020 7:46pm

Edgware wrote: »

In any business there are risks but if you know the business the likelihood of taking a bad tenant are far less. Too many landlords are amateurs who thought "this is a handy way of making money"

Enlighten me as to what a “professional” LL looks for that an “amateur” one doesn’t?.

Edgware · 27-09-2020 1:25pm

beauf wrote: »

That would suggest that REITs never have to evict anyone. Yet they do. They also are mostly in the higher end of the market, which should have a lower risk profile. Yet they still get caught out.

Their rent defaulter rate is farless than that of the one property landlords. You can be sure that they have a higher return, more businesslike approach and greater ability to avail oftax advantages and rent increases than the Joe Soap landlord.

Dublin - Significant reduction in rents coming?

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