Australian Economy and Rentals

Welcome to our article (99) Australian economy and rentals

Today because of the coronavirus lockdown issue, a lot of people cannot work, this will impoverish the Australian economy, so, it will create several problems. However, the federal government is pumping money to avoid the worst and keep the workers ready to resume work when this disease stops. We all will be affected in different ways, so, every one of us has different views. Anyhow, I am writing this article to have my say, about how I understand the Australian economy and house rentals.

So, let us discuss the Australian economy and the residential rental market, because some people cannot understand what is involved. So, we must start from the beginning to explain everything the way we know it. Our explanation may not be perfect, but it will be very close to the truth.

As most of us know, the entire Australian economy is based on competition, even the workers must work hard, so that they can earn just a little bit more than what they cost the employer to employ them. Then if these people that have worked hard, can save some money, they can invest this money to make more money, they can invest their money in many ways, some of this can be in residential rental properties.

So, let us talk about real estate and rental properties, because what is happening involves properties, anyhow, real estate has many problems, because it costs a lot to buy and maintain a property, then there are these fixed expenses to pay, this is what we are going to explain here.

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First and foremost is the cost of the property, then there is the running cost. So, let us see what the fixed expenses are. Let us start with insurance, plus the local authority charges, namely, rates and water and sewerage, and the worst of all land tax. Land tax gives you nothing back, but they charge you thousands of dollars because they need the money; so, you must pay them, because you own these rental properties.

Having said that, now I must say that real estate is one of the major backbones of the Australian economy, but it is also fragile, if those things that can affect it change with no warning. Therefore, if something like this happen on a large scale, the entire Australian economy will suffer and can even collapse. So, the economy must be kept running the best way we can. Now, the government is pumping as much money as they can to keep the workers in place and the economy going.

Anyhow, today there are these nut people that think they can get away and pay no rent, because they have lost their job due to the coronavirus that has closed many businesses. But this cannot be sustained by the property owners, because most properties are owned from people that rely on the rent to live, and they have no other income. But even if these rental properties are owned from large investors, they still cannot afford to discount their rent, and if they must, it can only be very little. you see, the margins that they are working on are small, because they are competing. So, let me write an example, how much money is needed to run an average rental house. The figures are only average figures for working out this example.

Insurance $1200 per year, council rates $570 per quarter and urban utilities $350 per quarter this gives you a total of $4880 plus land tax. Now the land tax has a threshold, which most times covers the house you are living in, but once you are over that; the land tax can be $1.7 per thousand of the land-value per year and going up. So, say your taxable land value of this house is 500,000; your land tax can be $8,500.00 This will bring a total of $13,380.00. This fixed expenses alone, can be more than half the rent collected. Then there is also maintenance to add, and what about the investment?

Anyhow, this is a very rough estimate that can apply to some properties, but I hope you see what I mean. So, rent must be paid, for the owners to make any money to repay their loans and other things to keep their investment running, or the rental market may not exist anymore. If that happens; where are people going to live? Will the government then build the rental properties required? I doubt it, Australia has always needed the private sector, that works in competition to keep the prices down.

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At this point of time, the federal government is trying to keep everything running as usual. But there are things that can become uncontrollable, because the lockdown to control the spread of the coronavirus, stops people working and earning money, a chain reaction can result, the economy will be adversely affected.

We believe that the rental market will be affected, especially the residential market. As you know, tenants and landlords are always arguing about rent payments. Today these disagreements can become worse, because of what the prime minister said.

The prime minister said that the owners cannot evict their tenants, even if they don’t pay the rent. This will give the tenants what they want, so, most of them will not pay the rent, even when they can afford to pay it.

I hope that the prime Minister Dr. Scott Morrison, will look at this issue and make it clear to the tenants that the rent needs to be paid. My views on this subject is that those that cannot pay, must go to Centrelink and explain their position, and when Centrelink pays them, they can pay the rent. Anyhow, I believe that they can pay the rent, if they live in affordable accommodations. Those that live in expensive accommodations may have to work it out another way.

Today the world is facing a great challenge, first they must stop the coronavirus disease, after that they must restart their economies going. In Australia, the rental market is part of the economy, so, it would be helpful, if when the coronavirus disease ends, the Australian rental market is still working, and it is able to go back to normal quickly. Otherwise it may create a chain reaction, that Australian cannot afford to have. So, what can be done one may ask?

We believe that the three tiers of governments: the federal government, the state government and the local government (the councils), must work something out what can be done to keep the rental market going, while the coronavirus lockdown is active, and then, how everything can go back to normal later. But let us see what is being done now.

Well not much has been done, because it is a difficult thing to work out, there is still a bit of confusion, while the landlords want their agreed rent paid, the tenants pay unwillingly, let us hope that this coronavirus disease disappears and everything comes back to normal. Because we need at least some direction from the government that says how much rent is a fair amount of rent to be paid. But even this may not work out, because it involves calculating what people earn, and most people are unwilling to tell you that.

Anyhow, what I am writing next is something that is being discussed at the state level. They want to suggest that the tenants pay no more than 30% of their income as rent. There are a couple of questions here: (One) Are the tenants willing to show the landlords all their income? (Two) Will this amount of rent be enough to cover the landlord’s expenses? This nobody knows.

I think that I have said enough in this article. So, we are going to wait and see what happens, and then will write another article to discuss the outcome.

See you soon.

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