Understanding the tenant’s security bond

By Hayden Groves – REIWA President    https://reiwa.com.au/

When taking on a residential tenancy, typically the owner requires the tenant to pay a security bond upfront which equates to about four weeks rent.

The purpose of the bond is to provide the owner with an opportunity to mitigate any losses should they be incurred by the tenant. These losses may include damage to the property (inside and out) or the non-payment of rent.

The bond is not kept by the owner or managing agent, instead it is paid to the Government Bond Administrator, which is a specific government-managed trust account. Landlords and property managers who fail to comply with this provision face severe penalties. A recent example of this resulted in the owner of self-managed rental properties being fined $24,000 for the misuse of bond monies.

Typically, tenants receive their bond money back at the end of the tenancy once the managing agent has inspected the property to ensure it is in the same condition as at the commencement of the lease (taking into account fair wear and tear). The state of the property is checked against the Property Condition Report (PCR) – a mandatory document required to be completed at the start of a new tenancy. The completed PCR is agreed to and signed by the landlord (or the managing agent on their behalf) and tenant at the commencement of the lease.

Sometimes an outgoing tenant’s view of what constitutes ‘fair’ depreciation differs to that of the owner’s view, which can lead to a disagreement over how the bond is disbursed. If a bond inspection reveals the tenant failed to, for example, clean the oven or mow the lawn, the tenant should be given the opportunity to correct this. Sometimes the tenant will leave these smaller tasks to the owner and give permission for the costs of rectifying them to be deducted from the bond.

Occasionally, however, an agreement cannot be reached and the manner in which the bond is disbursed remains in dispute. In these situations, the PCR is relied upon to determine whether, for example, the carpet was stained during the term of the tenancy. It may have been stained prior, but if not noted in the PCR, it is difficult for the tenant to disprove responsibility. In the event of an unresolved dispute, the courts will ultimately decide the allocation of bond monies.

It is important tenants ensure the PCR is accurate at the commencement of the lease. Make sure you agree with each item listed in the PCR and bring any items you think may have been overlooked to the attention of your property manager.

If you make every effort to return the property to the owner in the best possible manner at the end of the tenancy, you are in a good position to have your bond refunded in full.

Government’s Affordable Action Housing Plan Good For WA

 

by REIWA President – Hayden Groves    https://reiwa.com.au/

 

Housing affordability and diversity remains a topical issue with governments across Australia, so it was pleasing to see, earlier this month, Western Australian Minister for Housing, Veterans Issues and Youth Peter Tinley announcing the State Government’s vision for a more compact and connected city with improved housing affordability and diversity.

The State Government aims to deliver affordable homes as part of its Metronet vision and is currently developing an Affordable Action Housing Plan, which will be released later this year.

The action plan will focus on the connection between people, place and home, real and enduring affordability for those on low-to-moderate incomes, earlier and more connected housing and support services, creation of diverse precincts that will include options to meet diversity of need.

REIWA supports this new initiative and we congratulate the State Government and Minister Tinley on their commitment to promoting a connected, sustainable and accessible property market into the future.

Access to secure and appropriate housing is essential to the success of communities and the prosperity of our state. By 2050, The State Planning Strategy 2050 forecasts WA’s population will have increased to between 4.4 and 5.6 million, with the household composition and age demographic also expected to change significantly over this time. In order to accommodate the changing needs of Western Australians, it is essential there are more appropriate, diverse and affordable housing options available across the state.

At present, 80% of WA’s provision of housing is standalone detached houses. In order to adequately cater for our aging population, along with the influx of people coming to WA over the next 30 or so years, it’s recommended a more diverse balance of housing typologies is required; 56% separate houses, 35% semi-detached and 9% apartments. Clearly, we are a long way off this and more needs to be done to address this requirement.

The State Government’s Affordable Housing Action Plan is a positive step in the right direction and we are looking forward to working alongside the government to ensure the action plan is effective and makes a positive impact on the lives of Western Australians.

In addition, REIWA has been invited to be part of the Metronet Private Sector Reference Group where, along with seven other private sector industry bodies, we will be advising on a variety of complex planning issues vital to Metronet. REIWA will be working to advocate the delivery of appropriate housing stock and the creation of Metrohubs.

It is important that all Western Australians have access to safe, accessable and affordable housing, and the State Government’s dedication to improving housing affordability and diversity in our state will go a long way to ensuring the dream of homeownership remains alive and well in Western Australia.

Meddling with negative gearing will have consequences

 

By Hayden Groves – REIWA President    https://reiwa.com.au/

When it comes to property, everyone has an opinion on ‘negative gearing’. It’s a hot button issue that many people – whether for it or against it – feel very passionately about. It’s also a topic surrounded by a lot of misconceptions.

Perhaps the biggest misconception is that negative gearing is a tax that benefits the wealthy, when in fact the vast majority of investors are mum and dad types who are using property to help secure their futures. Arguments against negative gearing routinely fail to factor in that negative gearing is a legitimate deduction of expenses earned on investments.

Last month, the Australian Housing and Urban Research Institute reignited the negative gearing debate by releasing a report that proposed restricting negative gearing depending on investor income levels. The report suggests this could save the Federal Government $1.7 billion each year.

The reform model proposes that investors in the bottom 50% of the income distribution continue to receive a 100% deduction for losses sustained; those in the 51st-75th percentiles receive a lower 50% deduction, and those in the 76th-100th receive a zero deduction.

There are a number of issues we see with this proposal. For starters, the report fails to consider the impact this kind of change would have on the rental market. History shows that when changes are made to negative gearing tenants suffer as rents invariably rise as supply shrinks.

REIWA maintains its position that removing negative gearing or only applying it to certain criteria, such as weighting it depending on investor income levels, is risky. The WA property market is just starting to show signs of a recovery, and any meddling with negative gearing poses a genuine threat to the recent improvements we have observed.

Negative gearing has far reaching benefits, such as promoting investment in rental properties, and increasing the supply of new housing, which is essential to accommodating a growing population. The private rental market also provides the majority of rental accommodation for the public, helping to keep housing affordable and less government dependent.

In 2016, REIWA carried out a survey of negative gearing with 61% of respondents stating they would have a different view on property investment if negative gearing was restricted. Any policy reform that targets affluent/wealthy investors would simply dis-incentivise them from investing in property and subsequently encourage investment in other unaffected asset classes.

Taxes need to be structured in a way that are efficient, effective and of course, equitable. Applying reform to just one component of a broader system will only add further complexity to the tax system and put greater pressure on housing supply.

Negative Gearing Plays An Important Role In Our Community

By REIWA President – Hayden Groves  https://reiwa.com.au/

Limiting negative gearing to newly constructed properties and doubling capital gains tax remains a central plank of Federal Labor’s policy platform. It’s argument being that the current legislative rules around negative gearing lead to inequality in the community.

Any plan to change the current negative gearing provisions poses a risk to our economy. Negative gearing is so deeply entrenched in our vast and complex tax system (it’s been part of it for more than 100 years) and is therefore interlinked. Tinkering with one part of the system will inevitably impact other areas in a manner we can’t really accurately predict.

The claim that negative gearing is the main reason for pushing up house prices and affecting affordability is untrue. It is the cost of construction and infrastructure combined with planning issues, that is mostly responsible.

Federal Labor’s policy of allowing negative gearing for new dwellings is a deeply flawed policy that will simply encourage more urban sprawl, deliver hastily constructed housing products and, importantly have the first home buyers competing with investors for homes in these newer areas. This is what ultimately pushes up the cost of house prices.

The idea, therefore, that Labor’s plan helps affordability in newly built suburbs, where all future investors will buy, defies logic. Its plan is actually a disincentive to supply rental accommodation in the established market.

Under Labor’s proposed policy, existing housing stock would be ignored as an investment option, ultimately putting pressure on the supply of rental stock in established areas where most people want to live. As a result, rents would inevitably rise, hardly socially responsible.

The plan actively discourages investment in existing housing stock from the private sector, leaving it to state governments, which are already under pressure, to deliver more affordable housing. The last time a government tried to abolish negative gearing it was back in several months later, as the voter backlash from soaring rents and falling property values in WA and NSW frightened them into a retreat.

About 80 per cent of investment properties are owned by mum and dad types who only have one investment property. Labor’s proposal is hardly a tax on the wealthy and assumes all property investors are seeking to avoid paying tax. Investors are often attracted to property investments that either break even or are positively geared where they pay tax on the income.

If the current format for negative gearing is too generous, then perhaps, we need to consider a cap on the amount of losses that can be claimed against income, or similar tweaks. Either way, a more measured and moderate approach to the issue is needed here.

This is no time to increase property taxes.

By REIWA President – Hayden Groves    https://reiwa.com.au/

As the State Government prepares its 2018/19 State Budget, the real estate industry is urging Treasurer Ben Wyatt not to increase property taxes as a means of budget repair.

Western Australians are still doing it tough, and although we have seen mild improvements in the housing market, increases in transfer duty will jeopardise future growth.

Housing affordability is still a prevalent issue for many Western Australians, and increasing property taxes will simply take homeownership out of the reach for many of those looking to enter the market.

The budget should ensure all Western Australians can meet their housing needs, from first homeowners to seniors looking to downsize.

REIWA believes bringing back the First Home Owner Grant (FHOG) of $3,000 for existing dwellings will boost the market and provide greater choice. It will also encourage first homeowners into existing suburbs where they can utilize pre-existing infrastructure and amenities.

Any increases in land tax will be passed on to tenants, making rent less affordable. WA has already experienced huge hikes in land tax in recent years and any more would simply discourage investment, leading to a lack of rental stock and ultimately pushing up prices.

For many seniors, the burden of transfer duty inhibits them from moving into more suitable accommodation. A concession for seniors would allow them to live in smaller, more easily maintained accommodation whilst freeing up larger housing stock for young families.

Now is certainly not the time to introduce a foreign investor tax. WA needs all the investment it can get, and placing additional taxes on foreign investors put WA construction jobs at risk. Ultimately, WA’s property tax system should be thoroughly reviewed with a view to remove inefficient taxes that hinder growth.

Safe and suitable housing is intrinsic to the success of local communities and the State Government should be doing everything it can to ensure access to home ownership is a reality for everyone. Now is not the time to be burdening property with additional taxes.

In the upcoming State Budget, REIWA is calling on the State Government to:

 

  1. Commit to no increase in transfer duty rates or changes to thresholds.
  2. Maintain the existing transfer duty exemption for first homebuyers under $430,000 and reintroduce the $3,000 grant for existing dwellings.
  3. Introduce a $10,000 transfer duty concession for over 65’s looking to “right size.”
  4. Make no further changes to rate or thresholds on land tax.
  5. Defer or revoke the introduction of a foreign owner duty surcharge.
  6. Undertake a state review to assess the impact of the removal of transfer duty for a broader based land tax.

Perth rental market improving, but landlords still need to be competitive.

 

by Hayden Groves REIWA President     https://reiwa.com.au/

Although rent prices across the state have been on a downward trajectory for the last couple of years, the rate of decline has slowed, with the median rent price holding steady at $350 per week since April 2017. The number of rental properties on the market has also improved, declining to approximately 8,500 listings metro-wide, well down from the peak of 11,300 in 2016.

While Perth landlords don’t enjoy the dominance they experienced a few years ago, property investment is still a smart decision. And thankfully, interest rates on borrowings continue to sit at historically low levels, mitigating some of the short term financial discomfort resulting from lower rent prices.

When pricing your property and preparing it for lease, it is crucial you heed the advice of your REIWA property manager. Tenants are out there in good numbers, in fact, leasing activity reached an all-time high last year and remains at above-average levels in 2018.

Provided your rental property is marketed competitively, you have a very good chance of securing a tenant. However, if you choose to price your property higher than your agent’s recommendations, tenants are very likely to bypass your listing.

The first two weeks of listing your property for rent are the most crucial. Get your initial asking price wrong and you can end up chasing down the market, destined to end up with a weekly rent price below market value, plus you’ll bear the rent cost you missed out on when your property was vacant.

Pleasing for landlords, the Perth market has improved over the last six months and we are slowly seeing it transition into a more balanced market. The Perth vacancy rate declined to 5.3% in January, the lowest level since July 2015 and down from a peak of 7.2% in June 2017. This sharp decline indicates normalcy is returning and market parity, in terms of supply and demand, is not far away.

Despite these obvious improvements, REIWA’s forecast for 2018 cautions against expectations of rapid growth in rent prices over the coming year. Property owners are still advised to meet the market – you are better off with less rent per week than having a long vacancy period with no rents income at all.

It is also advisable to be flexible with the conditions you put on your rental. For example, not allowing tenants who own a pet to rent your property can deter people who would otherwise be interested. It is in your best interest to consider tenants with pets on a case-by-case basis, secure in the knowledge the bond, pet bond and landlord insurance will be there to cover any pet-related damage.

If you are thinking of investing or would like a better understanding of how your area is performing, speak to a local REIWA agent about your options.