Loan moratorium ending: Landlords karma in the rental industry
The six-month loan moratorium granted by our government to ease the financial burden of small and medium enterprises (SMEs) and individuals — brought on by the COVID-19 pandemic –- is ending on 30th September 2020. It will be crunch time for many when banks resume loan repayments.
There is no doubt about the state of our property market, as well as those abroad, though the UK has made a surprising recovery in the residential market. Every swipe of news brings more negative than positive elements.
Although there are properties and developments that seem to be holding well, those would not define the rule but are the exceptions. Key professionals in the industry have forecasted a 10 to 20% drop in prices across the board this year; rents are also expected to decline.
I have included several references at the end of this article.
An anxious period
Some landlords have already given reduced rent and even free rental periods since the Movement Control Order (MCO) was imposed. This is indeed a very psychological matter, especially when times are riddled with uncertainty. The slightest cue from tenants wanting to vacate could make landlords frenzy. Drumming questions such as “Should I reduce the rental?”, “If I don’t, would my tenant leave?”, “How do I know that my tenant is in financial difficulties?” and “Is it appropriate to ask?” are significant and should not be ignored.
If getting acquainted with your tenant isn’t your prerogative, now may be the time to do so. Many landlords navigate behind the veil of their agents to avoid the awkwardness of having to say “No” to their tenants’ requests or attend to their needs. There are pros and cons, but in these tumultuous times, I think it helps to get to know them without a third party. Talk and work out a fair deal if the situation comes up.
Should I reduce the rental?
The rentals landlords enjoyed before the outbreak may no longer represent the current scenario. In my article: The Challenges of Selling Properties During Covid-19 Pandemic, I wrote about the difficulties of determining the price in a declining and changing market condition. The same principles would apply to charging the right rentals.
Before deciding, know the market and what a fair rental to accept. Though the Valuation and Property Services Department (JPPH) does not provide information on rentals as they do for sales transactions, experienced registered estate agents in your area would be able to give some indication. Or you could engage a qualified valuer to do a report. If you can- estimate the market value of the property, applying a gross yield would give you the gross rental per annum. The yield has to reflect the present market situation.
For stratified properties, as an added value service to owners, the management can decide to provide up- to-date information on the number of units taken up or vacated and the range of going rentals. Direct rental comparisons would no doubt be better indicators than asking rentals of your neighbouring units.
If you have decided against a rental reduction because you don’t think your tenant needs it, then hold your rental. But be prepared that they could be looking elsewhere. We have shifted to a renters’ market.
Up and Go! — When things go wrong
If they do not complete the term and give the required notice, your tenancy agreement may have provided that you can deduct the deposit. But in reality, it is not always that they would pay till they go. This happened to my neighbour. He had a tenant who moved out after six months without giving notice. To add to the injury, they owed one month’s rental and damaged his kitchen.
I doubt there was much that he could have done to avoid this situation. Even with an airtight tenancy agreement, enforcing his rights would be an arduous task. It could take three to six months to get an eviction order at the Sessions Court, and it isn’t cheap. At a reported cost of RM7,000 to RM 25,000, it is a further dip into the pockets.
No one could have predicted that it would turn out this way or proceed with tough measures as soon as the problem happened. When you playback, then you connect the dots: such is life.
NOTE: It was reported that if the tenancy agreement provides that the landlord can suspend water supply if the tenant is arrears in rent, then the landlord can do it. This is based on the case Premier Model (M) v. Philepromenade Sdn Bhd [2001] 1 LNS 173. Check this case with your legal counsel. In practice, the water bill would need to be under the landlord’s name for him to terminate the supply. It is not recommended to do this.
Proposed Residential Tenancy Act
When the proposed Residential Tenancy Act (RTA) is implemented, hopefully, the formation of a Tribunal will materialise. This would make it easier for both parties to enforce their rights and obligations to one another. Currently, a court order is needed if landlords seek to evict tenants or recover funds if they refuse to cooperate. This route is expensive and cumbersome. The RTA will regulate matters concerning landlords and tenants. For now, we can be guided by case laws, i.e., those tried in Court to use as examples.
It would be practical to have an authority that functions like the Commissioner of Buildings (COB) for strata title properties to administrate and enforce the RTA.
On both sides of the coin
For over a decade, we were a part of a corporation’s long presence in the property industry; we were one of their many tenants. Our lease had expired around the time of the MCO. When the renewal came up, we didn’t sign for it because they wanted to increase the rental. It was in the agreement that there would be a rent review every two years upon expiry. We were negotiating with them for a better package due to the poor market situation. Then, the MCO was imposed, and things took a drastic turn for many people.
At the same time that we were a tenant, we were also a landlord of our own office. Our tenant’s business was hard hit by the pandemic, and it wasn’t viable for them to keep ours as a second unit. They didn’t say anything initially, so we asked them their plans, and they dropped the bomb.
That spurred our decision to move into our own premises instead. Since we didn’t give the required written notice before the expiry of our lease, the corporation had the right to forfeit our deposit — but they decided not to. We had been a good-paying and loyal tenant all those years, which counted for something. Paying it forward, we returned the deposit to our tenant even though they did not complete the term.
These are unprecedented times. We can be flexible on rules, terms and conditions if it justifies. Nothing is set in concrete. There are no hard and fast rules on what the right thing to do is. It may take longer for the market to bounce back, but eventually it will. When the sun goes down, it will rise again.
References
- End of loan moratorium and property market’s fate
- Property prices expected to decline by as much as 20% following Covid-19- buyers market ahead
- Malaysia’s overall real estate market hit hard by coronavorus
- Malaysia’s property prices to adjust by at least 10% post MCO
- Eight things to watch out for in the Malaysia’s rental market in 2020
- How do you go about evicting a tenant?
- If tenants don’t pay, what can landlords do?
- Malaysia Tenancy Agreement Guide
- UK house prices hit record high after easing of Covid lockdown
- Zuraida: Residential Tenancy Act is drafted
