Coronavirus: Rent support needed in commercial and residential property sectors - industry experts

Signing of a contract
The ability for tenants to pay rent is a key concern for property investors. Photo credit: Getty.

The Property Council is calling on the Government to provide assistance to businesses struggling to pay commercial rents during the COVID-19 crisis.

Similarly, real estate company Ray White said that inability to pay rent is also a concern for residential investors, as the full wage subsidy may not be enough to cover it.

On Wednesday, Finance Minister Grant Robertson announced further new measures to support small and medium-sized businesses, including support for commercial tenants and landlords, a tax-loss carry-back scheme, changes to tax loss continuity rules, more flexibility to meet tax obligations and business consultancy support.

The timeframe for commercial landlords to cancel leases has moved from 10 working days to 30. For commercial mortgages and home loans, the timeframe for exercising rights to sale or repossession of mortgaged land has also been extended, from 20 to 40 working days. 

Property Council CEO Leonie Freeman said that although extended time frames give tenants and landlords more time to resolve contractual issues, non-payment of rent has wider impacts.

She said that for businesses that hadn't made a substantial profit - including not-for-profits, the ability for tax losses to be carried back to the previous financial year won't provide the cash flow needed to pay the rent. 

"The Government is taking a holistic approach to supporting the property sector, which is understandable given the circumstances, but we believe more support will be needed for businesses that occupy tenancies now and in the next six-to-12 months," Freeman said.

She said the Property Council has proposed a relief package for commercial tenants who had suffered a 50 percent drop in income.

"Proposals included a deferral of rent by landlords facilitated by the tax system and a targeted rent tax credit for tenants with direct financial assistance via a mechanism similar to the Government's wage subsidy," Freeman said. 

Although small businesses may be struggling to pay rent, commercial landlords and larger property owners are under pressure to make repayments. Lack of certainty about cash flow could present challenges in getting construction projects off the ground.  

"This could have a devastating effect on the property and construction sector, with hundreds of thousands of New Zealanders relying on these projects to stay in work and in business," Freeman added.

Zac Snelling, head of property management at Ray White, said that lack of tenant support for residential rental payments will create significant issues if assistance is not provided.

The wage subsidy provides a short-term back-stop - but in many cases, it may not be enough and this has a flow-on effect to landlords.

"If a tenant has lost employment and receives the full wage subsidy, they have only a 12-week income. That in many cases is still less than the median rent for a three-bedroom property (across all areas of NZ)," Snelling explained.

February TradeMe figures showed that the national median rent was $515 per week - around $70 less than the full-time weekly wage subsidy of $575.80 per week. Although in many cases that rent cost is shared, for many tenants paying for food and other household expenses on top is a struggle - and their landlords may rely on the rental income to help pay their own bills.

"We're seeing tenants and landlords working together as best they can, however, this isn't sustainable in the medium-to-long term," Snelling said.

"A lack of tenant support for rental payments will create significant issues for both tenants and landlords if assistance is not provided soon."