Rental market faces shake-up, local property experts warn

Eilís Ryan

Changes ahead for Ireland’s property rental sector could drive up the cost of rent for new tenants in Mullingar, but may also see the release of some properties for sale, local property professionals are predicting ahead of the March 1 changes.

Local auctioneer and councillor Andrew Duncan has warned that the incoming measures may further reduce the supply of rental accommodation in Westmeath, while property consultant Pat Davitt believes much of the public concern amounts to scaremongering and says the changes may actually stabilise parts of the market.

Valerie King, of King Auctioneers, says that since in latter months, some landlords have left properties empty with a view to being able to set a market-level rent from March – but others are looking to exit the sector, not so much because of the changes, but because of the delays within the Rental Tenants Board system.

They main changes on the way mean that from March 1, for new rental agreements, landlords will be allowed set rents at full market level when a property is newly let, with future increases capped at the lower of inflation or 2% per year. Most new tenancies will run on a six-year basis, with tighter restrictions on when landlords, particularly larger ones, can terminate a tenancy, though evictions for rent arrears or serious breaches will still be permitted. Existing tenancies in place before March 1 are not affected unless the tenancy changes after that date.

Cllr Duncan, of DNG Duncan, has reservations about the six-year tenancy leases, expressing concern that they would accelerate the departure of small landlords from the rental market, arguing that a decade of policy decisions had already driven many landlords out of the sector, particularly smaller operators who owned one or two properties as part of a pension plan. According to Cllr Duncan, many of those landlords had previously kept rents below market levels for long-standing tenants, only to find themselves trapped by rent pressure zone limits as costs rose sharply.

“There’s practically zero investors in the market,” he said, adding that demand for rental properties in Mullingar remained extremely strong, and there are dozens of applicants for any available home.

“When you put a rental property up now, you could have 50 or 60 people within four or five hours,” he said.

By contrast, Pat Davitt, a former chief executive of IPAV who now works as a property consultant, said the changes were being widely misunderstood, and that for smaller landlords with tenancies already in place, there are no changes. The changes kick in only for those letting a property after March 1 – as long as the last tenant has left of their own volition. He explained that when a tenancy ends naturally and a property is re-let, the landlord will be able to reset the rent to full market level, regardless of previous rent pressure zone limits.

“If you leave the apartment of your own free will and I re-rent it after the 1 of March, I can bring that property up to market rent,” he said.

He stressed that existing tenancies would be unaffected unless there was a change after March 1.

“Nothing is going to happen to their tenancies that are in place today,” he said. “The same rules are going to apply.”

Mr Davitt also rejected the idea that small landlords would be forced into long-term commitments against their will, noting that six-year tenancies already exist under current law.

“If you rent your property today, after six months you’re already on a six-year agreement,” he said.

He acknowledged that the grounds for issuing notices of termination are being narrowed, particularly around family use, but said landlords would still be able to terminate tenancies for rent arrears, breaches of conditions, or anti-social behaviour.

On the issue of landlords selling up, Mr Davitt said properties could still be sold with tenants in situ and that such sales were often attractive to pension funds and investors seeking steady yields.

“Most of those pension companies will prefer to buy a property that’s tenanted,” he said, citing potential returns of between 5% and 9%.

He also pointed to RTB figures showing that, while some landlords are leaving the market, the numbers are not at historically high levels.

“My opinion on the changes is mixed,” says Valerie King, describing them as a double edged sword: “It’s easy to say that the changes are right or wrong, and lose sight of the key component here, that is the changes are primarily aimed at landlords who hold three or more rental properties, not the accidental landlord who bought as perhaps an alternative to a pension fund, and finds the legislative changes in addition to property maintenance and tenant relationship outweigh the benefit of a rental income.”

Valerie’s view is that for tenants renting from larger landlords, the arrangement is on more of a business footing, with regular inspections and regular reviews within the limits of the rental pressure zone rules, so there is more certainty of tenure as the landlord has a long term view of the property and is aware of the responsibilities of being a landlord.

Landlords in general won’t be taken by surprise by the changes: “Since September landlords have been reviewing their options, with some choosing to let a property remain vacant for a number of months to avail of a market rent in March.”

For those seeking rental accommodation, that has been frustrating and has meant the supply of new rental stock is low.

Over those intervening months, some property owners have become confident that the changes have been sufficiently considered and will remain as landlords, but others for age or health reasons are selling up and getting out – “perhaps the delays within the RTB system have soured their belief the system is balanced, with anecdotal reports of overholding tenants becoming more frequent”.