According to a recent RTB survey, Ireland’s rental market is shrinking due to many factors, the most prominent of which are costs and tax.
In a survey of 500 landlords, an overwhelming 15% said they plan to leave the sector in the next 12 months.
In the last five years, the rental market has been reduced by an estimated 43,000 properties. Before the reduction, becoming a landlord was widely considered an excellent investment.
Last year the RTB recorded nearly 44,000 lower lease agreements compared to 2016.
Why are smaller landlords leaving the rental market?
In a word, cost. For the most part, landlords are investors. Investors invariably select the asset class that has the propensity to return the profit/risk balance they are accustomed to.
Because of the housing crisis, legislative and regulatory changes have been made, which for some, have made the sector less attractive.
Because of this, some landlords/investors have decided to either exit the sector altogether or invest elsewhere.
Despite this, according to the Central Statistics Office, residential property is still statistically one of the most profitable conservative investments available.
Landlord Taxes
Landlord taxes have increased incrementally over the last few years, with stamp duty being brought back into effect, supplemented by a 3% surcharge on secondary or buy-to-let properties. The average landlord pays almost half the income from a rental property in taxes.
In the RTB survey, 25% attributed leaving to rental taxes being too high.
Regulatory Environment
The government has imposed a series of new legislations and exposures to combat the housing crisis.
Many landlords consider this an unfair intervention into private industry.
Some of the new legislative changes around the rental market are restrictions on how and when a tenancy can be ended, how much rent can be charged or how a deposit can be taken upfront.
Tenants
Another reason that landlords are leaving the sector is the tenants. Of all the landlords surveyed by RTB, the vast majority said they had a good relationship with their tenants, but 3% reported having a negative experience with them.
Of the 3%, half said it was due to late or non-payment of rent, and the other half said it was due to excessive maintenance requests.
Turnover
Another big factor is that the rising cost of rent has increased tenant turnover. The most expensive part of property administration is marketing, finding and facilitating new tenants. Historically a tenant would remain in the property for an average of 3 years, but with the incremental rent rises, landlords are experiencing much higher turnover rates.
Are rental properties still a good investment?
Although some long-term landlords are choosing to exit the sector, many remain. Irish property prices are very much on an upward trend. Even the covid19 pandemic did not stifle the growth of the market.
There are many reasons to be a landlord in Ireland:
Record high rents
A recent Daft. i.e. report showed that average rents have risen by over 14% in the last year alone. Higher market rents result in far more profit for landlords.
Government-funded grants
To bolster the number of rental properties, the Government has issued a series of grants to both landlords and tenants. These grants increase the value of the property(s), allowing for a more significant return as and when the property is eventually sold.
High occupancy rates
Due to the housing shortage, there is a massive demand for rental housing. This means that for prospective landlords, it’s easy to select the perfect tenant.
Summary
Although there is less profit in the current rental market, it is still very profitable and considered one of the highest-yield investment areas.
Another way to maximise rental profits is to commission a property manager who will do everything on your behalf. This includes locating the tenants, drawing up contracts, keeping the property in line with any new or changing laws, maintenance and collecting rent.
Property management Dublin
If you are considering purchasing a rental property or own one already, the KPM group can help.
KPM has helped countless landlords free themselves of the day-to-day running of their investment properties.
Let us ensure that your investment is a fruitful one. Contact us today to speak to a member of the team.
