Recently, we looked at rental stress and the implications for landlord insurance if tenants default. Although some renters are financially stretched, market forces are dictating higher rents. Today we look at raising rents and highlight an insurance matter that may be news to many landlords.
It’s currently a ‘landlord’s market’, with high demand and low supply of rental properties. Competition among prospective tenants looking to secure a lease is driving rents higher.
But landlords and tenants aren’t the only ones with an interest in rising rents – there’s also an important insurance condition to consider as your rent heads north.
National asking rents rose 12.8 per cent over the 12 months to March 2023, with capital city prices rising even higher, up 21.4 per cent, according to SQM Research.
According to Savvy’s Rental Affordability Report, the cost of rent soared 22 per cent, nationally, in 2022.
People living in inner-Melbourne, Ku-ring-gai on Sydney’s leafy upper north shore, and Caboolture, north of Brisbane, are experiencing some of the largest price rises nationally, with rents increasing by as much as 36 per cent in some areas, according to online real estate listing data compiled by PropTrack for AFR Weekend.
RBA notes that the increase in CPI rents of 4 per cent over 2022 was the strongest in 10 years and CPI rent growth is expected to pick up further in the year ahead.
Gross rental yields are also trending higher. According to CoreLogic’s Hedonic Home Value Index, average gross rental yield for capital city dwellings in February was 3.7 per cent, while the combined regional dwelling yield was 4.6 per cent – bringing the national gross yield to 3.9 per cent.
The bottom line
Market forces (high demand and a lack of supply) are driving rents higher and, despite rising interest rates, many owners are seeing good returns on their investment with strong rents and improving yields.
In light of this, many landlords will be seeking higher rents when advertising a property for lease and looking to raise rents when tenancy agreements are due for renewal.
Heads up! Some jurisdictions have outlawed rent bidding (with others also looking to ban the practice), with penalties for landlords and agents caught asking prospective tenants to make an offer above the advertised price or advertising a property without listing the rent. Each jurisdiction also sets out the rules around raising the rent and the guidelines must be followed.
The impact on insurance
When landlords increase the rent they charge (in line with the rules set out in the applicable tenancy act of course!), they should be sure to properly document the increase and update their insurance policy to reflect the new figure.
In the event that a landlord needs to make a loss of rent claim on their policy, they will need to provide a copy of the tenancy agreement and rent ledger. As any payout is likely to be based on the documented rent figure, it pays to make sure the paperwork is up-to-date.
It is also important to understand that there are limits on loss of rent claims, so being aware of any gap between the rent being charged and the policy limit is worthwhile – especially in markets where rents are particularly high, such as prestige property.
Landlord insurers limit the maximum weekly rent covered (at EBM RentCover it is $1,500 per week) so landlords should check that the limit is suitable and, if it isn’t, they should talk to their landlord insurance provider about additional cover options.
Market conditions currently favour landlords. Asking rents are rising in response to increasing demand and scarcity of supply. Landlords looking to raise rents need to follow the legislated rules and also keep in mind the maximum weekly rent that is covered in their insurance policy.
With rents skyrocketing in some cities and locations, more rentals are likely to be priced outside of policy limits and you may wish to enter negotiations with the insurer to be fully covered.
Want to update the details of your EBM RentCover landlord insurance policy? Contact 1800 661 662 for help.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.
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