Sunday, January 11, 2009

Raking in rent - minus the rant

Jan 11, 2009

It's a tenants' market but all is not lost for landlords. Here's what they can do

By Joyce Teo

The private homes leasing market is softening as the financial turmoil continues to wreak havoc.

Residential rents are falling and there has been a noticeable rise in the number of tenants cutting short their leases and leaving behind debts.

And with new developments still being completed, tenants now have more choice than ever before.

Indeed, it is now a tenants' market, so landlords need to have realistic rent expectations, be more flexible and do more in order to secure a good tenant, those in the property business say.

Condominiums that were recently completed or are being completed may have a few hundred units for rent, so landlords have to be willing to lower their asking rents, said Savills associate director Patrick Lai.

For instance, the 1,111-unit The Sail@Marina Bay still has many units available for rent and owners there have generally lowered their expectations.

In a hot market, landlords can easily rent out their properties, even if they are run-down or have only old appliances. Things have since changed. Tenants can now take their time to choose, property specialists said.

'Now you need to invest first in your property if you want to attract a good tenant,' said Ms Jacqueline Wong, Jones Lang LaSalle's residential head.

Spruce up or lose out

Landlords have to make sure their property is in a 'reasonable tenant- able position', she said.

This is something some landlords do regardless of market cycles, but it becomes more of a necessity in a down cycle.

'You need to do the basics, such as putting on a fresh coat of paint, proper lighting and reasonable appliances,' said Ms Wong.

Be creative

There are different ways of making a property attractive to tenants as long as landlords are flexible and creative.

One way, said Ms Wong, is to leave the property vacant or partially furnished and give the tenant a budget to buy whatever he likes, such as a sofa set.

For a two-year lease, the budget can be anywhere between 1.5months' and two months' rent.

Be flexible

A standard lease is for two years, but one-year leases become more common in bad times when rents are falling.

While it may be better to lock in rents for a longer period, landlords may have to agree to one-year leases if their tenants insist on them.

What landlords can do then is to negotiate a slightly higher rent for a shorter lease, said ERA Asia-Pacific associate director Eugene Lim.

Go for corporate leases

For personal leases, once a tenant leaves the country, there is little the landlord can do to get back any rent owing. It would be too costly to track the tenant down.

The ones who run away are usually low-level executives tied to low-budget rental deals, property agents say.

If possible, go for corporate leases. With such leases, the company is the tenant and even if the occupier gets sent home, the company will still have to pay the rent.

Get an experienced agent

To mitigate risks such as tenants defaulting, landlords should appoint an experienced agent who can carry out due diligence for them.

'We do a lot of tenant profiling, so the likelihood of the tenant defaulting is low,' said Ms Wong.

A high-risk tenant may be someone who is very young and who is new to the job and the country.

Do your own homework

Said Mr Lim: 'Find out more about what your tenant does before committing to a deal. For example, if he is here to develop a new business at present, he could prove to be a high-risk tenant.'

Have a diplomatic clause

Landlords should insist on collecting a two-month deposit for a standard two-year lease.

Furthermore, they should make sure their tenancy agreements have a diplomatic clause. This allows tenants to break a lease legally after a year by giving two months' notice if they lose their job or have to leave Singapore for good.

It is to protect tenants but in bad times, it may also protect landlords as the tenant will have to pay for a minimum of 14 months before breaking the lease, said Mr Lim.

There tend to be more pre-terminations in a downturn.

Don't forget the minor repair clause

Disputes in tenancy agreements usually centre on general repair works and replacement.

To avoid disputes over minor items, landlords should put in a minor repair clause in tenancy agreements.

It means that tenants are responsible for minor repairs. The amount can range from $150 to $250 for condominiums, said Ms Wong.

The amount for landed properties varies greatly, depending on the state of the property and the standard of furnishings, she said.

When major disputes happen...

In cases of disputes over larger repair items, landlords and tenants can turn to mediation to solve their problems.

Property agents usually become mediators when disputes arise. Some landlords and tenants also turn to the Small Claims Tribunal, which extended its jurisdiction in early 2006 to include tenancy disputes arising from a residential lease of two years or less.

The number of claims filed rose to 1,137 last year, from 665 in 2007 and 401 in 2006, according to data from the Subordinate Courts. Most of them were filed by tenants.

However, about 90 per cent of the claims were resolved at the consultation stage without the need to proceed to a hearing, it said.

The maximum one can claim is $10,000, but it will raise that to a maximum of $20,000 if the parties involved agree.

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