The climate for landlords has changed utterly in the last 18 months, writes JACK FAGAN

THE RECENT reduction of 8 per cent in the State rent supplement has surprisingly wide implications for property investors.

The unilateral announcement about the cut (effectively the Government saying to hell with any legal contracts you may have with landlords) directly affects no fewer than 88,000 property owners throughout the country, about one-third of them in the Dublin area.

Everyone knows, not least the Department of Social and Family Affairs, that the rental market has weakened considerably since Ireland was hit by the global economic storm and more particularly since companies started laying off thousands of workers.

There are hundreds of empty apartments and houses in the Dublin suburbs, many of them owned by developers who had no option but to furnish them and put them on the rental market once sales started to dry up.

The availability of all these suburban properties has triggered a reduction in rents of at least 10 per cent in outlying suburbs and left it difficult for many owners to keep their properties occupied all the time.

With the public finances in deep trouble it was hardly surprising that the Government’s cutbacks included the rent supplements which this year are expected to account for €490 million.

That figure has risen by €100 million within two years because of job losses, not only in the construction industry, but in many of the white collar professions.

For the record, the Irish are still the main beneficiaries accounting for 65 per cent of the fund. EU nationals claim 23 per cent of the rent supplements with the balance of 12 per cent going to residents from non-EEA (European Economic Area) countries.

Estate agents, like Siobhan Costello of Hooke & MacDonald, are only too well aware of the slippage in rents in the private sector and of the difficulties of finding suitable tenants in some of the outlying Dublin suburbs right now.

Only a year ago there was competition for most modern apartments which came on the rental market, she said.

This is no longer so and, to illustrate the changed environment, she cites the example of a young professional who last week made an appointment to inspect a particular apartment in the Dundrum area. Having expressed satisfaction with the apartment, he told the agent that he had eight other properties to check out before deciding which one to rent.

It is hardly surprising, therefore, that rent levels for even some of the best apartments in Dundrum have fallen from €1,450/€1,500 per month to around €1,250.

Given that the average weekly rent supplement is only €103.40 per week for a one-bed, claimants are unlikely to be looking for accommodation in some of the more appealing suburbs where rents are still outside their reach.

It also means that Dublin city centre is also out of bounds for many relying on the supplement because of the consistently strong demand for accommodation in the areas of Dublin 1 and 2.

Siobhan Costello says that most couples have a cut-off limit of €900 but even the cheapest rental apartments in the city centre – those in The Maltings near the Guinness brewery on Watling Street – have a starting rent level of €950 per month.

Another rental agent, Karen Carberry of Prime Locations, says there has been a rush by all tenants on rent supplements to negotiate a lower rent.

In most cases landlords are giving the full 8 per cent discount while others are reducing rents by 4–5 per cent because their properties have slipped into negative equity.

“In some instances,” says Karen Carberry, “the tenants just don’t have the money now to pay the original rent and, if the landlords refuse to budge, the tenants have no option but to look for cheaper accommodation elsewhere.”

Even for landlords with suburban apartments worth considerably less now than when they were bought, there has been the satisfaction of seeing their mortgage repayments fall steadily in recent months.

For those on tracker mortgages, there have been no less than five reductions since 2008.

Many of these lucky souls are paying a mere 1.6 per cent interest rate on their investment properties – a long way short of the 11.75 per cent I locked in to with AIB during the 1992 currency crisis.

To get back to the guidance given by the Department of Social and Family Affairs as to how claimants should deal with landlords with whom they have a legal contract on a rental property.

The advice given by the department goes as follows: “While tenants may be contractually obliged to pay the rent agreed in their lease, it is expected that landlords will decrease the rent in recognition of the fact that rents have fallen generally and that there are now a large number of vacant rental properties nationally.”

By this, the department has left claimants with no option but to break their legal contract. This Government has no shame.