RTB Rent Register

[Bronte]

3 month rule

We can take it that is gone now. For the comparables and we can pick any property date !

LEA

Does anyone know what is the statutory basis on which it is mandatory to use the comparables from the same LEA. ? @LarryScott ?

When I checked a large town, I noticed smaller towns, which are not at all in the same place, we are talking 12 km in the example I checked, how does that make sense.

In addition, as far as I know if you can't find a comparable (size/ber/one bed) then you can go outside the LEA for your comparables, how does that work with the statutory requirement.

 

[polecon]

Question on the Rent Register/market rent.

A permanent tenancy from a large landlord is valuable and many tenants would pay more for this type of tenancy. Likewise, it significantly restricts the landlord and may make the property completely unsaleable or significantly devalued, so he would be justified in charging a higher rent.

I think that it should be taken into account on the 'what a willing tenant would pay' test for market rent.

However, it is not being factored in by the RTB at all. There is no mention on the website.

You are correct.

Note 24(a) exists..

"Having regard to the terms of the tenancy..."

A new-style-tenancy which grants permanent (or minimum 6 year) tenure to a tenant and requires any sale to be with tenant in situ is worth more to a tenant than an old-style tenancy which doesn't. When he takes out a lease he is now also buying an option to remain in the property potentially for decades.

Conversely when a landlord now signs a lease he is selling that option. He takes a large reduction in the capital value of his asset onto his books, with the possibility of reversing that at some point in the future if the tenant decides to vacate.

Options pricing is a long established element of markets. You can't lose an option to sell at owner-occupier valuation without a change to the market price of the contract. Try something like that in any market with competent market practitioners and you'd get your head handed to you on a plate.

Many landlords are not financially sophisticated and will sell the option of permanent occupation, and lumber themselves with a huge asset devaluation, for zero consideration. But many will not be foolish enough to do so.

This situation is inconvenient for the government and neither the government nor the RTB have any incentive to point it out. That's up to landlords and their letting agents.

Have you heard or seen any of them even mention this?

 

[Greenbook]

Somebody (the IPOA) should ask the Department about this. I bet it never even struck them.

A permanent tenancy from a large landlord, not a fund though, is a very valuable asset. As well as the right to stay for life and pass the tenancy on to your children, if the landlord wants to regain the property, he will have to 'buy' the tenancy back from the tenant for a cash lump sum.

A tenant would pay more for this type of tenancy and even a 6 year tenancy is more valuable than a pre-March one.

Have you heard or seen any of them even mention this?

I haven't heard anyone mention this or seen anything about it, but I think that a lot of landlords and agents aren't thinking through the long term implications of the new rules unlike the posters on here.

It should be highlighted though from the risk standpoint to landlords.

 

[polecon]

Should landlords who have a property become vacant re-let or exit the market?

Consider a couple of scenarios. [Note these are illustrative, not financial advice, and all landlords need to consider their detailed personal, financial and tax position]

Landlord A​

Introduced a rental property to the market 2 years ago under an old-style lease which gave him the right to get out of the rental market if he thought he needed to. When he signed that lease the value of his property stayed the same. Rent 3,000 per month.

Now his tenant needs to move to a different city, so gives notice. This landlord now needs to decide whether to re-let. But the old-style lease is not now permitted - he would have to use a new-style lease. If he signs one he loses the ability to exit the rental market, except by selling without vacant possession. It's a house worth €600,000 in the owner-occupier market.

Once he signs the new-style lease he has no idea how long he will be required to keep his capital tied up in that asset. And the carrying value (the prudent book value of the house which he should list in his balance sheet) drops by €250,000 as a result of signing the lease. He would then be forced to play roulette in that, if he did find himself needing or thinking it prudent to sell the asset, there's a small chance that might coincide with his new tenant also giving notice and moving out - but otherwise he would have to take a huge capital loss.

Because he first rented that property 2 years ago he obtained fair market price reflecting the reality of the actual property (situation, decor, parking, tattiness, smelliness etc) and the current market price for a lease giving him the right to sell with vacant possession would not be much higher now. So he could advertise it for rent now but would not be allowed to ask any rental premium to compensate him for the diminution in capital value under the new-style lease. And if the previous tenant was paying fair market price, then the new tenant must be getting a bargain, as he pays the same rental price but acquires the option to stay for life (or minimum of 6 year if the LL is a small LL). The new tenant would logically be paying less than fair market price having regard to the terms of the tenancy.

If Landlord A re-lets his property he will therefore be forced to do so at less than fair market price under the system the RTB has put in place - purportedly to ensure fair market price is paid (but which ignores section 24(a) "having regard to the terms of the tenancy"). There is no compensation available to him for selling the option of permanent occupation by the tenant He is required to give it away for free.

Previously his property was in an RPZ and there was the possibility the temporary RPZ rules would be ended, Under the new-style lease there is no such possibility, just the promise that in 6 years, if there is no change in rental legislation or government, he might be able to increase the rent somewhat.

Consequently, this landlord should be advised that he should sell the property now, while it is vacant. He should not be advised to re-let it.

Landlord B​

This landlord owns a similar property to Landlord A but he first leased it in 2010 and didn't push up the rent he charged because he had a reliable tenant, assumed he could always increase the rent in the future if necessary, was earning a high salary and didn't, at the time, need the money. And anyway everyone knew there would never be rent control in Ireland. However, because of the rent freeze in 2015 and the short-term emergency measure of RPZ rules which were introduced in 2016, over the last decade the rent has drifted further and further below market price for an old-style lease. He is currently, quite generously, supplying accommodation to his tenant at far below market price. He is effectively subsidizing his tenant by receiving below market income from his asset. This tenant also has to move cities and has given notice he will move out.

So Landlord B also has to decide whether to re-let. His property is similar to that owned by Landlord A and is also worth €600,000. It was on a rent of €1,500 per month. Because Landlord A's property is on the Rent Register at €3,000 nearby, Landlord B can increase his rental income to €3,000. He is tempted by the significant increase in rent. What should you advise him to do?

The answer comes from considering the following. Re-letting would give him a higher income, but that higher rent would only be the fair market price for an old-style lease which would have retained his right to sell with vacant possession. The RTB will invalidate his rent and possibly prosecute him if he signs a lease higher than €3,000 to compensate him for granting potentially permanent residence to a new tenant, and costing himself a €250,000 capital loss.

Like Landlord A, Landlord B should also be advised not to re-let, but should instead sell the property and obtain full vacant possession value.

 

[Greenbook]

Like Landlord A, Landlord B should also be advised not to re-let, but should instead to sell the property and obtain full vacant possession value.

That is all 100% correct and very well explained @polecon

I'm sure thought that if you tried to explain that to the Department of Housing or the RTB, they'd lose interest after a couple of lines and start to mutter 'evil landlord trying to find yet another route to gouge their tenants'.

I'm also not endorsing increasing the rent asked on this basis, but that is the logical outcome of the new leases.

Ultimately, of course, the real answer is that the only option is to exit. A landlord granting a lease now is taking the double risk of the RTB reducing the rent and an unsaleable/highly discounted asset.

The PRS is now just too risky for the ordinary person to invest in.

 

[JamieB_]

Add you can add in the extra work required to get everything right and even to understand the legislation and keep things above board. And getting stuck with that job and your asset essentially being controlled by someone else. All that for a possibility of a 2% increase in rent before tax every year. Madness.
Even the people here putting in all the work, trying to figure out the new rules. If they were to be paid an hourly rate for the time they spent on it you wuld be into 5 figures at this point, never mind over the next 6 years. And then all that work could be made void with the next legislation, or indeed, RTB brain fart idea, and you would have to start that work all over again.

 

[patfert1]

I think that a lot of landlords and agents aren't thinking through the long term implications of the new rules unlike the posters on here.

Quite right. As I said before here, I don't believe there is any real "deluge" of landlords leaving the market in overall terms. A combination of inertia, lack of awareness, and 99% of existing tenancies are still under the old rules. When landlords have a new tenancy and have to confront the new rules, they will have a choice of a "market reset" rent level (probably not knowing it could be challenged) vs a 6 year tenancy. Many will wake up at that point.

 

[Greenbook]

Quite right. As I said before here, I don't believe there is any real "deluge" of landlords leaving the market in overall terms.

I don't think that there is a deluge, but I think that there is a signficant uptick in the numbers leaving at the moment. Various reasons for this:

1. I'm getting more enquiries via for friends of friends children, old work colleagues about whether I have anything available.
2. The wife is seeing more emails looking for accommodation at her work place.
3. The examiner on Saturday now seems to feature a page write-ups on ex-rentals for sale.
4. It's what I'm hearing from estate agents, solicitors and property managers.
5. We're seeing it here, increasing posts about selling, thinking of selling, questions on NoTs
6. The number of NoTs has significantly increased.
7. More of what look like ex-rentals for sale on Daft.
8. Eviction stories on Reddit.

I don't think there is a massive stampede and we're going to lose 100k rentals in 6 months, but there is an exodus and it will last for quite a while. Many will sell or just leave the property vacant when the tenant leaves. The real problem though, is that outside of Funds in Dublin I think there will be very few new landlords.

And yes, the real horror stories from a landlord's perspective will start in 5 to 10 years time when they realise they have a difficult permanent tenant on a low rent who will never leave and a property that they can't give away. This is where this is heading.

 

[JamieB_]

Things have changed alright.
I know a few who got out of the market before the new rules came in and are glad they did and will not be getting back in.
Any other landlord I know either directly or through friends is going to sell as soon as their current tenant decides to move.
I actually dont know any landlord who is going to stay in the market after that. I do know one who is keeping it empty now for when kids grow up.
I have had conversations with people selling up but wanting to build a modular home in their garden instead. They are waiting to see if that is viable when the rules are locked down.

I have had some conversations with people thinking about getting into residential investment, but they always decide against it after researching it. I actually dont know anyone who intends to actually buy a residential property to let. I used to know lots of them.

 

[Greenbook]

I have had some conversations with people thinking about getting into residential investment, but they always decide against it after researching it. I actually dont know anyone who intends to actually buy a residential property to let. I used to know lots of them.

I have the same experience.

A nephew of my wife's is an electrician in a North Cork town. He bought a small house there a number of years ago. He lives in it himself and did rent-a-room. He is now engaged and himself and his fiancee are currently building a house on her parent's farm. The question came up as to what should be done with his original house. He initially thought of renting it out. Both sets of parents were completely against it. Friends teased him about becoming a greedy landlord. It was pretty quickly decided that it would be sold and the profit used to bring down the mortgage on the new house. Even 5 years ago, I think it would have been quite likely he'd have kept it and rented it out.

Some first time buyer will be delighted with it, but there is a desperate shortage of rentals in the area.

I'm sure similar decisions are being made all over the country or people come into money, look at becoming a landlord, and quickly decide no way.

 

[DannyBoyD]

becoming a greedy landlord.

Because the two words are synonymous these days.