New Zealand’s $145 billion commercial property sector is facing hundreds of millions in lost revenue without further support, increasing the risk of stalling the economy, says Property Council New Zealand chief executive Leonie Freeman
The challenges facing business are vast and unchartered. Today’s announcement extending timeframes required before landlords can cancel leases and mortgagees can exercise their rights will give tenants and landlords some additional time to resolve contractual issues. However, we remain concerned that the risks involved in non-payment of rent could have wider implications for the property industry and the wider economy.
We are hearing of a multitude of scenarios regarding rental payments. At one end of the spectrum there are many landlords working constructively with tenants on their particular situations and discussing rent relief such as postponement or other relief measures. However, there are many examples of large tenants sending letters announcing they are refusing to pay rent with no consultation. This move could devastate the commercial, industrial and retail property sectors.
The ability for tax losses to be carried back to the previous financial year will be a buffer for some, providing additional cashflow for businesses. However, if your business was not previously making a substantial profit, or if you are a not-for-profit organisation, there’s little relief in this announcement. The question remains, will this help tenants pay some or all their rent and fulfil their contractual obligations?
It’s clear the Government is taking a holistic approach to supporting the property sector, which is understandable given the circumstances, but we believe more support will be needed for businesses that occupy tenancies now and in the next 6-12 months.
In our discussions with government, we proposed a support package for commercial tenants facing a 50% loss of revenue. This comprised multiple components that would have provided immediate relief to tenants so they could continue to meet their contractual obligations. Proposals included a deferral of rent by landlords facilitated by the tax system and a targeted rent tax credit for tenants with direct financial assistance via a mechanism similar to the Government’s wage subsidy.
Small businesses are struggling to pay rent and in turn many mum-and-dad commercial landlords, and in some cases larger property owners, are finding it difficult to meet their mortgage obligations. While the new rules are commendable, they won’t stop this from happening, they simply give everyone more time before lenders can act.
Property Council encourages landlords and tenants to take a long-term view and continue to negotiate in good faith so that everyone comes out of this with their business intact.
Every lease is unique to the situation. We encourage landlords to review their current agreement and consult with their lawyer regarding implications. Check your insurance and have an honest conversation with your tenants about the best way forward.
Our members, many of whom are the long-term investors who develop new real estate, are telling us that without more certainty around their cashflow, they face having to halt construction on planned projects. This could have a devastating effect on the property and construction sector, with hundreds of thousands of New Zealanders relying on these projects to stay in work and in business.
New Zealand is well-known for being one of the most unaffordable countries in the world to own a home, but this situation will only exacerbate should property owners and developers stop work on large scale residential projects.
The focus must now be on easing the transition from level 4 to level 3 and beyond. How well we as a country come out of this crisis will depend on everyone playing their part and doing the right thing.