Maintaining rental income during the pandemic largely down to luck - David Alexander

While Monday was declared “Freedom Day” in England, where most pandemic-related restrictions on business and personal activities were brought to an end, Scotland entered Nicola Sturgeon’s “Level Zero” with a lot of caveats which means a tighter situation continuing north of the Border (for example night clubs are still not permitted to reopen).

The lettings sector may be slightly over-supplied at present - but that may change

To be honest, the property sector has experienced a long period of relative “freedom” (while adhering to any legal limits that have remained in place, of course) and – as expected – this week life so far has continued much the same as usual for professional sales and letting agents, buyers and sellers, and private landlords and their tenants.

But there may be a different scenario about to loom on the horizon. Some people seem to presume that when life returns to something like normal, things will go back to the way they were prior to March last year. I am not so gloomy as to “hope for the best/prepare for the worst”…..more just “prepare to be disappointed”.

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In my role I have two hats – one of a sales agent and the other of a letting agent. Wearing the former I have experienced a sales market that has surprised most professionals by its buoyancy with properties in almost every sector of the market changing hands for sums – excessively so in some cases – way beyond the upset price. In this environment one has often been tempted to ask: “Pandemic? What pandemic?”

The letting sector, on the other hand, paints a different, and gloomier, picture. Yes, many landlords have – in terms of continued rental income – breezed through the pandemic but often it has simply been a matter of luck; i.e. they have tenants who work in the protected public sector or in those parts of private industry which have not experienced a covid-related downturn. However a substantial amount of private sector tenants are employed in sectors which have been badly hit – particularly in non-food retail and in entertainment and hospitality (including the aforementioned “night economy” businesses whose doors still remain shut).

As firms move back to “near-normality” (although pubs will still be required to close by midnight) they will obviously take stock and reappraise their business needs which may involve closing down units and, inevitably, shredding staff. This would not bode well for both tenants and their landlords, who rely on the former for regular rental income. Thankfully, the Scottish Government’s Tenant Hardship Loan Fund and the Private Rent Sector Landlord (non-business) Covid-19 Loan Scheme, both of which offer interest-free loans, was allowed to continue to receive applications beyond the original deadline of 31 March, which is a help but cannot last indefinitely.

For landlords, at least, the one piece of silver lining on this potentially-dark cloud is the sharp rise in capital values over the past 12 months or so as a result of the aforementioned sales “mini-boom”. They of course always have the option to sell (the protected tenancy rule does not apply in this case) and, unless relatively new to the sector, are likely to achieve an acceptable gain.

This, however, raises its own concerns. I have a feeling that once Covid-19 is brought under control and society learns to live with it, flexible working (not just in terms of home/office but also between jobs and careers) will increase and it is the private-rented sector that best suits the accommodation requirements of people employed in this manner. So while the lettings sector may be slightly over-supplied at present, there is the danger that an under-supply may emerge relatively-quickly and, as in any other commodity, shortages inevitably lead to higher prices.

David Alexander is managing director of DJ Alexander

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