I have rented from others, and have been a landlord myself. Recently, due to unique circumstances, I need to vacate the place where I am staying and look for another rental property for a short term stay. I have a house of my own, but it is currently rented out to others. Due to the Covid pandemic, it is considered the landlord’s market now. Basically landlords can afford to be picky and choosy. Rent is now very high, with certain landlords asking for skyhigh prices for a small room, attached with a whole list of restrictions unfavourable to the tenant.
Every country has its own quirks. For example, in New Zealand, the landlords hate it when you use the heater in their house, even if the heater is a low powered one and the electricity does not cost much. They would rather you wear thick clothing and jackets inside the house than to use a heater to keep warm. In Singapore, landlords usually have a lot of strict criteria such as no cooking, laundry washing only once a week etc.
Over the past year, as the construction of new houses repeatedly get delayed, and many Malaysians are stuck in Singapore due to the border closure, the rental market is quite hot.
There are many horror stories of landlords suddenly raising the rental price as the tenant now stays at home most of the time, of landlords kicking out the tenants if they disagree with the increase in rental, of landlords cheating tenants of the security deposit. This usually happens when the landlord rents out one or two of their rooms, and the landlords are staying together with the tenant in the same house.
As I start looking for a short term place to stay, I realised that landlords are also choosing who they want to be their tenant. Landlords will often screen your profile, and if your status is deemed too low (perhaps you are a delivery driver), they would reject you outright or just do not bother to reply you anymore. I have a decent job, one which I could take it out and nobody would look down on it. But it irks me that such is the situation. The ideal tenant is a working professional (higher social status) who does not cook at home and just treat the rental room as a hotel – meaning just come back to sleep and disappear for the rest of the day. Basically, landlords are renting out their rooms with the intention of getting free money with as little disruption to their lives as possible and using as little resources (electricity and water) as possible.
As an added benefit they want to get to know someone of a high or decent social status for any potential usefulness, or just simply to brag that they know a certain working professional in their network.
Back to the main topic, renting out a house is like running a mini business. In fact, there are whole businesses centred on buying and renting out properties. Hotels, dormitory providers and industrial warehouse leasing are just a few examples. Although for our case, on a personal small scale level, this business usually is considered the passive income type, if not handled well could also cause you endless nightmares.
I am renting out my whole house out instead of a room to my tenants. My current set of tenant is the third set of tenants that I have, which comprises of a family unit. The first set is also a family unit, but they were nightmare tenants, kicking up a fuss over every little thing, and throwing out my things without permission. They finally threatened to move out, which to me was weird but which I readily agreed. They did cause a fair bit of problems after that though. The second set of tenants was a group of 4 female students. As they were not a family unit, and perhaps they were students, they were very calculative with each other over electricity and water usage. They did not bother to keep the house clean and tidy too. That being said, at least the second set of tenants were not as much trouble as the first, but unfortunately as they could not get along with each other over the tiny things, they split up and terminated the rental upon contract expiry.
This current set is the most satisfactory out of all. Even though due to the pandemic, rental prices have easily gone up 25%, I did not increase their rental by a cent. Although treating each other with respect and niceties are not always met with reciprocity, there are also times when it does. This third set of tenants are not fussy at all, and they almost never disturb me with anything. They pay their rent on time and keep the house clean. Although I can increase the rental, I would risk them running out the moment they could. I would have no idea what is the next set of tenant like, if they are nice people or simply another ball of trouble waiting for me. By not increasing the rental, they would appreciate it and understood that we treat them well and not taking advantage of them in this time of difficulties. I could sleep well at night knowing my house is taken care of.
Furthermore, this temporary increase in rental price is due to 2 reasons. The primary reason is as mentioned earlier, the pandemic caused the constructions of new houses to be delayed. Newly married couples who are unable to stay with their parents (this is one whole set of landmine altogether) have no choice but to rent. The closure of the Singapore and Malaysia borders have trapped many Malaysians in Singapore. Those who used to commute daily across the borders now have no choice but minimally rent a room in Singapore to stay. This causes a huge surge in demand for the rental market. The secondary reason would be I assume is the increase in money supply, causing inflation to grow more than expected. These 2 factors coming in together results in this temporary high rental, landlord’s market.
But! Those who naively thought they could take advantage of this situation for the longer term would be wrong. I am no expert, but we could predict the future using common sense and some logical thinking. Firstly, whether the pandemic is successfully controlled or not, the economies and borders of the different countries will definitely reopen. It is only a matter of time when the countries who are hit by Covid will have their treasuries emptied out. There will come a day when the economy has to take first place over pandemic control. At this point in writing, we have seen many countries gradually opening up, although the Omicron set things back a little. The Singapore-Malaysia border has also opened up a bit, though slowly and cautiously at the start. But once the opening up gains traction, many tenants who has been bullied, or had every intention to go back to commuting across the borders everyday, will give up their rental. We will see a drop in demand. As new houses gets built, new couples and those waiting for their new houses will also move in to a house of their own, further pushing down the demand. Basic economics tells us that a low demand and high supply will cause a significant drop in the property market.
As for the secondary reason of inflation, we can already see from the news that the Governments of the world are trying to tackle inflation though a variety of means, the most common one being increasing interest rates. Personally I believe that an economic crisis is coming, which will cause deflation and more cash strapped housing owners to rent out their properties, increasing the supply even more. But even if we do not face an economic crisis, the inflation which will be clamped down will also dampen the housing price a bit.
From the above we can see that the landlord’s market is only a temporary one. By increasing the price unnecessarily and setting up so many self-imposed rules and regulations, the landlords risk pissing off tenants. There will come a time when the market is balanced again and the rent will drop. Although it may or may not drop back to pre-Covid prices, one thing I am confident of is that the current set of tenants will be appreciative of what I have done. For as long as they need to rent a property in Singapore, unless there is a drastic change of situation (be it personal or societal), they would most likely stay with me. Humans are very adaptive creatures, but this adaptive ability is also a double-edged sword – humans tend to get into the comfort zone easily and do not wish to change their environment. This applies to moving house too. How many of you would like to move house every now and then? I may not earn as much as what other landlords are earning, but without the need to worry or to be calculative with tenants everyday over the mini things, I have not killed the ‘hen that lays golden eggs’, but slowly collect the ‘golden egg’ monthly and truly turning it into a long term stable passive income.
Imagine if I am the type who will piss off or take advantage of people over every little thing, I would have to spend so much more time and energy to squeeze out that few more dollars from them, or to trouble myself by continually finding new tenants because the turnover rate is too high. Even if my reputation does not suffer in the end, the sheer amount of work for that few extra dollars is simply not worth it.
Our tenants are like our customers. Treat them well and you will have the peace of mind, although admittedly not all tenants and customers are decent human beings. But if you come across one, treat them well. Do not turn a supposedly passive income into an active income simply because of that few dollars. All the time and energy saved could be better used for other purposes.