Tens of thousands of residential investors face financial hardship as a result of the ban on evicting tenants, which will not be offset through tax relief and mortgage reprieves, experts say.

Residential and commercial landlords will be banned from evicting tenants who are suffering financial stress caused by the economic fallout of the COVID-19 pandemic.

To help ease the financial burden, the federal and state governments are working on a raft of tax concessions, including on land tax for property owners. Landlords can also apply for a mortgage repayment reprieve from the banks.

However tax specialist Adrian Raftery, principal of Mr Taxman, said the ban would help tenants but have a detrimental effect for a large number of landlords who can't pay their way.

"Most investors rely on rental income for 44 to 48 weeks per year to cover their loan repayments and other running costs such as council and water rates, strata levies and repairs," he said.

"Landlords could cover the gap for a short period of time with their own savings and their other income, but what happens if they have lost their own jobs themselves?

"It's a ticking time bomb."

Peter Koulizos, chairman of property lobby group Property Investment Professionals of Australia (PIPA), said a vast majority of property investors would struggle to stay afloat.

"Contrary to popular opinion, most property investors earn average wages, and are often paying off a mortgage on their own home as well," said Mr Koulizos.

"The mortgage repayment reprieve may help relieve some of the financial burden, but the cost to landlords is likely to be significant.

"These repayments will still need to be repaid at some point in time, plus the interest will be added back on the loans. This means that landlords will potentially take a financial hit of tens of thousands of dollars over the life of their loans, which clearly is not a fair and equitable situation."

Martin North, principal of Digital Finance Analytics, estimates that about 70 per cent of the 1.75 million investment properties across the country have mortgages.

"Of the 1.75 million properties, around 1.05 million are owned by individuals and families as a source of income, not someone running multiple investment properties as an investment business. Approximately half are negatively geared," Mr North said.

About 50,000 properties had loans above 90 per cent loan-to-value ratio.

"The problem is that many of these 50,000 households are reliant on rental income or from working, if they can. We estimate that half would struggle to meet mortgage repayments within three months."

Cash flow, not tax concessions

Mr Koulizos said tax concessions would be helpful but cash flow support was more urgent for most landlords.

"Firstly, land tax is payable after June 30, landlords need assistance as soon as the rental income stops," he said.

"Secondly, most landlords don't pay any land tax, as 70 per cent of all investors only own one property – a reduction in land tax won't help most landlords when the tenants stop paying rents.

"Thirdly, for most landlords who pay land tax, their bill would be less than $1000. They potentially have much more to lose than $1000 if the rental income stops.

"There needs to be some financial support for residential landlords to ensure they don’t default on their investment properties."

Dr Raftery said any land tax concessions may only help those with $1 million-plus properties.

"It may help a large portion of Sydney, but not the rest of Australia with the median price being well under that," he said.

"Negative gearing is not much use if you've lost your job, or you're in a lower tax bracket and you have this big rental loss. Your marginal tax rate is next to nothing. You're hardly going to get anything back from the tax office."

Original article published here on 30 March 2020 in The Australian Financial Review.