Impact of Zero Deposit on Rental Market
Renting, otherwise termed leasing or letting, is an agreement where an installment or monthly payment in terms of cash is made for the entire duration of using a property possessed by another individual or agency.
Reasons of Renting
The most important reason when it comes for a tenant to rent a property or just a part of the property ( for ex : Room ) is to minimize the monetary usage due to depreciation or purchasing costs, particularly for land or a property which may only be required for a short period of time. (eg: working & studying).
Apart from that, renting can possibly generate a constant stream of income for the owners of the properties. As the saying goes “The more the beat (the occasions the property is rented) the higher the pay”. Ultimately, the rental income surpasses the property purchasing value and the payments of rental then would turn into a profit for the landlord.
History of Zero Deposit
Co-founded by Jon Notley, a former Commercial director at Zoopla,Gavin Wiseman and Ben Austin, Zero Deposit is the trading name of Global Property Ventures Limited and is partnered with insurance industry leader Munich Re.
The Zero Deposit is a choice rather than the traditional rental payment, in it is compulsory for the tenant to pay an upfront of two months rental even more in some cases. Rather than paying the deposit with their hard earned cash, tenants pay an amount equivalent to 10%-30% of the customary deposits to move into their new home just by purchasing an appropriate insurance package. The property manager / Landlord will be protected against rental loss up to the worth of about two months of rental.
Impact of Zero Deposits in Rental Market
Reduced dilemma for Landlords
Rental collections can make waves in the traditional rental system. Landlords would have to wait for hours begging their tenants for the rental payments. As some tenants are really adamant on not paying the rental on time or on the agreed amount, this can cause a real headache for landlords who sometimes depend on the rental for their livelihood.
Zero deposit schemes have proven to remove the conflict that may arise between the landlords and tenants as the scheme providers are a liaison for collecting the rental from the tenants and passing over the rental to the landlord. The tenants who signed up for the Zero Deposit scheme would have to sign up for the Direct Debit rental deduction which may ease the workload as the deduction will happen automatically at a preset time and amount. This would be an advantage for the Landlords as they will be able to collect the rentalon time with ease and wouldn’t even think twice on renting out any additional properties they have through Zero Deposit schemes which would increase the rental market economy.
Increased rental return for Landlords
Figure 1: Rental price differences between Traditional Deposit and Zero Deposit.
Figure 1 shows the result of a research on rental prices differences conducted by BlueDuck, a provider of Zero Deposit scheme in Malaysia. As there is no deposit payment involved during a rental period, Landlords and agents are able to increase the rental prices of their properties. This increase in rental prices would not be a burden on the tenants as the tenants could enjoy the rental without forking out their hard earned cash on deposit payments (which is done in traditional deposits). This could be a helping hand in improving the revenue of the landlords in the rental community.
More CashFlow into Economy
In the traditional rental, where the landlord collects a deposit payment usually made up of a couple month’s rental. In the case of renting a unit with a high rental price would cause the tenant to have an added burden as they would have to cough up a great deal of money in order to pay the deposit for the property. This scenario can be completely avoided by both parties as the tenant could secure the desired property with just a mere insurance premium payment. Meanwhile, the landlord will have the advantage of renting out his/her property faster and enjoy the monthly payment rental received. With the implementation of zero deposit schemes, the cashflow into a nation’s economy can be increased as there will be vacancies in the Zero Deposit agency, rental fee deductions and the purchase of insurance for their property thus increasing the cash flow in this industry. This would not only increase an individual’s net worth but also to soar our nation's economy.
Improved confidence for Landlords
In the rental industry, not all rental ends with both sides being a happy camper. Some rental property landlords could not have a good sleep at night thinking about the circumstances of the furnishings in their rented property. With the Zero Deposit insurance, Landlords could have a better sleep at night as the furnishings are protected by insurance. In the case of a tenant who had a rough day at work and decides to vandalize the furnishings / appliances in the rented property, the landlord would be able to claim the price of the damaged items (proven that it has been done with a malicious intention). Besides that, Landlords would also be able to get a claim in the case of a tenant run away leaving behind a series of unpaid bills. With the Zero Deposit insurance coverage, the landlord would be able to sleep peacefully which brings to the saying happy sleep = happy life.
Zero Deposit schemes (https://www.blueduck.my/) has a lot of positive impact on an individual’s and our nation’s economy. Due to a worldwide Covid outbreak, added with the burden of layoffs, more and more property owners are making a livelihood based on their rental incomes and tenants would be able to enjoy a rent without deposit. Zero deposit schemes are able to boost the rental market prices, bringing in more revenue to Landlords, Property Developers and Shareholders thus carving a path to make Malaysia greater.
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