Expect movement in post-lockdown rental market
MAIN IMAGE: Samuel Seeff, chairman Seeff Property Group; Jacqui Savage, Rawson national rentals manager; Johette Smuts, PayProp head of data and analytics; Gary Palmer, CEO Paragon Lending Solutions.
With many people struggling to make ends meet and job security under threat, renting may prove more popular than buying, while some tenants will downgrade. This, among other things, may cause an upswing in the rental market.
With more tenants struggling to pay their monthly rent, changes are undoubtedly on the cards for the rental market.
Samuel Seeff, chairman, Seeff property group, expects to see a great deal of movement in the rental market. “Many tenants will look to downgrade, and more people will move into the rental market until financial stability returns and the economy improves. While rental rates will come under pressure as a result of the economic decline, we do expect the market to bounce back quite quickly,” he says.
With countless citizens facing reduced salaries or job losses due to the lockdown, it’s no surprise that more and more tenants are having trouble paying their full rental, says Jacqui Savage, national rentals manager, Rawson Property Group. According to her, the incidence of tenants defaulting has been climbing since lockdown began, and could continue to be an issue as the economy struggles to recover.
During March, just over 20% of tenants were in arrears, increasing to almost 24% in April. PayProp head of data and analytics Johette Smuts says that the average size of arrears jumped from 78% of monthly rent in March to a massive 84% in April. “While we have already seen an increase in both the percentage of tenants in arrears and arrears as a percentage of rent in April, we expect May and June to be even worse.”
Landlords, meanwhile, will be looking hard at their cash flow projections wondering how they’ll meet repayments to banks and other lenders,” says Gary Palmer, CEO, Paragon Lending Solutions.
This situation will force certain trends in the rental market to emerge which will remain for some time to come.
One of these trends is landlords embracing progressive payment plans. Palmer says a good working relationship between owner and tenant is valuable, especially when times are tough, and explains four ways in which landlords can help tenants weather the storm:
- Either writing off the full rental for one or two months, or allowing tenants to just pay 50% for a number of months. These losses are then reported in their tax returns.
- Property owners capitalising the payment holiday into the lease. If you follow this route it’s best to include addendums into the lease, explaining the details.
- Passing on the savings property owners have seen as a result of the interest rate cuts. While it’s not a huge amount, tenants will appreciate even this small saving.
- Allowing tenants who can’t pay rent to take a break, with the understanding that they’ll then forfeit their deposit.
One option landlords shouldn’t consider when tenants can’t pay, is to set eviction procedures in motion – at least not for now. “Persons may not be evicted from their home during alert level 3, except if the court decides that it’s just and equitable to do so – which is not an easy hurdle to overcome,” says attorney Marlon Shevelew, director, Marlon Shevelew and Associates.
Tenants must play it straight
However, it’s important that tenants know what the impact of each option will be, says Palmer. “Simply jumping at a payment holiday, for instance, may come with some unattractive long-term consequences. Interest will still be accruing and you could end up with a nasty surprise in a year’s time. Do the math before you sign anything.”
Tenants shouldn’t assume they’ll be granted payment breaks. “Tenants should have all the necessary documentation at hand when going to their landlord. It also may be worth doing a credit check on yourself to show a history of good payment behaviour,” Palmer advises.
Another trend in the lockdown rental market is Airbnbs converting to long-term lets, because of the tourism sector’s shutdown and because – like all short-term rentals – it’s still prohibited under alert level 3. This way, however, there’s more competition with others already in the market, says Savage. In some cases, Airbnb owners are even removing the furniture from their properties, as unfurnished apartments remain the most popular choice for tenants for reasons of affordability.
Social distancing is likely to stay with us beyond lockdown. That’s why top-quality rental agents are turning to cutting edge technology like virtual valuations, 3D virtual tours and real-time virtual showhouses to deliver the same level of service while minimising face-to-face contact and ensuring only serious, qualified tenants make it across a rental property’s doorstep, Savage says.
For agents, tenants and landlords, navigating the rental arena during lockdown, irrespective of the alert level, can be fraught with legal difficulties, says Shevelew.
If, for instance, a tenant should refuse to allow estate agents to show homes to prospective tenants or buyers because of fear of exposure to Covid-19, this will amount to a breach of the terms of the lease in most instances. “This is a difficulty which must be addressed by estate agents and landlords alike,” says Shevelew. “In the normal course, one would be able to cancel the lease if the tenant refused to comply, or sue to compel the tenant to comply, and claim damages if any are suffered.”
Seeking legal recourse in such a case is, however, not straightforward considering the way that the lockdown regulations have affected the courts. “Each court has its own practice directives and some instances only selected cases may be placed on the roll,” he says.
The uniformity of the alert levels we have enjoyed thus far may soon be a thing of the past, Shevelew says. “Alert level 3 regulations make provision for declaring certain areas hotspots that may become subject to more stringent regulations. This means that the situation in certain areas could change on a dime. There will also be a difference between different locations. Keeping track of what is permitted where will become increasingly difficult.”
He adds that, aside from the uncertainty caused by vague wording of regulations, or inconsistent application by the police, “there’s the fact that there are several ongoing legal challenges to the regulations, and there are bound to be more in due course”. Each legal challenge brings with it the possibility that once everyone has figured out how the regulations as they currently have been gazetted work, that they’re then set aside or changed by a court. Just this past Tuesday, the Pretoria High Court declared the regulations promulgated in respect of alert levels 3 and 4 unconstitutional and invalid.“Legal challenges in and of themselves are without a doubt a constructive and essential part of a constitutional democracy, but they do mean that nothing is truly final. This just adds to the uncertainty which must be negotiated in the coming time,” says Shevelew.
About the editor: Marana Brand is the editor of Sunday Times Neighbourhood