Rental market stabilising – expect this

Rental market stabilising – expect this

MAIN IMAGE: Jacqui Savage, National Rentals manager, Rawson Property Group; Grant Smee, Managing Director of Only Realty Group

The latest rental index held good news for landlords: national rental growth rates appear to be stabilising and all major provinces have seen improvements in tenant payment behaviour. While this implies the worst is over for now, Jacqui Savage, National Rentals Manager for the Rawson Property Group, says pressure remains high on both landlords and tenants.

“On the tenants’ side, affordability is critical,” she says. “A huge number are still feeling the effects of the pandemic on their income and job stability. This is particularly prevalent in the low end of the market – properties with monthly rentals of R3000 or lower.”

Grant Smee, Managing Director of Only Realty Group, said: “The residential property sector tends to ebb and flow. While the past 18-months saw a notable buyers’ market coming to the fore, landlords can now breathe a sigh of relief as the rental market starts to gain momentum.”

While homeownership was previously viewed as a marker of ‘adulthood and independence’, South Africans now prioritise quality of life, flexibility, and cash flow.

“Tenants get to enjoy the perks of a home without being tied into a long-term commitment and unforeseen costs. In many cases, tenants can live in homes that they may not be able to finance through a home loan,” said Smee. He added that home ownership is still out of reach for many, primarily due to unforeseen costs, potential repo rate increases, high levies, and escalating rates and tariffs.

Savage says above-CPI increases in utilities and municipal charges are only going to make it more difficult for struggling tenants to meet their monthly rental obligations going forward. To minimise the fallout, she urges tenants in financial difficulty to open communication channels with their landlords early before their payment situation becomes dire.

“It’s important to remember that landlords often rely on rental income to meet their own financial responsibilities,” she says. “If rental stops coming in without warning, they could find themselves in real trouble. This doesn’t put them in a particularly understanding frame of mind when addressing the issue with their tenants, and generally results in poorer outcomes for everyone involved.”

With advanced warning, however, Savage says landlords can often take steps to protect their own financial stability, enabling them to better help tenants ride out tough times.

“This kind of proactive approach is going to be key for rental property performance, all-round,” says Savage. “Landlords able to identify and address issues early on will experience far better tenant retention and fewer vacancies as a result.”

Another factor plaguing landlords has been finding tenants who are in ‘good standing’. “The term good standing is used a lot in our industry. It refers to tenants with a good credit record and track record who pay their monthly rentals on time each month,” said Smee.

Tenants in good standing dropped to 73.5% in Q2 of 2020, but rates are now up to 80.34% over the same period in 2021. “Based on the unemployment statistics, this trend indicates that existing tenants in good standing are either ‘scaling up’ or potential homebuyers with good credit records are opting to rent rather than buy,” Smee said.

Vacancies remain a problem thanks to affordable property purchases eroding one end of the tenant pool and financial constraints eroding the other. The Western Cape is currently experiencing the highest vacancy rates at 14.38%. The Eastern Cape has the lowest vacancies at 4.28%.

“We’re still very much in an oversupply situation, with more rental properties available than qualified tenants to fill them,” says Savage. “That means landlords need to offer value for money to secure the top-quality tenants who have their pick of a huge range of options.”

Waiting until lease renewal time to assess this value proposition can be an expensive mistake for landlords to make.

“These days, by the time lease renewal comes around, there’s a good chance your tenant has already found a more attractive option,” Savage explains. “If you don’t want to risk losing good tenants to greener pastures – and sitting with a vacant property to fill – you need to remain competitive at all times. That means staying on top of property repairs and maintenance, and keeping in line with pricing trends, even if that involves rental adjustments halfway into a lease.”

While rental property yields may be lower than desired at present, Savage says there are still silver linings for landlords who know where to look.

“Low property prices aren’t just a pro for tenants looking to become homeowners,” she says. “They also present great opportunities for landlords to expand their rental portfolios very affordably. These will, of course, take some time to become profitable under current circumstances, but would provide an excellent investment base to capitalise on growth when the market inevitably swings up again.”

As for what market to target with new rental investments, Savage says the most popular price range is between R4500 and R7000. If reliability is your top priority, however, the R7000 to R12000 range currently delivers the best tenant payment performance.

“There are opportunities at all price points,” she says. “Like any other investment, the key to making the most of these lies in intelligent asset management. Having a rental expert on board can make that process a lot easier, helping you minimise risks and maximise returns, now and in the long term.”

A notable trend in renting is that of house sharing. “Tenants who are spending more time at home are in search of bigger properties and are splitting the costs with family and friends to improve their quality of living,” Smee says.

The latest figures also indicate increases in the average rental price in provinces such as KwaZulu Natal, North West, Western Cape, Mpumalanga and Limpopo. Gauteng, Free State, and the Northern Cape have experienced a decrease in the average price of rentals. This is largely driven by excess supply and landlords lowering their prices to secure a good tenant.

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