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Views on the future of rentals

Staff Writer

The state of the rental industry in South Africa was recently investigated and analysed by PayProp rental specialists. This was the third annual rental survey by the international which aims to gauge agents’ perception of PropTech, the state of their own businesses, and the rental market overall.

Of the participants in the survey, 36.4% work in rental administration, while 28.6% are rental agents and another 28.6% are owners or partners in an estate agency.

While over 98% of respondents work with residential rentals, only 14% work for agencies that focus on rentals exclusively. A total of 74% of respondents work for agencies that handle both sales and residential rentals. This diversification makes business sense, as the annuity income from rental commission can cover running costs even when property sales are down.

Technology

At this juncture, technology is no longer an optional extra but a non-negotiable in any estate agency’s day-to-day operations. However, the pandemic fast-tracked the industry’s adoption of certain kinds of technology – and having experienced the benefits first-hand, few agents are planning to give them up. Almost three quarters of respondents agreed that virtual and 3D tours are here to stay. Most participants are also positive about automation in their businesses, with 62% saying it increases productivity more than a larger workforce does, and 59% agreeing that it’s also cheaper.

It’s no surprise then that about 90% of respondents agree that technology is a worthwhile investment. They’re also comfortable with the idea of paying for it: almost two thirds said they expected to pay more for technology that allows them to grow their businesses.

Investing in technology isn’t just a future ambition: it’s already happening at property businesses across the country. Over 60% of respondents said that automation increased in 2021. Almost a third reported that there had been no visible increase, but this may be because many companies had already increased their use of PropTech in 2020.

And while some fear that automation will affect their jobs negatively, the property sector doesn’t seem to agree. Almost 70% of respondents believe automation will have a positive impact on their job over the next 5 years, while fewer than 3% think that it will change it for the worse.

Tenants

The pandemic’s financial impact on consumers still shows up in 2021’s survey results. Many tenants lost their jobs or at least part of their income, and the unemployment rate is at an all-time high. Affordability remains an issue for many tenants and is one of the main factors behind sluggish rental growth over the past 2 years.

In 2021 71.5% of participants said they implemented lower than usual rental increases in 2021 (compared to 70% in 2020), with 24.2% saying increases were roughly the same as always (compared to 23% in 2020).

The ongoing financial impact of the pandemic can of course be seen clearly in rent arrears metrics too. As PayProp’s quarterly Rental Index reports, arrears peaked in 2020 but have been improving steadily since. The survey participants have noticed the same trend. Of the respondents, 45% said arrears were worse than before the pandemic, compared to 77% in 2020. A total of 43.5% said they were about the same in 2021 as before the pandemic, compared to 20% in 2020, and almost 12% said that tenants’ arrears position had improved.

About 90% of respondents said they made alternative payment arrangements with tenants in 2021 because of the pandemic. In 2020, this statistic was 93%, which led the survey to ask – are tenants honouring their arrangements? What percentage of your tenants are honouring these payment arrangements? It depends on who you ask. Almost 42% of survey participants said more than 75% of tenants are paying as agreed, while 26.5% report 50% to 75% of tenants are keeping up. Less than a third of respondents said fewer than 50% of tenants paid as agreed during the pandemic.

Rental professionals also found it tougher than usual to place tenants. Half said their vacancy rates were higher than usual in 2021, compared to 22% saying they were lower. It is worth noting that other factors are often at play, many of them very location dependent. For example, development in urban or suburban areas can cause a temporary oversupply of properties, while the migration to coastal towns can lead to an under-supply of property stock there.

Landlords

The pandemic affected landlords’ pockets, too. To save money, many considered managing their own rental properties, while others renegotiated the commission they pay. Almost 63% of respondents said they lowered the commission they have been charging during the pandemic to keep a landlord as a client (in line with 2020’s 65%).

Equally worryingly, rental agencies could be fighting for a slice of a shrinking pie. The favourable interest rate encouraged renters to buy but buy-to-let investors haven’t followed suit. In fact, 53.6% of respondents said landlords are downsizing their portfolios, while just 7.1% said they are looking to expand. This could indicate that landlords do not view the current property market as a good investment, perhaps deterred by subdued rental growth. Some good news: It seems that landlords are becoming more informed. Only 52.7% of survey participants said they don’t think landlords have a good understanding of the rental market – compared to 65% in 2020, and 74% in 2019.

Future

One thing remains true, especially in tough times: South Africans are resilient, and it shows in the results. Despite challenging market conditions, business owners and partners were almost twice as likely to have considered buying another agency than selling their own this year.

And that optimism extends beyond the boardroom: Almost two thirds of respondents said they are very likely to still be working in the industry in 5 years’ time. But perhaps the best display of resilience can be seen in this final statistic – 81.6% of participants remain optimistic about the future of the rental industry! Just 1 respondent in every 40 was pessimistic about the sector’s prospects.

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