MAIN IMAGE: Michelle Dickens, CEO of PayProp SA, and Paul Stevens, CEO of Just Property
Staff writer
Letting agents in essence have two clients, the landlord and the tenant and it can take some fancy footwork to keep both parties happy. Both parties want the most bang for their buck, and a mutually beneficial, long-term (in most cases) arrangement.
Michelle Dickens, CEO of PayProp SA, and Paul Stevens, CEO of Just Property discuss the intricacies of pricing a rental property and managing the pain points of affordability and increasing costs.
If you let it, will they come?
Just having a property on the rental market isn’t enough. Firstly, it needs to have the right features. Stevens shares that they have identified the top ten rental features that positively impact rental valuations and attract tenants. “Naturally, the more boxes a particular property ticks, the better the prospective rental return. Our top ten features are safety and security, competitive pricing, recent upgrades, move-in ready, appliances included, close to workplaces, good schools and amenities, easy access to transport routes, in a good neighbourhood, and, more recently, includes fiber WiFi connectivity and back-up electricity and water services”.
Secondly, the property needs to be priced correctly. Letting agents are well advised to know the area they are working in, and what sort of rentals different properties within that area are going for. Stevens also says that the measure of “‘accurately pricing residential rental units’ is that the pricing strategy meets the needs and goals of the individual landlord. For example, if a landlord is looking for maximum occupancy, then competitive pricing may outweigh the added value of WiFi and backup power”.
According to PayProp’s Q1 2023 Rental Index, roughly a third of all rentals nationwide cost between R5 000 and R7 500. The second largest group is the R7 500 – 10 000 bracket. Stevens points out that tenants in these brackets are extremely price sensitive, “Our agents need to know what properties a landlord is competing with, and they tap into real-time data sources to provide objective pricing guidelines. When a rental property does not compete favourably in the market in terms of price, one runs the risk of a vacancy. This deficit is a loss of income one can never recoup”.
In terms of the numbers, Dickens advises that “There are some key metrics which can be applied: the market value of the property is always a good starting point. Typically, rental prices range between 05% and 1% of the market value of the property. The more affordable property categories can achieve 1% of market value, but the more the property increases in value, the more this creates a drag on the value of the rent, and luxury house rents typically range between 0.3 and 0.5% of market value”.
Rising costs and defaults
The PayProp report indicates that the rental market finally returned to pre-pandemic levels of growth in the final quarter of last year and that positive trend has continued in Q1 2023. Rental growth of 3.9%, 4.6%, and 4% was recorded in January, February, and March respectively. Inflation remained stubbornly high at 6.9%, 7%, and 7.1% during the three months. However, to date, interest rate increases have done little to tame inflation, which is now below last year’s peak but still stubbornly high. Rising prices and more expensive debt repayments are putting continued pressure on tenant affordability.
When it comes to finances, Dickens advises that “The lease is the most important aspect of the relationship between the tenant and the landlord, it guides the additional charge the tenant is responsible for, the escalation and date of escalation, and the terms of non-payment”. Getting a proper lease with clearly defined roles and responsibilities in place goes a long way to removing any confusion about who pays for what, and when.
Stevens also advises agents to stay close to tenants during their lease term so that they can catch potential problems early on; knowing tenant circumstances and monitoring their payment behaviours are critical.
