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A rental boom looms …

Here’s what you need to know.
Image: Shutterstock

South Africa’s housing market has been turned on its head once again with the current spike in the rental market. While the market experienced a surge in homebuyers due to a low interest rate and favourable lending criteria by the banks, there is now a high demand for rental properties.

Privy to excess supply and the compounding effects of the Covid-19 pandemic, this sector has come under significant pressure over the past 18-months; but industry experts cite that this is about to change.

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.

Why the shift?

While homeownership was previously viewed as a marker of ‘adulthood’ and independence’, South Africans are now prioritising 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.

He adds that homeownership is still out of reach for many, largely due to unforeseen costs, potential repo rate increases, high levies, and escalating rates and tariffs.

Increase in demand amongst good standing tenants

The latest statistics indicate a shift in demand with rentals up by 1.4% (13.8%) in quarter 2 of 2021 according to the TPN Rental Monitor.

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.

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.

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/ or friends to improve their quality of living.

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.

If the price is right 

The mid-market (middle price bracket) is currently enjoying sustained demand for rental properties. “Here, quality and affordability are two key factors and landlords are urged to adjust their rental expectations in the short-term to secure a good tenant.

The TPN data shows that the Western Cape has been impacted by rising vacancy rates reaching 14.38%, and negative annual rental escalation (0.1%) in Q2 2021.

However, despite this we are seeing healthy, sustained demand for rental properties in the price bracket of R7 000–R10 000 per month. This puts pressure on Cape Town CBD and the Atlantic Seaboard areas where rentals are significantly higher, and yields (returns) are under major pressure.

Sectional title properties are currently experiencing the highest yields. East Rand, West Rand and Johannesburg North continue to generate some of the highest yields with areas such as Port Elizabeth, the Dolphin Coast, Northern Cape Town suburbs and the Helderberg proving to be popular areas for investment.

Tips for landlords to secure good standing tenants

Here are my top tips for securing and keeping a good standing tenant as follows:

  1. Patience is a virtue: So often, landlords are so desperate to find a tenant that they sign on the first application that they receive. Take the time to do your due diligence – work with a trusted real estate agent to perform all the relevant checks. Weigh up the pros and cons and be sure to call their references.
  2. Be selective in your strategy. I urge landlords not to list their property with too many agents. If you look desperate, you will fall prey to chancers and low rental offers.
  3. Short-term losses, long-term gains: With the number of properties on the market, it’s best to do your research before listing your rental property. Find out what other homes are being leased out for to ensure that your listing is competitive. In many cases, we are encouraging landlords to drop their price ever so slightly for the right tenant – especially a tenant willing to sign a longer lease-term.
  4. React quickly: If you have secured a good tenant, then the key to keeping them is staying on the ball. If a tenant has a maintenance query, communicate, and get it sorted out as quickly as possible. This also ensures better upkeep in your home.
  5. Communicate: Keep the lines of communication open. If a tenant is struggling to pay their rent on time, structure a plan that works for both of you. Checking in on the tenant every few months also goes a long way to promoting an open, fair relationship.
  6. Stern but fair: In a tough economic climate, tenants can take advantage of landlords. Be sure to lay down the ground rules from the get-go and share any relevant documentation with regards to complex rules and regulations.
  7. Offer renewal incentives: If your tenant’s lease renewal is coming up and they are worth keeping, be sure to negotiate an incentive to make sure that they stay on. This could be something as small as a discount or modifications to the home, i.e., new countertops, floors, painting of the home etc.

Grant Smee is property entrepreneur and managing director of Only Realty Group.

COMMENTS   12

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The buy to let market is shot.

ANOTHER ARTICLE BY A REAL ESTATE GUY!!! Don’t tell the people that property has been tanking for 12 years and that the “low” interest rates could rise precipitously. Just a guy trying to save a dying industry. Dr. Debt

Not much different from our local fund managers trying to flog an equally dead horse. Both my residential properties and local equity funds have made me no money over 5-7 years now.My offshore investments have doubled and trebled.

This guy is soo detached from reality.
In my area rental houses that were going for 35k a month pre covid are lucky to have 15k to 18k rentals…. And those are the lucky ones…. The unlucky have empty places.

I think they’re trying to compare the 15k –> 18k move and carefully just ignore the 30k previously attained.

As owner I handle the tenant sourcing process myself and had almost no problems in more than 10 years.

Based on a radio talk show aired recently some tenants prefer to build houses in rural areas where their families come from. The land is cheap, no punitive rates/taxes and they have a support base.

So yes rentals remain an attractive option for city dwellers.

Heaven forbid! Rates, taxes & electricity prices have increased exponentially, leaving owners with yields of around 4% – at full occupancy. Factor in a few empty months and you down to less than 3%… On a Rand based asset. Ouch!! If it looks and tastes like a lemon, the it is a lemon.

What a load of croc!! The rental I recieve on my properties in Cape Town is down 15% in nominal terms year on year thanks to the increase in stock, due to the ‘buy to Air BnB’ market’ going for a ball of horse manure. Rentals are further excaberated thanks to guest houses renting our rooms long term due to no tourism and the CT council’s densification policy where up to three dwellings on an erf are permissable without consent. Then add in the low interest rates which has pulled in a lot of credit worthy people, which leaves the up to the hilt indebted ones with no deposits applying…bleak picture indeed for rentals!!

Our experience as well; started by student rentals falling off a covid cliff. Return is not bad on a small flat (7.2% before tax) but the capital gain will be diluted by more tax (CGT) and costs.

This is a topic I know well…

And let me just say this in response to the article:
I wish MW had those ROFL emojis.

Was about about starting to read this (unexpected) article with seriousness it deserves, then realised it’s pure PR/Marketing spin from a property group. Ag no. Read with a (large) pinch of salt.

How many parties are entitled to benefit from the one little title deed? It firstly belongs to the bank that finances it. Then it belongs to the tenant who received exorbitant rights from the legislator. It also belongs to the municipality who has legal rights to siphon all the value they need off that property. A certain percentage of the rental income belongs to the state, who also claims 30% of the capital value when the owner dies, plus VAT, CGT and transfer duties on all transactions.

The guy who is under the false impression that he is the owner, only has the right to pay down the bond, paint the house, insure the place, keep the garden, and chase away burglars on behalf of the implied title holders.

A property owner in a socialist country is a voluntary slave to society.

End of comments.

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