* This article first appeared in our Property360 digital magazine
Good tenants are still hard to find. In fact, it’s so difficult that many rental agents even reduce their commission to have the best chance of attracting those who are still in the market.
The battle against rent arrears is also high on the list of challenges, according to PayProp’s survey of the state of the rental industry in 2021.
Johette Smuts, head of data analytics at PayProp, says the decline in the availability of ‘good tenants’ is linked to the fact that many South Africans are suffering financial hardship as a result of the pandemic, while others took advantage of low interest rates to buy property.
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âGood tenants have found it easier than ever to qualify for home loans and are therefore moving from their leased properties to owned properties. “
With the financial pressure on tenants affecting their ability to pay rent, agents had to be creative to maintain cash flow, find tenants and keep tenures, she said, “The survey results show that 93% of those surveyed accepted an alternative form of payment. agreement with tenants, which also explains why 60% of respondents reported an increase in the time spent on monthly administration … “
In addition, nearly two-thirds of survey respondents confirmed that they had lowered their commission in order to retain a mandate, a move that could harm their business in the short and long term.
âAgents might have a hard time justifying the increase in their long-term commission without the addition of services,â says Smuts. TPN’s latest Residential Rental Monitor, which analyzes rent payment performance in Q4 2020, shows tenants in Gauteng and KZN have seen improvement in their rent payments, but Gauteng still has the performance of the lowest tenants. lowest of the three main provinces.
Renters in the Western Cape continued to outperform those in other provinces.
âHowever, all three provinces showed some improvement in the fourth quarter. From 80.25% of tenants in good standing in the third quarter of last year, the Western Cape saw an increase to a record 82.41% in the fourth quarter, âsaid Michelle Dickens, Managing Director of TPN.
KZN, by comparison, saw a slight increase from 73.55% to 76.26% in the same two quarters, while Gauteng’s ‘modest’ level of 71.85% in the third quarter rose to 75.73 % in the fourth quarter.
“This noticeable quarterly improvement puts Gauteng above the ‘bottom of the newspaper’ as its tenant performance is now the second weakest of the nine provinces, with the Free State now the weakest province.”
The Free State aside, some of the smaller provinces saw their tenant payment performance better hold up during last year’s foreclosure period. These include Limpopo, Mpumalanga, North West and North Cape, while the Eastern Cape remains a “relatively good performer”, although it has weakened considerably.
Dickens indicates that the four best performing tenant populations are the North Cape, with 84.02% of tenants in good standing, Mpumalanga with 82.95%, the Eastern Cape with 82.5% and the Western Cape with 82.41. %.
Looking ahead, however, the PayProp survey shows that 68% of agents are most worried about the continued effects of Covid-19 on their businesses. Others raised concerns about an oversupply of properties, as well as vacant properties and the ability to fill them with quality tenants.
She adds: âHowever, it is encouraging to see that, even during one of the most difficult years, only 15% of those surveyed considered selling their agency. In fact, just under 80% responded that they saw themselves working in the real estate industry in five years.
Not only do rental agents rely on silver liners, but real estate investors are moving forward as well. Dr Andrew Golding, Managing Director of the Pam Golding Property Group, says the economic hardships and challenges faced over the past year, and even today, have prompted many to look for ways to build wealth and develop investment portfolios that generate passive income.
âIn South Africa, the seemingly still resilient residential real estate market has historically been one of the few investments that has served as a hedge against the inflation that was once rife. Real estate investing, as an asset class, tends to be less prone to extreme episodes of short-term volatility. “
He further explains: âStocks can crash overnight, due to global or local economic shocks, but real estate investments tend to be more resilient with rises and falls spread out over time – as is often the case. sees with a rebound earlier than expected. after hard foreclosure – so this is an asset class better suited for those who are risk averse. “
However, with rental yields under pressure, he says overall return tends to be most heavily influenced by a property’s capital growth, which means buying and selling at optimal times is essential.
âNotably, properties best suited to capital growth can sometimes cost more and provide lower returns, while properties best suited to maximizing returns may cost less and offer lower prospects for capital growth. However, real estate is an asset class generally recognized as a safe bet, allowing the investor to benefit from both short-term rental yields and longer-term capital appreciation.
Buying real estate as a source of rental income is a great way to secure future wealth, but as Adrian Goslett, Managing Director of Re / Max of Southern Africa says, if poorly managed, a rental property could end up costing homeowners a lot more than they do. Negotiated for.
The rental agreement “is crucial” to minimizing the risk of costly capital outlays and unnecessary expenses incurred on a rental property, as it outlines the responsibilities of both parties and explains the procedures for managing the property.