We are entering the fourth week of lockdown in South Africa. Since only essential services are allowed to operate, that makes it the fourth week of a no-work, no-pay situation for many people – including estate agents specialising in property sales and rentals.
Jan Davel, CEO of leading property payment processor PayProp, says sales-focused estate agents in particular are unable to attend to their daily routines or secure new business. To make matters worse, the Deeds Office is currently closed, which means that no properties can be transferred and no sales commissions can be paid in respect of estate agents’ earlier sales activities.
What about property rentals? Well, they’re in a slightly better position, provided they have the right technology.
Since nobody may view new homes or relocate during the lockdown period, estate agents who focus on property management and rentals are also hamstrung in securing new business. But while the collection of monthly rent will become increasingly difficult without the right payment processing technology in place, tech-enabled estate agents will at least be generating recurring monthly income from their existing portfolios.
State of the Rental Industry Survey: Technology remains key
In November 2019, PayProp undertook a survey of South African estate agents to discover their perceptions of the current state of the rental industry – and found that they were largely optimistic about its future. Fast forward to March 2020 and the situation has of course changed dramatically, but the survey’s findings are nevertheless instructive, says Davel.
“While no one can accurately predict the eventual outcome of the COVID-19 crisis, it was encouraging to see that the majority of our respondents were then already technologically equipped to work remotely, ensuring their teams had access to real-time data and centralised information,” he says.
Of those polled, 89% already used property technology at work on a daily basis, and 90% agreed that property technology could enhance their jobs and businesses. Those agencies that have already embraced technology in their everyday activities will be best placed to ride out the storm, says Davel.
Taking its toll
However, Davel says that the COVID-19 crisis is really taking its toll on estate agents and that the property industry has long been affected by the weak state of the economy. Whilst no one expected the sudden halt of sales and rentals, estate agents had already hunkered down some time back.
Over the past year, sluggish economic growth suppressed rental growth, and the survey reflected this, showing that over 60% of respondents passed lower-than-normal rental increases. Agents are acutely aware that retaining clients is more important than securing commission in this economic climate, and as such 58% of respondents confirmed that they’d already lowered their commission to keep a landlord.
“Lower rental growth rates and smaller commissions were already hard pills to swallow, but prior to the challenges of the pre-coronavirus market, only 6% of respondents felt pessimistic about the future of the rental industry. That glass-half-full attitude is now being tested,” says Davel.
Tenant troubles and obligations
It goes without saying that agents have not been the only ones to suffer in recent years. Tenants have also been hit by less-than-favourable economic conditions – low income growth and high unemployment have led to affordability challenges, made worse by the high increases in living costs such as petrol and medical care.
Many tenants’ challenges are now compounded in that many employers have implemented drastic measures to deal with the impact of the lockdown – including salary reductions and compulsory unpaid leave. Commission earners and the self-employed have also seen their income dry up.
Taking the effects of the lockdown and COVID-19 into consideration, Davel says that there is no new law or regulation that excuses a tenant from paying rent under a valid lease agreement. “Of course, that is not to say that a lease agreement cannot be renegotiated to include something like a payment holiday or deferred payment, or some other solution acceptable to the landlord.”
Already at the end of 2019, two thirds of survey participants agreed that arrears were a bigger problem than a year prior, with half responding that they’d evicted at least one tenant during the course of the year. As incomes fall, this challenge will only be compounded. Although civil court proceedings and eviction processes have been suspended for the duration of the lockdown, landlords’ rights must still be protected – the collection and eviction processes will proceed as soon as lockdown is over.
Respond now to ride out the crisis
The situation that estate agents will find themselves in at the end of April 2020 will be substantially worse than it was in November last year. Davel believes that the industry will look very different by the end of this year, especially from a technological standpoint, with more estate agents embracing technology solutions. “Short to medium term disruptions and challenges are unavoidable in our current situation, while Government’s future lockdown decisions will inevitably affect our longer term prospects,” says Davel. “How agents respond now will determine whether or not they emerge on the other side of this crisis.”