AnalysisResidential News

Rental market under pressure

South Africa’s largest letting group shares insights on the current rental market and advice for concerned landlords.

In an inflationary environment with increasing interest rates, landlords are facing higher mortgage repayments. The spike in inflation (which, in June, reached its highest rate since May 2009) means that the cost of maintaining properties has increased too.

At the same time, tenants’ affordability has also been negatively impacted by the increasingly high cost of living. With less disposable income, their appetite for rent increases has diminished.

The rental market is predicted to be under pressure through 2022. Yet, in May 2022, the Just Property network achieved its third-highest letting turnover ever and the highest-ever number of properties under management. The brand is doing something right. With a keen focus on tenant vetting and rigorous property management, Just Property agents are attracting more business than ever. In fact, the Just Property network manages an average of 63% more rentals per office than other PayProp clients and achieved 6.8% YoY growth in rent roll (total rental invoiced) as of Q2 2022 (Source: PayProp).

Paul Stevens, CEO of Just Property, gives some insight into current market conditions, noting that it’s not all doom and gloom.

Rental growth has recovered

“Rental growth patterns tell the best news since Q3 2017”, says Stevens. The latest PayProp Rental Index reports that “in Q2 2022, all nine provinces recorded positive YoY rental growth. The last time this happened was almost five years ago, in Q3 2017.” The Q2 rental growth figures are as follows:

  • Eastern Cape 4.4%
  • Free State 1.9%
  • Gauteng 0.3%
  • KwaZulu-Natal 3.0%
  • Limpopo 4.7%
  • Mpumalanga 5.2%
  • North West 3.9%
  • Northern Cape 9.0%
  • Western Cape 3.0%

Tenant health

“As a general rule of thumb, rent should not account for more than 30% of a tenant’s salary,” notes Stevens. “The latest PayProp Rental Index reports that, nationally, 33% of tenants rent for R5000 – R7500 per month and that their average income is R27 924. That’s well within the rule of thumb range, which is good news for landlords in this price bracket.”

But there is a proviso, Stevens adds. “Only 31.1% of tenants in this price bracket are deemed ‘minimum risk’. Strict tenant vetting and monthly management procedures are essential to ensure that new tenants are likely to pay their rent on time, every time. Just Property rental portfolio managers look at more than just a credit score; factors like account payment patterns, nature, and age of judgements are also considered when vetting tenants. Make sure your managing agent does the same.”

PayProp reports that, nationally, “fewer tenants are in arrears now than there were in Q1 2020, before the start of the pandemic” (Source: PayProp Rental Index 2022 Q2). This is good news for landlords, especially those who need on-time rent payments to cover mortgage commitments, says Stevens.

“The average percentage of Just Property tenants in arrears is consistently below the PayProp national average. Further, the average Just Property tenant in arrears owes a significantly lower percentage of one month’s rent than the PayProp national average (62.9% vs. the PayProp average of 80.8% of one month’s rent owed). This is a testament to the efficacy of Just Property’s fully comprehensive property management service.”

Advice to landlords

“People will always need a place to stay, and properties that are clean, well maintained, fairly managed, and priced correctly will always be in demand. With the right business partners, all these prerequisites can be achieved, and landlords can weather this storm. With continued discipline, they will be able to enjoy a greater return on investment in years to come,” says Stevens.

“Ideally, you would have geared the property correctly and taken into account the fluctuations in the interest rates. If you have not geared conservatively, you want to have cash reserves to ride out the storm. Landlords need to appreciate that they are competing with many other landlords and should consider any reasonable tenants’ requests. Do not panic if the property is vacant and continue to do a vigorous vetting,” says Shaun du Bois, franchisee of Just Property Choice.

 

“The rental prices need to remain current and market-related. If your property is priced right in relation to the average salary for that area, it won’t remain vacant for long,” adds  Lawrence Homan, franchisee of MargateBerea, and the Pinetown & Westville branch. “However, if your property is valued at more but is out of the price range for the current area, it may be worth your while to lower the rental instead of it standing vacant.”

 

The importance of a managing agent

The value of a trusted industry partner to deliver key services is more evident than ever. “As property professionals with a wealth of data at our fingertips, as managing agents, we can offer our landlords peace of mind as well as a host of services,” says Piet Burger, manager at Just Property George.

Your rental agency should be geared to deliver the following:

  • Correct pricing to attract quality tenants and avoid extended vacancy periods
  • Stand-out marketing to drive immediate occupancy
  • Strict vetting of tenants to mitigate risk
  • Diligent property management to protect landlords’ assets and income
  • Cloud-based systems to drive efficiencies and transparency
  • Firm but fair dispute handling to move forward amicably

“Be sure that your letting agency has dedicated, experienced staff handling each of these aspects, from letting and accounts to maintenance and inspections,” says Veronique Eachus at Just Property Port Elizabeth.

 

”Over and above the normal management activities, a managing agent should also provide owners with extra services that kind of just fit into our day-to-day responsibilities,” says Lawrence. These include:

  • A legal team that can assist owners with any legal question that may arise
  • Attending the Rental Tribunals on behalf of the owners
  • Keeping them abreast of current market trends
  • A network of contractors together with an in-house maintenance team and therefore can provide competitive quotes for maintenance & cleaning
  • Debt collection. Should a tenant owe any monies after vacating the property, we assist with handing over the tenants to debt collectors, who then blacklist them on ITC. We provide owners with feedback once received from the debt collectors

“Just Property also offers RENTSECURE to landlords whose properties are managed by Just Property,” notes Chris Lourenco, a rental agent at Just Property Midrand. “It is a rental insurance product that ensures that if your tenant doesn’t pay, the landlord is covered for up to three months’ rent or R50 000 in value. Furthermore, it will cover the legal costs when a tenant has to be evicted, and there are absolutely no delays. They pay out the rent immediately if your tenant didn’t pay and start with the eviction process immediately.”

“With years of experience and a solid foundation, we are perfectly suited to assist our clients through any market conditions,” says Stevens. “For more information, visit our landing page for landlords or give one of our local franchise offices a call.”

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