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Rentals out of rehab?

Rental properties

Excess supply and cash-strapped tenants have placed the rental properties sector under significant pressure for the last 18 months, but industry experts are cautiously optimistic that this is about to change

Excess supply and cash-strapped tenants have placed the rental properties sector under significant pressure for the last 18 months, but industry experts are cautiously optimistic that this is about to change

WORDS: MARANA BRAND

The residential property sector tends to ebb and flow. While the past 18 months saw a notable buyers’ market coming to the fore, the rental properties market is starting to gain momentum, says Grant Smee, property entrepreneur and managing director of Only Realty Group.

Homeownership is still out of reach for many, largely due to unforeseen costs, potential repo rate increases, high levies, and escalating rates and tariffs. Some are also 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.”

According to Smee, 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 or friends to improve their quality of living.”

Rental properties

SLOW TAKE OFF

Johette Smuts, head of data analytics at PayProp, told real estate portal Property Professional the worst appears to be over for now, with the latest PayProp Rental Index showing a return to growth in the rental properties market of 0,7% and 0,8% in May and June, after dipping below zero in April 2021. Smuts says growth remains under pressure due to lower interest rates enabling renters to purchase properties, thereby decreasing the pool of available tenants and putting downward pressure on rent growth. In addition, continued building and development in many cities are contributing to an ongoing oversupply of rental properties, adding further sustained downward pressure on rental growth. Inflation reached a 30-month high of 5,2% in May, driven largely by transportation costs, including petrol. This rise in costs of other goods and services has put pressure on already-stretched consumers. “The aftermath of job losses due to lockdown continues to affect many consumers’ pockets, and affordability is still a major concern,” she says.

SMALL RISE

The latest figures of credit bureau TPN’s rental monitor indicate a small increase in the average rental properties prices in provinces such as KwaZulu-Natal, North West, Western Cape, Mpumalanga and Limpopo, with the average national rent having grown marginally from R7,746 in Q2 last year to R7,778 in Q2 2021 – an increase of just R32 over the 12 months. “Gauteng, Free State and the Northern Cape have experienced a decrease in the average price of rentals,” says Smee. “This is largely driven by excess supply and landlords lowering their prices to secure a good tenant.” Smee notes that 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 the Western Cape has been impacted by rising vacancy rates but Smee says, despite this, they’re seeing healthy, sustained demand for rental properties in the price bracket of R7,000 to R10,000 per month. “This puts pressure on the 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 best returns, especially in areas such as the East Rand, West Rand and Johannesburg North. Regions popular for investment include Gqeberha, the Dolphin Coast, Cape Town Norther Suburbs and the Helderberg.

MORE PAYING TENANTS

Landlords have been struggling to find tenants with a good credit record and who pay their monthly rentals on time each month. This has also improved considerably since last year. According to Smuts, the percentage of tenants in arrears spiked in Q2 2020, when almost one in four occupants were behind in payments. This was up from around one in five in Q1 of the same year. “With the worst now behind us, tenants’ finances and arrears continue to improve. In Q2 2021, only 20% of tenants were in arrears, a number that is far closer to the 19,4% seen in Q1 2020, before the first lockdown was announced.”

Smee says, 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. However, Michelle Dickens, CEO, TPN Credit Bureau, told Property Professional that there’s still a significant risk to landlords in the rental properties market, especially in rentals in the lower price bands. “Rentals below R3,000 per month remain under pressure, with only 65,73% of tenants in good standing. A concerning 17,76% of tenants in this category cannot make any rental payment contributions,” she says. “In the current environment, the growing rate of long-term delinquent tenants – those who make no rental payments for a minimum of four consecutive months – pose a growing risk for landlords,” says Dickens. “Our experience shows that although tenants don’t intentionally set out to be serial squatters, they can become delinquent if their circumstances unexpectedly change.”

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LANDLORDS: HOW TO SECURE WELL-PAYING TENANTS

Smee shares his top tips for securing and keeping a tenant in good standing:

1. Patience is a virtue. Often landlords are so desperate to find a tenant that they sign the first application they receive. Rather 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. Do not list your 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 rental 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 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, the key to keeping them is staying on the ball. If a tenant has a maintenance query, get it sorted out as quickly as possible. This also ensures better upkeep of 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 and honest 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 that affect them.

7. Offer renewal incentives. If your tenant’s lease renewal is coming up and they are worth keeping, negotiate an incentive to make sure 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.

TENANTS: HOWTO KEEP A GOOD CREDIT SCORE

In the wake of the pandemic, many face the reality of their meticulous credit records being negatively affected by the whirlwind of last year’s economic instability. Landlords and tenants alike have been affected due to income loss, leading to missed bond payments, downsizing and, unfortunately, evictions.

Because your payment profile is updated monthly, if you, as a tenant, stops paying rent, it will be flagged to reflect that and impact your credit score. This will limit your ability to access a good home or credit for a vehicle or short-term credit. Avoidance is definitely not the solution, it only escalates the situation, just making it more challenging to rehabilitate your credit in the longer run, says Shanaaz Trethewey, CEO of RentMaster, a rental cash flow and collection company with a 20-year track-record.

The challenge now is, what to do? Is it possible to repair your credit record so you can move into a lovely rental home? Are your dreams of getting a bond in the future permanently dashed or can they be rescued? Trethewey suggests the following to rehab your credit record:

1. Pay on time, every time. Accessing credit is extremely difficult once a credit provider sees a non-payment history. No service provider – financial or otherwise – wants to extend terms to a consumer that has been reported not to pay.

2. Remain within your means. Re-evaluating your affordability bracket and sticking to it can help remedy both your stress levels and your credit profile over time.

3. Communicate with your collection agent. Communicating if your income terms have changed immediately with your landlord and rental agents will allow them to adjust the invoicing and collection in a way that will help everyone cope with the change in a proactive and mutually positive manner.

4. Keep the administrative stress to a minimum. Using a debit order helps to take the manual time cost and process out of the payment cycle. It also helps to ensure that you are not subject to interbank processing delays, which are out of your control and may still land up on record.

5. Be transparent with your landlord. Trust is the foundation of all good relationships. You can assist in building transactional trust with your landlord by simply being honest and consistent in your agreement – it will prevent frustration down the line. Showing proof of income and surety, demonstrating your ability to live within your means and prioritising your rental by proactively communicating any issues, all helps to build this trust.

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