Rental market slowly stabilising, here’s what landlords and tenants can expect

The latest rental index published by PayProp held good news for landlords: national rental growth rates appear to be stabilising and all major provinces have seen improvements in tenant payment behaviour. While this implies the worst is over for now, Jacqui Savage, National Rentals Manager for the Rawson Property Group, says pressure remains high on both landlords and tenants.

“On the tenants’ side, affordability is critical,” she says. “A huge number are still feeling the effects of the pandemic on their income and job stability. This is particularly prevalent in the low end of the market – properties with monthly rentals of R3000 or lower.”

Savage says above-CPI increases in utilities and municipal charges are only going to make it more difficult for struggling tenants to meet their monthly rental obligations going forward. To minimise the fallout, she urges tenants in financial difficulty to open communication channels with their landlords early, before their payment situation becomes dire.

“It’s important to remember that landlords often rely on rental income to meet their own financial responsibilities,” she says. “If rental stops coming in without warning, they could find themselves in real trouble. This doesn’t put them in a particularly understanding frame of mind when addressing the issue with their tenants, and generally results in poorer outcomes for everyone involved.”

With advanced warning, however, Savage says landlords can often take steps to protect their own financial stability, enabling them to better help tenants ride out tough times.

“This kind of proactive approach is going to be key for rental property performance, all-round,” says Savage. “Landlords able to identify and address issues early on will experience far better tenant retention and fewer vacancies as a result.”

Vacancies remain a problem thanks to affordable property purchases eroding one end of the tenant pool and financial constraints eroding the other. The Western Cape is currently experiencing the highest vacancy rates at 14.38%. The Eastern Cape has the lowest vacancies at 4.28%.

“We’re still very much in an oversupply situation, with more rental properties available than qualified tenants to fill them,” says Savage. “That means landlords need to offer value for money to secure the top-quality tenants who have their pick of a huge range of options.”

Waiting until lease renewal time to assess this value proposition can be an expensive mistake for landlords to make.

“These days, by the time lease renewal comes around, there’s a good chance your tenant has already found a more attractive option,” Savage explains. “If you don’t want to risk losing good tenants to greener pastures – and sitting with a vacant property to fill – you need to remain competitive at all times. That means staying on top of property repairs and maintenance, and keeping in line with pricing trends, even if that involves rental adjustments halfway into a lease.”

While rental property yields may be lower than desired at present, Savage says there are still silver linings for landlords who know where to look.

“Low property prices aren’t just a pro for tenants looking to become homeowners,” she says. “They also present great opportunities for landlords to expand their rental portfolios very affordably. These will, of course, take some time to become profitable under current circumstances, but would provide an excellent investment base to capitalise on growth when the market inevitably swings up again.”

As for what market to target with new rental investments, Savage says the most popular price range is between R4500 and R7000. If reliability is your top priority, however, the R7000 to R12000 range currently delivers the best tenant payment performance.

“In reality, there are opportunities at all price points,” she says. “Like any other investment, the key to making the most of these lies in intelligent asset management. Having a rental expert on board can make that process a lot easier, helping you minimise risks and maximise returns, now and in the long term.”

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