Rates decline as rentals flood the market

Once the full lockdown is lifted in terms of activity, the residential market will pick up, but rental rates will come under tremendous pressure, impacting both tenants and landlords, Samuel Seeff, chairman, Seeff Property Group, predicts.

“The double whammy of the lockdown and Moody’s and S&P downgrades, and resultant financial pressure on households, will force many homeowners into the rental market. At the same time, many current tenants will need to downgrade to cheaper rentals while landlords will look to execute evictions, which will add further stock and movement to the market.”

Stock levels will rise with many sellers putting their properties into the rental market until property prices improve. Airbnb and holiday rental properties are already flooding the rental market, adding further to the stock levels, Seeff says.

Tenants already struggling

“While there will be higher demand for properties following the lockdown, rental rates will come under further pressure as tenants simply cannot pay more. Throughout 2019, rental rates were already in decline due to the deteriorating economic climate.”

Preliminary information from the TPN Credit Bureau indicates that almost 16% of tenants did not pay their full rent in April and a further 16% did not pay any rent at all – that’s just over a third of the rental market already showing signs of distress and the longer the lockdown lasts, the more this will deteriorate, Seeff says.

“Landlords will therefore need to be flexible with their rental rates or they could face increased vacancy rates and risk financial losses. Airbnb and holiday property owners will need to consider storing their furniture as there’s generally a much lower demand for furnished accommodation.

“Despite the financial challenges, tenants need to focus on keeping their credit records positive as they will still have to pass the vetting criteria should they need to move to cheaper accommodation. Alternatively, tenants should consider sharing accommodation until they get back on their feet,” says Seeff.