Weekend Argus (Saturday Edition)
RENTAL MARKET
A happy balance needs to be sought by owners trying to let their properties.
The latest TPN Vacancy Survey shows that rental property vacancies rose nationally during the first quarter of this year, from 5.4% to 5.8%. One may have expected slightly less pressure on landlords following the lowering of the repo rate in March, but TPN managing director Michelle Dickens says the impact of the VAT hike on landlords and tenants needs to be considered.
“Landlords will be paying more for maintenance, upkeep and levies, while tenants will be under increased financial pressure all round, making it more difficult to absorb an escalation in rental payments,” she says.
Although the sub-R3 000 a month rental category is the most volatile, and has the largest increase in vacancies – from 4.7% in the fourth quarter of last year to 9.6% in the first quarter of this year – it is the R12 000-plus rental category that has the highest average vacancy rate of 12.3% nationally.
The Western Cape, however, has the lowest vacancy rate at 3.6%. It also tops the market strength index at 71%.
“This does, however, come off a high base of 86% in the first quarter of 2016. The apparent slide in the market strength index for the Western Cape is somewhat due to a declining demand rating, although this figure is still high at 71%,” Dickens says.
PayProp reports that nationally, there has been an increase in the percentage of tenants in arrears with their rent, from 18.5% in April last year to 23.2% in March.
“This means only 76.8% of tenants pay their rent in full every month,” says PayProp head of data Johette Smuts. She adds the average arrears percentage relative to rent is also rising.
“In April 2017, the average tenant in arrears was just over 80% in arrears.
“In March, this number was 96.4%, meaning the average tenant in arrears is almost one full month behind with their rent.”
The southern suburbs sectional title rental market has already “softened notably” over the past few months, with average rates declining by up to 36%, says Imtiaz Adam, an achiever agent with Seeff. Some landlords have noted the market deterioration and adjusted their rents accordingly to avoid rising vacancies, but many, he says, are still unaware of the market shift.
“We are still finding landlords coming to us from other agencies hoping we can find them a tenant willing to pay high rental rates.”
While there is some expectation that the property market will bgin to recover, he says the mixed economic outlook and lag in the effects of the economic decline are only now being felt in the rental market. Tenants are unable to pay as much in rent as they used to.
For example, a furnished two-bedroomed apartment in Claremont which was let for R15 000 a month last year, can now only achieve R11 000 to R12 000 a month, says Adam.
“Even the lower end of the market is feeling the decline. In Plumstead, a one-bedroomed apartment could be let at R7 500 per month last year, but will now only achieve R6 500.”
He says smart landlords understand the current market and have reduced rents to accommodate the market shift and tenants. So rather than sitting with empty properties, they are still earning a return on their investment.
Ben Shaw, chief executive and founder of HouseME – a digital platform connecting landlord and tenants – says a number of its clients have opted for inflation-linked renewals to avoid vacancies and keep good tenants happily placed.
“The market is adjusting to the newfound tenant centricity, and as a result some landlords have had to drop their prices by up to 10%. While the economy is in recovery mode, this will be necessary in certain areas.”
Furthermore, an abundance of new residential supply has put tenants in a strong bargaining position, and already, the platform’s PlaceME tool is being used by rental applicants to make offers below landlords’ asking prices.
“This pricing mechanisms allows for offers below and above the listed price, and we’ve seen offers made both ways over the past two months, which indicates there are still a number of high-demand, low-supply nodes which are priced too low,” Shaw says.