*This article first appeared in our Property360 digital magazine
The rental market is set to improve next year, as interest rates rise, but landlords should not get too excited.
This is because tenants are still expected to have the upper hand.
More tenants will enter the market as their financial situations strengthen, and fewer existing tenants will leave to purchase their own homes, and this gives hope for an improvement in vacancy levels.
However, landlords – new and existing – will still need to meet tenant demands if they hope to compete for the cream of the crop.
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Our experts share their insights to help landlords, new rental property investors and tenants navigate the 2022 rental market:
Landlords must be on top of their game
Although the rental market will improve next year, FNB commercial property economist John Loos says they should not be overly optimistic as attracting good-quality tenants will still be “a tough ask”.
“There is no doubt financial times are still tight as the big recession of last year hit us all, interest rates are rising and tenants have other forms of debt. So, there is still a tough period ahead.”
This means landlords have to keep their tenants happy through the services they provide, such as maintenance, and by the rents they ask and escalations they implement.
“Quality tenants are like gold.
Bad tenants are costly and the market will be competitive in attracting and keeping good quality tenants.”
Quality tenants are out there though, so landlords must exercise patience, advises TPN chief executive Michelle Dickens.
“Market your property at the right price.
Affordability assessments are a crucial aspect to the tenant-vetting process.”
She adds maintenance is essential, so landlords must make the necessary repairs to secure better rents and have better quality tenants.
Grant Smee, property entrepreneur and managing director of Only Realty Group, agrees that patience is a virtue for landlords.
“Often landlords are so desperate to find a tenant that they accept the first application that they receive.
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.
He also shares these tips with landlords:
• Don’t list your property with too many agents. If you look desperate, you will fall prey to chancers and low rent offers.
• Find out how much other homes are being let for to ensure that your listing is competitive.
• If a tenant has a maintenance query, communicate, and get it sorted out as quickly as possible.
• Keep the lines of communication open and check in on the tenant every few months to promote an open and fair relationship.
• If a tenant is struggling to pay their rent on time, structure a plan that works for both of you.
• Lay down the ground rules from the get-go and share any relevant documents with regard to complex rules and regulations.
• If your tenants’ lease renewal is coming up, and they are worth keeping, be sure to negotiate an incentive to keep them.
Loos says tenants are generally in the pound seats compared to landlords and can “bargain hard”. Although they will be able to bargain less as the market recovers, the market will still be in their favour.
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Be sure you know what tenants want
Existing landlords, and those looking to enter the rental property investment market, need to be in the best position not only to avoid their properties standing vacant, but to secure good tenants.
The best way to ensure this is to know:
• What kinds of properties tenants want.
• Where they want to live.
• What property features they are looking for. Loos believes tenants will be looking for additional space to cater to their work-from-home lifestyles. And going hand in hand with this, Dickens adds, is access to wi-fi.
“Security is also a non-negotiable, while ensuring access to utilities will become the differentiator of future landlords.”
Dickens says work-from-home lifestyles have also impacted the property market in terms of where people want to live. For example, tenants have moved out of higher-priced city centres such as Cape Town and Sandton.
“Previously, tenants cited travel distance to work as a key priority, but as work-from-home became a viable option, tenants retreated to more affordable outlying areas.
“Tenants aged 30 to 49 indicate distance to schools is a key factor, so good-quality schools will remain a magnet for attracting tenants.”
Choose your rents carefully
When setting monthly rents, or buying a property for the rental market, landlords should consider which rental segments are most in demand and attract the best tenants. Dickens says 70% of tenants rent for below R7000 a month.
“Tenants who are in the below-R3000 a month category remain in serious delinquency with 16.17% not paying and 15.21% only making partial payments. Compounding non-payments are high vacancies as the quality of tenants’ applications is also poor.”
Properties in the R4 500 to R7 000 category make up the biggest bucket of tenants, with one in three tenants renting in this affordable segment of the market, she says.
Landlords operating in this segment also enjoy 83.92% of their tenants being fully paid up, and vacancies have dropped to 10.98%.
The best performing sector of the market, however, is tenants in the R7000 to R12000 a month bracket, with 86.97% of tenants paid up.
At 10.19%, vacancies in this segment also trend below the national average, Dickens adds.
Tenants must make smart decisions
Although tenants have the upper hand, they also need to make wise choices. The most important advice Dickens has for tenants is to budget correctly when choosing a new rental property.
“The basic rent is only part of the cost. Factor in utility costs, such as water, electricity, sewerage and refuse.”
Tenants should also be aware the quality of the rental property showcases the landlord’s priority of repairs and maintenance.
“Quality properties attract quality tenants but equally give the tenants insight into the quality of the landlord,” she says.
It is important that good tenants, with good credit and payment records, keep them clean in order to be in a superior position to negotiate, Loos adds.
In addition to the additional costs of renting, such as utilities, tenants should make commuting calculations correctly.
“Sometimes a rental property closer to your place of work is more expensive, but if you opt for a cheaper property further away, you must calculate the true cost of transport.
“This is not just the petrol costs but the costs of running a vehicle,” he says.
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