AA - 2021

Authors:  Johette Smuts
Head of Data Analytics at PayProp
28 April 2021

State of SA’s rental market | Landlords would rather opt for ‘good tenants without a damage deposit’

The South African rental property industry, like many other sectors, continues to feel the effects of COVID-19 with a shrinking viable tenant pool, lower tenant affordability and high arrears.

The latest rental survey by PayProp shows that within the rental market, “optimism is in a state of flux” right now.

A struggle to find good tenants

The top three challenges listed by agents in the latest 2020 results remains similar to last year, according to Johette Smuts, Head of Data Analytics at PayProp, “But with a significant increase in respondents struggling to ‘find good tenants’ – from 24% in 2019 to 51% in 2020”.

Battling arrears and the challenge of conducting routine inspections at rental properties remain key concerns too.

Smuts says the drop in availability of ‘good tenants’ is linked to many South Africans facing financial strain due to the pandemic, whilst others have taken advantage of low interest rates to purchase property.

“Good tenants have found it far easier to qualify for home loans than ever before, and are consequently leaving their rental properties for owned properties.”

Good tenant trumps damage deposit

One of the riskier outcomes of the Rental Industry Survey and further highlighting the need for solid tenants is that 63% of respondents indicated they were “in favour of securing a good tenant without a damage deposit, over an average tenant with a damage deposit in place”.

“Damage deposits exist to protect property owners against any damage and potential arrears once a lease has come to an end, so it’s a risky decision on the agent’s behalf to secure a tenant without it,” says Smuts.

Respondents indicated that on the spectrum of property management activities, constantly chasing tenants
for payment is just as time-consuming as renegotiating payment terms.

The results show that many tenants experienced financial difficulty during 2020, and it shows in the results. Income losses affected their ability to pay rent and afford rent increases. More than 70% of respondents said they passed smaller increases than they normally would have, and 77% said they had more tenants in arrears in 2020.

Agents lowering their commission’

With the financial strain on tenants affecting their ability to pay rent, agents have had to be creative to keep cash flow going, find tenants and keep mandates.

“It is encouraging for continued security of tenure to see how agents have worked with tenants to help them overcome cash flow problems,” says Smuts.

“The survey results show that 93% of respondents agreed to some form of alternative payment arrangement with tenants, which also clarifies why 60% of respondents reported an increase in time spent on monthly administration – revisiting payment arrangements can be very time-consuming!”

Almost two thirds of survey respondents confirmed that they had lowered their commission in order to retain a mandate, a move that could negatively affect their businesses over both the short and long term. “Agents might struggle to justify raising their commission in the long term without the addition of services,” says Smuts.

Faster digitisation

One good outcome of the pandemic was the forced adoption of technology to digitise work processes and overcome bigger distances enforced by the nationwide lockdowns.

Smuts says 96% of respondents reported using technology frequently in their businesses with 98% saying they believe technology enhances their jobs and businesses. 89% of respondents indicated that technology-enabled tools like virtual and 3D tours would remain in a post-pandemic world.

The future

Looking ahead, the survey showed that 68% of agents were most worried about the ongoing effects of COVID-19 on their businesses. Others listed an oversupply of properties as a concern, as well as vacant properties and the ability to fill these with quality tenants.

“However, it’s encouraging to see that even during one of the toughest years, only 15% of respondents considered actually selling their agency. In fact, just short of 80% responded that they see themselves working in the property industry in five years’ time.”

“The events of the past year have certainly steeled the resolve of property agents, and with much of the worst behind us, we can really start to look forward to what the future holds,” says Smuts.

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