Dark times ahead for landlords as residential rentals under under pressure

A property to let in Sandton (Source: Seeff)
A property to let in Sandton (Source: Seeff)
  • Due to the economic impact of the coronavirus lockdown, there has been an increase in residential rental listings.
  • Entry-level rentals around the R3 000 mark have been the hardest hit, followed by rentals in the R3 000 to R7 000 bracket.
  • The "sweet spot" for rentals at the moment is the R7 000 to R12 000 bracket.

The Covid-19 pandemic has seen an increase in the number of residential rental listings, according to Marcél du Toit, CEO of Leadhome.

The economic impact of the lockdown has increased vacancies and tenant affordability has been greatly impaired.

Tenant Profile Network (TPN) statistics show that entry-level rentals around the R3 000 mark have been the hardest hit, followed by rentals in the R3 000 to R7 000 bracket.

The "sweet spot" for rentals at the moment is the R7 000 to R12 000 bracket. There are a couple of reasons for this: tenants in this bracket seem to have been the least affected by the pandemic. Leadhome has also seen some tenants in the luxury rental market downscaling to something more affordable.

"We're already seeing landlords and investors reducing rental prices to attract good tenants, with some accepting rental offers of up to 35% less than the listed value. There's also a move by landlords to replace short-term rentals with more long-term offerings at a lower average cost to secure their rental income," says Du Toit.

Payment holidays end 

Ben Shaw, CEO of HouseME, explains that the key concern for all landlords, banks and property managers is what will happen as the payment holidays end. Landlords who have had the benefit of delaying home loan repayments may now see themselves forced to ruthlessly pursue rental to cover their bond payments.

Tenants who have had the benefit of a payment holiday could now find themselves in default. As such, Shaw expects the national default rate to spike in August and September and have a knock-on effect on property value, credit records and general affordability by the consumer.

"We still see pockets of resilience, particularly in the higher rental brackets – an indication of job security – but there is widespread concern that the consumer will not bounce back under even the current level three of lockdown," says Shaw.

Half of the 1 000 tenants HouseME surveyed recently said their income has either decreased or is not secure for the next six months, and 38% said they won’t be able to afford the same or higher rent going forward.

"As digital rental specialists we see many more listings but less interest from tenants – some of whom view even the moving costs as prohibitive in their current liquidity position. Some even cited petrol and travel costs for the viewings as a barrier," says Shaw.

A closer look 

Moritz Wellensiek, founder of BlackBrick, says in Sandton, a major increase in demand has been observed at the company for rental apartments, due to the focus on flexibility, affordability and all-inclusive living, including facilities and services that give members everything they need on demand. Many tenants are requesting short-term, fully furnished rentals.

The Sandton area is, for example, anticipating a decline of about 10% according to Rochelle Holland, rental agent with Seeff Sandton. Rates are already down by 10% to 15% over the last two years across most price bands and tenants can find good value in the rental market.

It is clear that rental rates across the country are beginning to feel the pressure of the economic decline, especially at the top end of the market. The impact is, however, highly dependent on the area involved, according to Seeff's rental agents.

Rental stock levels are expected to increase, but some cash-strapped landlords may also be looking to offload their investment properties.

Rental rates across Cape Town's Atlantic Seaboard and City Bowl are also under pressure and could decline by up to 20% this year, says Barbra-Ann Briner, a rentals agent for Seeff Atlantic Seaboard.

Furthermore, stock levels in the area are increasing due to many AirBnb accommodation coming onto the market, as well as homes that are not selling.

Samantha Murphy, a rentals agent for Seeff in Cape Town's City Bowl, says there is much more stock on the market with many properties offering similar rental specs at competitive asking prices, putting landlords under pressure. There is also more "movement" in the market with tenants needing to downgrade for financial reasons.

Sonya Garisch and Jacqui Bush, rental agents with Seeff Constantia, say rental rates could come down by 10% to 25%, especially at the upper price bands. They also expect an increase in stock levels, including from some sellers who may be forced to rent their properties in preference to selling at a loss.
Langebaan on the Cape West Coast may see a 10% to 20% decline, says Mariska le Roux, a rental agent for Seeff Langebaan. Stock levels are increasing, and she expects more stock from properties which are not selling.

Regarding market conditions for letting homes on Durban's North Coast, Kim Peacock, broker/owner of RE/MAX Dolphin Realtors, explains that, when it comes to long term letting, the properties that are trending at the moment are lower-end one and two bedroom apartments, freestanding pet-friendly homes in secure estates featuring three or four bedrooms, and freestanding three and four bedroom homes outside of estates that offer pet friendly options.

On the North Coast, she is seeing freestanding properties and two-bedroom apartments that aren't on the beach yielding the highest returns.

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