Reprinted from Fin24, by Carin Smith – 2021-01-11
- Most South Africans rent the property where they stay
- Many are now also without jobs or have experienced a drastic reduction in income due to the pandemic
- Landlords are likely to apply increasingly strict credit and rental record checks
South Africa’s rental market is likely to show only very minimal growth – if any – due to the current combination of high vacancy rates and economic pressures on tenants, according to Gerhard Kotzé, managing director of the RealNet estate agency group.
In his view, most landlords and rental agents are likely to apply increasingly strict credit and rental record checks. Deposit requirements are also likely to rise.
“A very large number of quality tenants have become home buyers in 2020 due to the lower interest rates, and on top of that landlords have had to contend with extensive non-payment issues due to the economic effects of Covid-19 pandemic and lockdown, so they are already very cautious when it come to new tenants,” says Kotzé.
“And unfortunately, a large number of those who are likely to be looking for rental properties now are people who already have some financial problems. So, there will be a need to be even more careful.”
Alternatively, says Kotzé, many rental property owners will probably just decide to sell off their portfolios now, so astute investors who have the means to buy quickly should look out for the “bargain” flats and townhouses that will come on to their local markets as a result.
Grant Smee of Only Realty says even in the best circumstances, securing reliable tenants is tricky, but the pandemic has added an extra layer of complexity into the mix.
He says data shows most South Africans rent rather than own the property where they stay. Many are now without jobs or have experienced a drastic reduction in income, leaving them suddenly unable to afford rent.
“This shift gives rise to a situation in which tenants hold more power than before and has led to an increase in short-term rental agreements being signed. In addition, tenants are calling the shots in terms of deposit amounts and various other conditions which leave landlords feeling vulnerable,” says Smee.
Recent statistics from the Tenant Profile Network (TPN) indicate that 60.74% of tenants paid their rent on time during the last quarter of 2020, while 9% of all tenants are not paying rent at all. “Long-term rentals provide financial security for landlords, and in the past agreements were generally set up to protect the interests of both parties equally.
However, today, tenants may have more say in compromises when it comes to issues such as deposit payments too.
“In a market with excess rental stock, landlords may be more amenable to reduced deposits and short-term rentals in order to stand out from the crowd,” says Smee.
“Landlords looking to take advantage of the demand for the short-term letting market, need to ensure their property provides excellent value and a unique offering. Here factors such as location, price, quality and overall experience can ensure that they stand out from other competing units.”
Challenges for Landlords
Smee says landlords were largely unprepared for tenants being unable to pay during lockdown, leaving many of them without access to an open line of credit. Very few landlords have rent default insurance and payment holidays are now up.
“While tenants are certainly more able to demand compromise, and landlords are beholden to new pressures such as short-term rental agreements, it’s unlikely that tenants will be able to ‘strongarm’ landlords into drastically one-sided agreements,” says Smee.
Landlords are still considered to hold most of the negotiating power and retain the ability to write terms and conditions into leases which are favourable to them. On the other hand, landlords feeling the pressure to retain good tenants or adjust to the difficult current market may see fit to compromise and offer lower deposits and short-term rental agreements to remain competitive.”
Smee suggests that the current situation in the rental market requires agreeing on a middle ground, where both parties consider the other’s circumstances. This could include tenants paying an available rent, and landlords being more flexible by offering short-term rentals, deposit utilisation or rental deferment. Landlords are advised to use their judgement and approach each situation on a case-by-case basis.
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