The ‘perfect storm’ has hit South Africa’s home rental market

The combination of Covid-19 lockdowns, decade-low interest rates, and a shrinking tenant pool has created a perfect storm for South Africa’s rental market.

This is reflected in PayProp’s new state of the rental industry report which details how South Africa’s rental property market has changed over the last year.

The report is based on responses from rental agents and other property professionals, with a combination of both independent and franchised agents participating.

The data shows 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.

PayProp said it was encouraging to see how understanding agents, landlords and business owners have been of tenants’ cash flow challenges.

Some 93% reported agreeing alternative payment arrangements with tenants due to the pandemic. Almost two thirds (65%) of participants indicated they lowered their commission in order to retain a mandate.

“This can negatively affect a rental business over both the short and long term. Over the short term, your main source of income (commission) will decrease, creating potential cash flow problems,” said PayProp.

“In the long term, agents might struggle to justify raising their commission again without adding additional services – meaning their income may take a permanent knock.”

Challenges 

When asked what their single biggest challenge was, 51.5% of respondents said they struggled to find good tenants.

In second place, 21% said arrears were a challenge. Of course, job and income losses during lockdown affected many tenants’ ability to pay rent and fuelled both of these challenges. Rounding out the top three were inspections – the biggest challenge for 11% of respondents.

PayProps said that there are two possible reasons for the perceived lack of good tenants:

  • Tenants’ financial health worsened due to the pandemic.
  • With low current interest rates, many good tenants have opted to buy property instead of renting. Good tenants have found it easier to qualify for loans and have consequently left the rental market by purchasing a home of their own.

Looking ahead to 2021, 68% of participants were most worried about the ongoing impact of Cvid-19 on their businesses.

In line with 2020’s challenges, a big ongoing worry going into 2021 was finding good tenants (listed by 58% of participants), followed by managing and collecting arrears (44%).

Participants also listed affordability as a significant issue, with tenants often unable to afford the rent in their areas. Many others listed oversupply of properties and vacant properties.


Read: New rules for complexes and estates in South Africa from July – with fines of up to R10 million

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The ‘perfect storm’ has hit South Africa’s home rental market