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How to Improve Rental Returns in the Current Rental Market

The Rental Market in Gauteng
Let’s start off by looking at and understanding the current rental market in Gauteng which, to say the least, is challenging! We have an over-supply of rental property in the market as a result of the many new properties that have been built over the last 5+ years and additional properties that have been vacated by those emigrating and semigrating (moving to other parts of the country).

 

On the other side, good quality tenants are becoming more difficult to find. This has been fuelled by our shrinking economy resulting in higher unemployment and ultimately leaving tenants more financially constrained. This is confirmed by TPN (Vacancy Survey Q2 2019 and Residential Rental Monitor – links will be available at the end of this article) with the National Market Strength value declining and below the market equilibrium. Their National Demand Rating has decreased by almost 28% since 2016 and the Supply Rating has increased by 33% over the same period.

 

In Gauteng the declining market strength has been driven by a 22% decrease in the Demand Rating and an 8% increase in the Supply Rating over the last 3 years. So as a landlord, you have to deal with the fact that there is more competition in the rental market to accommodate fewer good tenants.  With fewer good tenants to choose from and more properties available to rent, the most glaring result has been that vacancy rates have increased. We have seen that previously popular complexes would have no vacancy gap between tenants, but now we are almost expecting there to be a vacancy between tenants.

 

Our assertion that tenants coming under more financial pressure is confirmed by TPN’s tenants in good standing stats. These have also declined in recent years and currently only 80.65% of tenants in Gauteng are in good standing, represented by 63.81% of tenants paying on time, 5.27% paying in the grace period and 11.57% paying late. Then 12.1% of tenants made partial payments and distressingly, 7.24% of tenants did not pay rent at all. This is across all rental brackets and the statistics do differ depending on the rental amounts.
All in all, not very pleasant reading we know, but rather face the facts and deal with the truth.

 

What can you do Improve your Rental Returns?
Landlords who do not take active steps to reduce their investment risks in this market are not serious about their property investment or have chosen to put their heads in the sand, rather than face reality. The two biggest risks identified when we discussed the state of the current rental market are 1) vacancy = no rental income and 2) defaulting tenants = non-payment of rent.

 

The first step is to identify what you can control with regard to the above, then what can you do about it? You probably cannot directly control our economy, the financial well-being of your tenant or the supply of new property into the rental market. You can however control how competitive your property is with regards to the rental amount that you charge, how appealing your property is to tenants in your market and how you treat your tenants.

 

How to prevent your Rental Property from standing Vacant.
Know your market, suburb and complex with regards to competitive current rentals being charged, rental increases and the rental demand. Be realistic about the rental you want to achieve.

 

Make your property desirable – or specifically, more desirable than the guy next door! Make it look and feel modern, neat and tidy. Do you have 10 year old grubby carpets in every room or nice and appealing wooden floors or at least laminate flooring? What does your kitchen look like, would you like to cook in there? When last did you give the property a good coat of paint? Intrinsic to owning a rental property is the need to spend money upgrading your property from time to time, especially when the market is tough.  Spending money on maintenance and upgrades can also be tax deductible, so contact your tax adviser in this regard.

 

Look after good tenants – if your tenant is a good tenant, pays their rent on time and looks after your property, return that with interest by looking after them. Be responsive to their communication, be considerate to their requests for maintenance and be reasonable with renewals of the lease and rental increases. Communicate professionally, politely and show respect. It is almost always better to renew a lease with a good tenant, even without a rental increase, than to start over looking for a new tenant.

 

Maintain your property – know what your responsibility is with regards to maintenance and do it! At the same time understand what you tenant is liable for and be firm about this too. Click here to see what maintenance you are legally responsible for. One of the biggest complaints from tenants that we deal with on a daily basis in landlords that refuse to take responsibility and do the maintenance and repairs that they are obliged to do.

 

How to guard against non-payment of rent
Screen tenants properly before signing a lease and allowing them to take occupation and control over your property. Make sure that they can afford the rent, verify their income & employment and get a reference from their previous landlord. Be aware of scam artists, there are many out there!
Be fair and reasonable when dealing with requests (or fair demands) from your tenant.

 

Monitor your tenant’s payment behavior and be quick to respond and rectify it if you need to.  Follow the correct legal steps when your tenant stops paying rent or defaults. In this situation, unless you know exactly what to do, get legal advice quickly.

 

Etchells & Young are industry leaders and experts in placing tenants and managing rental properties. If you need help and assistance with your rental property, get in touch with us.

Click here to read the full TPN Vacancy Report and Residential Rental Monitor