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Current downturn is likely to be temporary

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"Agents operating in this economic environment should carefully consider which strategies to adopt."

Estate agencies will face mounting pressure this year as property owners and tenants contend with rising inflation and continued low economic growth.

With consumers not getting a break from their woes for at least the next year, PayProp chief executive Louw Liebenberg says agents operating in this economic environment should carefully consider which strategies to adopt.

Some provinces will fare better than others, with a recent PayProp Index forecasting recovery on the horizon in 2019 for some places.
“The data indicates that rental growth rates show cyclical growth trends lasting anywhere from six to 11 quarters,” says PayProp head of data and analytics, Johette Smuts.

“In Gauteng, the most recent cycles have been seven quarters’ and six quarters’ long, indicating an impending upturn”.

Sadly though, the same cannot be said for other provinces.

“If other provincial cycles are anything to go by, the Western Cape is at the start of a declining cycle and it’s likely there will be at least two more declining quarters before we can expect an upturn,” says Smuts. 

In the Western Cape, the 5.2% year-on-year growth recorded in Q3 2018 is the province’s lowest since the first PayProp Rental Index in 2012, almost half of the 10.3% recorded in the province just 12 months earlier.

But Liebenberg says knee-jerk reactions like lower commission to adjust rents downwards offer little relief for tenants and landlords, and results in a massive income loss to the agency.

“Offering tenants the opportunity to part pay deposits over time is a strategy that could be considered, with the disclaimer that the agency will carefully vet the tenant’s credit status.

“Carefully plotting the relative risks and rewards for the tenant, agency and property owner is a pre-requisite to any change.” 

Strategies that have offered the greatest rewards for agencies include:

  • Careful management of the renewal of tenants in existing tenancies against changing risk profiles.
  • Spreading the cost of administration.
  • Continued and unwavering arrears management.
  • “The downturn is historically temporary in nature, and we expect to see the first green-shoots of recovery towards the second quarter of 2019.”
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