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Rents under pressure in uncertain economic times

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Many landlords have been forced to drop prices to ensure their properties do not remain vacant

The Western Cape may still be achieving the highest rental growth rates, but 2017 proved to be a tough year for this sector with even the strongest markets finally buckling under the relentless pressure of political and economic instability.

The sought-after southern suburbs were no exception, where the traditionally robust rental market was beset by unprecedented challenges last year.

“The political situation and deepening water crisis precipitated exacerbating factors, including a notable decline in semigration,” says Lorraine Dellbridge, veteran rental specialist for Lew Geffen Sotheby’s International Realty in the southern suburbs, Noordhoek and False Bay.

Dellbridge says, for the first time in years, there was an abundance of stock available and many of the properties proved very difficult to let, especially at the upper end of the market.

“There was also a notable drop in demand for houses with gardens and lawns that need to be watered, and even the estate homes did not move as fast as we would have liked.

“Towards the end of the year it was evident landlords were feeling the pinch of their investments standing empty, and many had to adjust their prices.”

Dellbridge says this trend has continued into 2018, with reductions of up to R10000 already seen in a bid to secure tenants.

There are, however, pockets which have been far more resilient, including suburbs where demand is high, stock is low and investment buyer interest is still keen. Areas close to UCT are among them.

“Entry and mid-market properties are still very much in demand, especially apartments and older houses. There is major movement in the lower end of the market in Muizenberg, where one can rent a reasonably sized two-bedroom apartment in a newish development for between R6500 and R8500 a month.”  

The PayProp Rental Index Annual Review of 2017 clearly shows the rental market’s steady decline throughout the year. It kicked off the year with a year-on-year growth peak of 8.3% before dropping to 6.34% in July, and to less than 5% in November.

December saw a slight increase to 5.75%.

There is still strong demand for accessibly priced low-maintenance homes, like this two-bedroom flat in Muizenberg. Picture: Lew Geffen Sotheby’s International Realty

Johette Smuts, head of data and analytics at PayProp, believes it’s unlikely the rental market will see relief in 2018.

“The volatility will in all probability continue into 2018, with economic and political uncertainty expected to increase leading up to the national elections in 2019.”

Now, more than ever, it is essential for landlords and investor buyers to do their homework, says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.

“Knowing what drives supply and demand of rental stock in your province is very important when looking at the bigger picture as it will allow you to position your property within the market.

“Ultimately, a well-priced home in sought-after area, especially those close to amenities like good schools, will always find a tenant.

“It is also critical to have realistic rental expectations and to remember that, especially in the current economy, it is far more costly to have a property stand vacant for several months than to reduce the rental.”

Dellbridge says “the best bet” for investment buying in the southern suburbs this year is the sectional title sector.

“Good two and three-bedroom apartments or low-maintenance townhouses with rents of under R15000 will always be in demand, and not only because they are more accessibly priced.

“People simply don’t want to pay for a place they cannot fully enjoy, and with the water crisis, gardens and pools can be a burden instead of a joy.”

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