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Uncertain times ahead for rental market

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Even if the rental property market boomed once the national lockdown was lifted landlords would not be reaping financial rewards, writes Bonny Fourie.

Both tenants and landlords have been suffering with reduced – or even lack of – earnings over the past few weeks, and the market itself has almost come to a standstill.

Rent collection has deteriorated as many tenants lose their income and this has been compounded by the fact that tenants have not been permitted to move – apart from the one-month grace period announced last week. This means they face rising rental debt, says Michelle Dickens, managing director of TPN. 

Many landlords have offered a reduction of rent at a percentage equivalent to the loss of earning or a deferment of the rent and, in some cases used tenants’ deposits for rent. “The challenge post lockdown, when tenants are back to work, will be the collection of the additional monthly instalments of the deferred rent or deposit repayment because tenants will have to pay the usual rent plus these catch-up payments.”

She says post lockdown there will probably be more vacancies, especially in the higher rental brackets, as many tenants who have deferred payment of rent and other credit agreements will look to downscale or find shared accommodation. The vacancies will probably limit rental price increases.

Further, the local rental market is predominantly serviced by micro-landlords, many of whom also face full or partial loss of income. “This, coupled with non-paying tenants and the burden of property expenses such as levies, rates and taxes and mortgages could result in many rental properties finding their way back on to the sales market as landlords are forced to sell.”

Tenants could take up to a year to catch up on their payments, says Lorraine-Marie Dellbridge, rental manager for Lew Geffen Sotheby’s International Realty in the southern suburbs. After that, those who cannot pay will break their leases.

Landlords are going to have to “get real” about their price expectations, so she foresees a “sharp decline in prices”. “At the same time, I think there will be a lot of urgent sales happening by landlords who can’t keep up with bond payments and those people will need to rent, so we will possibly see an increase in tenants.”

Dellbridge adds: “It’s an extremely stressful period. We are putting together new agreements for payment arrangements daily. We have landlords who refuse to understand that we can’t do viewings right now and we have landlords who are furious that new tenants have not moved in and, as such, have not paid the rent.”

Glenda Taylor, rental principal at Greeff Christie’s International Real Estate believes, however, that the market will survive the challenges and become “very active” once the sector can commence business. It is likely that most of the activity will be by tenants looking to downscale while the upper rental market stays quiet.

Aside from Covid-19 and the lockdown, she says this year started “very well”, with a “significant increase” in activity – both stock and inquiries. But this was hit hard by the onset of the pandemic. “Recovery will take a while but the rental market is extremely resilient.”

On a positive note, Taylor says landlords, generally, have been willing to negotiate in order to assist tenants’ difficulty in trying to pay their rents.

“There have been generous discounts and, in some cases, landlords have even agreed to a rental holiday for a few months, with the understanding that these discounts would be re-paid at a later stage.”

After lockdown, though, they are going to have to think about their investments and what they wish to achieve, says Dellbridge. “These masses of empty properties are no longer investments. They are liabilities.”

Furthermore, agents are going to need to be very stringent on background checks but at the same time understand what the world has just gone through when vetting tenants in the future, she says.

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