Early indications highlighted in research released last month reflect changes in tenant behaviour that might ring warning bells for investor purchasers. The TPN Rental Monitor for the last quarter of 2013 showed that, for the first time in three years, there were a significant number of over-indebted consumers unable to pay their rentals on time or in full.
IHPC estate agency general manager Michael Bauer says while the increase is marginal, a shift in this direction is always a warning sign for buy-to-let investors to take extra precautions. “While there are many tenants looking for homes, not all are suitable and it is vital to place someone who will pay on time, has stable employment, a good track record with previous landlords and will look after the property as if it was theirs,” he says.
He advises landlords to take their time choosing the right people rather than rushing to sign up the first person paying the deposit. This means sometimes allowing the unit to stand vacant for short periods, as selecting the wrong ten ant could lead to costly eviction processes. Echoing the TPN statistics, the Trafalgar Residential Rental Index, released this week, shows that while flat rentals have grown nationally, they have dipped well below the standard 10 percent annual escalations achieved previously. The index is based on a comparison of the rentals for unfurnished two-bedroom flats in the Trafalgar residential letting portfolio, comprising more than 10 000 units nationally.
The Durban rental index rose 7.97 percent in the year to January. This was as the overall rental index rose 8.01 percent for the year and saw increases in every major city. Joburg led the pack with a 9.74 percent average annual increase to January, followed by Port Elizabeth with 8.63 percent. East London lagged its Eastern Cape cousin with only 5.78 percent, the lowest nationally. “The days of standard 10 percent rental increases are now past, with soaring utility increases imposing significant pressure on tenants and constraining affordable rental increases,” says Trafalgar managing director Andrew Schaefer.
However, he adds the underlying national trends of urbanisation, particularly in Gauteng, is driving strong rental demand. This goes hand-in-hand with low vacancies and growing rental accommodation shortages in many areas. He believes the strong rental demand will renew interest for buy to-let investors around the R500 000 mark, but also warns that it’s “not a signal for gung-ho investment”. Landlords are at risk with consumers resisting increases above 8 percent, while there is a shortage of quality tenants. Re/Max Living rental specialist Grant Rea says the most crucial way to avoid defaulting tenants is being equipped with the facts to act decisively. The first step is screening and vetting potential tenants. “The most important aspect of dealing with defaulting tenants is not to let a day go by without taking action. Many tenants abuse the grace landlords show,” Rea says.
Article printed in the Sunday Tribune, Property Guide 1 – p.5 – 20 Apr 2014