As we all know, the world as we knew it has faced several changes over the last 14 months. All sectors in the economy have been tested and quite often the result has been only the “fittest” survive. So, what does this mean to an investor who owns a property?
Whether you own a small one bedroom flat or a large commercial space, the most challenging aspect right now is finding a “Good Standing” tenant. In the latest vacancy survey for Q2 of 2021, TPN (a registered credit bureau that services the property market in South Africa) reported that KwaZulu-Natal had a 14% vacancy ratio. Slightly higher than the national vacancy rate of 13.15%. This is in stark contrast to Pre-COVID vacancy levels of 5.9% recorded in KZN, 2019. When you compound this with the fact that Kwa-Zulu Natal holds the unenviable record for the worst performing rental payment behaviour in SA. The result is property owner’s need to focus on two very important facets.
Firstly, the key is ensuring that your property has VALUE to a prospective tenant! The basic principle for economic modelling is when demand drops and supply increases, clients hold more bargaining power. This is precisely the current position in the rental market. So, what is the solution? A common go to for many owners now is to sell their investment property, but the same principle applies that as the supply of properties for sale increases so the prices become more and more competitive. Hence owners are selling at a discount and have to forego value in their investment. Then what’s the alternative?
It may be tough to find good tenants but as TPN has rightfully stated, South Africa has a total populace of 17.2 million households (which has risen 29% over 10 years), and tenants have increased by 3.7 million households renting (which is 33% over the last 10 years). Good standing tenants are still very much out there but they now have a lot more choice. So, to make sure your property is the one they choose, they must feel they are getting more for their spend. Although structural changes such as parking’s and storage are harder to make available, the basics such as a well-maintained property is easy to achieve and goes a long way. For example, ensure a fresh coat of paint is applied and that kitchen cupboards are neat and respectable. This will also ensure you keep adding value to your property. Always remember a home is an emotional choice as well as a functional one, so make sure you are providing a better offering than your competitor.
Correctly pricing the rental is equally important in creating value to a prospective tenant. Often a property lies vacant for several months due to a high asking price, whereas accepting a marginally lower rental may result in an immediate occupancy and therefore a higher income for the owner over the course of the lease period. It’s also worth remembering that a vacant property is vulnerable and, if there are any maintenance issues, for example a leaking geyser, it could go unreported for a while and cause more damage thus incurring further costs.
The second important aspect for property owners is finding a good tenant which means making sure you do the relevant background checks on all applicants. This is where it becomes apparent that having a good property management company which uses their experience and systems to vet applicants is crucial. Wakefields Property Management has a team of experienced and skilled brokers and staff to manage this process. Experience in reading and interpreting credit reports is of enormous value. Unfortunately, we have noticed a rise in fraudulent applications and an individual not au fait with this, can easily be caught with a delinquent tenant. The risk here is that when one does have a delinquent tenant it can be very difficult to handle. Our advice is rather do the hard work up front and reap the rewards during the length of the lease. Thus, partnering with a reputable property management company with history and credibility, can prove very beneficial on your investment.
Holding onto your investment and pushing through the challenges of today, requires good partners and creating value for your tenants who are most certainly seeking value!
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