Tenants Have Become Homeowners, Where Does this Leave Landlords?

tenants are becoming homeowners, where does that leave landlords?

Tenants Have Become Homeowners, Where Does this Leave Landlords?

Prior to the COVID-19 pandemic, South Africa’s housing market was largely influenced by a growing trend – the travelling millennial. Young professionals kept their money in their pockets to live and travel more freely; many lived in lock-up-and-go rental homes close to work.

Fast-forward to 2021 and Grant Smee, property entrepreneur and Managing Director of Only Realty says that the country is experiencing a surge in homebuyers that has not been experienced in years.

“First-time buyers make up a considerable portion of the market. In fact, ooba Home Loans reported that first-time buyers made up 36% of its applications in Q4 of 2020 alone. Exciting to note is that the home buyers’ market is getting younger and in a country with a young population, this bodes well for the future,” says Smee.

Read: First-Time homebuyers continue to dominate the residential property market

With work from home policies in full swing, Smee adds that buyers can get more ‘bang for their buck’. “Prospective buyers can now look outside the realms of previously popular work hubs such as Sandton and Cape Town CBD to find their dream home. For those wanting to stay in these areas. However, many homes are now going for a steal compared to previous years.”

Talking to where the most activity lies at present, Smee notes that outlying coastal areas such as Durban North Coast, Mossel Bay and George experiencing a surge in residential property demand.

While this is good news for prospective buyers (or current tenants), where does the status quo leave landlords? This rapid shift has unearthed a new set of challenges. Explains Smee:

‘Good’ Tenants Are Becoming Homeowners

“The low-interest-rate environment coupled with a change in interests and behaviours has resulted in a prolonged buyers’ market. The housing market is more accessible and attractive than ever, and its drawing in a pool of young professionals,”

Previously viewed as good, stable tenants – these tenants are now becoming homeowners. “These were generally the types of tenants who paid their bills on time, have upstanding credit records, and brought in steady streams of income for landlords.”

Rental Market is Suffering the Most

TPN Rental Monitors latest statistics for Quarter 3 of 2020 states that the tenant market has suffered more than the mortgaged home market as a result of lockdown. Furthermore, yields remain low.

Landlords are Increasingly Vulnerable

Tenants are facing job losses, salary cuts and instability. “A lack of creditworthy, stable tenants has many landlords in a crunch. Some are selling their investments while others are renting out based on less attractive terms such as rental reductions. Lowered deposit amounts, and flexible lease terms”, says Smee.

“We are also seeing more and more tenants being rejected due to poor credit scores during the pandemic.”

Read: Adapt fast or face dire consequences

Western Cape and Gauteng are Most Affected

According to the latest TPN report, lower-income earners (R3000) have been most affected while the rental bracket of R7000 to R12000 remains the ‘sweet spot’. “When looking to data around tenants good standing, smaller provinces such as Northern Cape and Mpumalanga are the top performers, followed by Western Cape and Eastern Cape. Gauteng remains the worst affected province.”

In terms of areas most affected, TPN’s vacancy survey highlights the Atlantic Seaboard as a major concern. Once a bustling destination, one in every four homes are now unoccupied in this area. “This is largely due to the high rentals associated with this area, and a lack of tourists to fill Airbnb units.”

Smee offers the following advice for affected landlords:

1. Consult a professional: “Whether you’re still looking for a tenant or have a tenant living in the premises already, it’s never too late to consult a real estate agent or lawyer to seek advice and assistance. Navigating this period can be challenging but trusted advice will come in handy.”

Read: The road to financial freedom | Top 10 investment tips for first times investors

2. Avoid making rash decisions: “We are seeing a lot more of this of late,” says Smee. “Landlords are so desperate to fill vacant properties that they are signing leases based on unfavourable terms. A lease is legally binding, and tenants have just as many rights as landlords do. If you take on a tenant who cannot afford the property and has not met the required credit requirements, you put yourself at grave risk.” 

3. Treat your rental property like you would any business venture: “Assess your property as you would your business. Make sure that its well looked after, profitable and has the right people ‘behind it’. Undertake in maintenance works, inspections and work closely with the tenants throughout. Even if your place is empty, make sure that it’s kept neat and tidy, and ensure that all your bills are paid up”

4. Put everything in writing: “A verbal agreement with no evidence behind it cannot uphold in court. If your tenant cannot pay their rent (in full or on time), or if a specific agreement outside of the contract has been made, be sure to put it in writing. This will protect both yourself and the tenant.”

5. Compromise and communicate: “Come to a mutual agreement that suits both parties in tough times. An amicable relationship between landlords and tenants is the best way forward”, Smee concludes.