2019 will see estate agencies facing mounting pressure from property owners and tenants alike. Economists expect inflation to continue to rise for most of the year while economic growth is likely to stay slow, meaning consumers won’t get a break from their woes for at least the next year. PayProp CEO Louw Liebenberg says that agents operating in this economic environment should carefully consider which strategies they adopt to better serve their businesses.
The PayProp Index – a definitive look at the South African residential rental market – forecast towards the end of last year that recovery might be on the horizon in 2019 for certain provinces, based on the review of data as far back as 2012. “The data indicates that rental growth rates show cyclical growth trends lasting anywhere from 6 to 11 quarters,” says Head of Data and Analytics, Johette Smuts. “In Gauteng, the most recent cycles have been 7 quarters and 6 quarters long, indicating an impending upturn”.
Sadly, the same cannot be said for all provinces, “If other provincial cycles are anything to go by, the Western Cape is at the start of a declining cycle, and it’s likely that there will be at least two more declining quarters before we can expect an upturn,” says Smuts. In the Western Cape, the 5.2% year-on-year growth recorded in Q3 is the province’s lowest since the first PayProp Rental Index in 2012, almost half of the 10,3% recorded in the province just twelve months earlier.
Liebenberg says that knee-jerk reactions like lower commission to adjust rental downwards offer very little relief for tenants and landlords, and results in a massive income loss to the agency. “Offering tenants the opportunity to part-pay deposits over time is a strategy that could be considered, with the disclaimer that the agency will undertake a careful credit vetting process with the tenant,” says Liebenberg.
“Carefully plotting out the relative risks and rewards for the tenant, agency and property owner is a pre-requisite to any change in course. There are various in-market strategies that we’ve seen offering the greatest rewards for agencies, namely:
- Careful management of the renewal of tenants in existing tenancies against changing risk profiles,
- Spreading the cost of administration, and
- Continued and unwavering arrears management.”
Liebenberg says that his recommendation is to not lower standards when it comes to tenant selection, arrears management or commission percentages. “The downturn is historically temporary in nature – and we expect to see the first ‘green-shoots’ of recovery towards the second quarter of 2019.”
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