Advice and Opinion

Johannesburg’s rental market boom subdued by over-supply in some areas

The rental market in many parts of South Africa has experienced a boost as the economic downturn makes it increasingly difficult for cash-strapped South Africans to buy property but many areas in Johannesburg instead experienced challenging times as rental demand has been dampened by oversupply due to rampant development.

This is according to Shaun Groves, Gauteng Rental Manager for Lew Geffen Sotheby’s International Realty, who says: “There have been a great number of new residential buildings that have come onto the market in recent years in suburbs like Sandton and, while there has been an insatiable appetite, I believe that we have reached saturation in these areas, at least in the short term”.

“We have begun to see a surge in the market given that landlords are beginning to readjust their expectations in a challenging market. Ultimately, every individual needs a place to live and a rental can be a cost effective alternative to buying”.

“The age old adage still applies; that good stock at the right price and in the right location will always result in a good number of enquiries and the successful letting of a property.”

However, areas which have seen less development are still enjoying a rental market boom, including “The Parks”, Killarney, Linden and Lonehill.

“Bryanston continues to be a top performer for Lew Geffen Sothebys but his is hardly surprising given that it is the largest suburb in the southern hemisphere with 9375 properties.”

Groves adds that regardless of the suburb, rental properties that cater to specific tenant requirements will always be snapped up.

“Pet friendly units are arguably in highest demand at the moment given that they are an ever decreasing commodity with more and more complexes are amending their rules to prohibit pets.”

While the corporate letting market continues to be stimulated in certain centres by multinational corporates seeking upmarket homes for their employees, this market dropped off significantly in the first half of 2016.

Groves believes that there are a number of reasons for this including the challenges around work permits being granted and tighter budgets with corporates now closely monitoring expenditure.

“We have seen some renewed interest recently with gains in uptake over the last two months which bodes well for the remainder of the year, however, landlords in the more exclusive suburbs need to be aware of the current market restraints”.

“They cannot expect the same rentals that they were receiving previously where they had a long standing tenant with maximum year-on-year escalation.”

FNB property strategist John Loos believes that renting will become an increasingly attractive option relative to buying as long as interest rates continue to rising, placing home ownership further out of reach for many.

Loos expects house price growth to slow notably this year, to an average of under 5%, down from 6% in 2015 with further market pressure expected next year in the face of continuing socio-economic uncertainty and fragile labour relations.

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, says: “As rental growth starts to outpace house price growth, buy-to-let yields will automatically rise and it seems unlikely that the current economic slump will improve significantly in the near future”.

“Savvy investment buyers entering the rental market now will yield a solid return on investment, especially in the short to-medium term as returns on buy-to-let properties are expected to rise steadily over the next three years.”

Geffen believes that investors who take the plunge now can look forward to very attractive short and- long term yields if they research their market thoroughly, buy in the right location and work with an experienced agent to ensure reliable tenants.

Groves advises: “One of the most important aspects of successful property rental is the quality of the tenant you place and landlords need to be cognizant that there is an inherent risk in renting out ones property, but this risk can be mitigated by doing the necessary due diligence”.

“It is essential to use an established agency whose best practice includes thorough credit checks, a zero tolerance attitude to late or non-payment, a comprehensive understanding of multiple legislation’s governing the industry and one which proactively monitors the on-going credit profile of their tenants.”

Groves concludes: “The rental market is poised to be a very lucrative investment, offering solid returns as long as landlords bear in mind the reason for the rental market surge, have realistic expectations and do their homework.”