Top tips for mastering South Africa’s pandemic property investment market

Real estate investing has always been attractive both because it is physical real estate and because the idea of ​​earning income with little effort is irresistible. Especially when over time you could not only grow and amplify your income, but the asset itself could appreciate in value.

However, with the fluidity with which tenants have moved through the rental market over the past 18 months, it is safe to say that the idea of ​​long-term, low-maintenance tenants signing long tenancies is rather rare. And by default, with the work required to constantly find new tenants, so does real passive rental income.

Enter the concept of active real estate asset management. It is a mindset shift that everyone involved in real estate investing should feel comfortable with and refers to taking an active approach to sourcing, verifying, signing, invoicing and monitoring your tenants’ payment behavior. These steps are essential to ensure you place quality tenants who can afford your property and to ensure that existing tenants can afford renewals of their tenancies.

Stay up to date with data and trends

Relevant economic data, local real estate trends, and tenant behavior are all essential to staying on top. They will allow you to accurately predict how competitive the real estate rental market will be and how difficult the rent recoupment process will be. They will help you set the rent at the right level and are essential to being able to place quality tenants in your property who reliably pay the returns you expect.
Macro-economic indicators, such as interest rates and inflation rates, combined with property-specific indicators – such as property vacancy rates and rental rate increase trends – are also fundamental when we look at our expectations for the return on investment of our properties until 2022.

Fluctuation in inflation

Inflation has risen from 3.27% in 2020 to 4.41% in 2021, with a projection of 4.48% in 2022. The impact of this is very real, given that pockets are shrinking as costs increase. Rising maintenance costs, increased utility expenses and municipal levies are eating away at all profits made by homeowners. From a real estate perspective, returns on investment are massively impacted, forcing landlords to think carefully about how to budget for maintenance and introduce ways to shift variable charges – such as electricity – to tenants.

The 3% drop in interest rates at the start of 2021 was a welcome relief to many. However, this meant that many good quality tenants who previously rented became first-time owners. This is partly why there is such a vacancy and so many landlords looking for quality tenants. In response to this, landlords must deal with multiple tenant requests and exercise patience to ensure they place a quality tenant.

Looking ahead to 2022, monetary policy will weigh heavily on the direction of interest rates – and over time, it will be necessary to monitor whether these first-time buyers will re-enter the rental market.

There has been some, albeit marginal, relief for homeowners facing high vacancy rates in recent years as new build development has slowed significantly in 2021. The approximately 25,000 newly developed homes previously introduced on the market have fallen to around 8,000 in 2021.

Realists will be rewarded

Since 2020, with each Covid change and wave, I have been asked endless variations on what the rental landscape looks like? Where is he going ? What can we expect in terms of rental yields in the coming year?

The reality is that no one can truly fully predict the future and to say 2022 will be easy would be foolish. Being realistic about the adaptive capacity you need in 2022 means staying on top of the data, monitoring your tenants, planning for the risks you see in the market, and having as many contingency plans in place as possible. In South Africa, we are privileged to have a tenant profiling credit bureau in the form of TPN Credit Bureau which continues to feed valuable trends and meaningful market reports.

We know that marrying consumer behavior with ownership data is where the magic lies. This allows owners to respond quickly and effectively to changes in behavior, but it requires proactivity. All landlords need to be actively involved in their property investment to be successful in 2022. By monitoring data – rental property data and payment profiles – keeping up to date with the latest developments in inflation and interest rates interest and using this knowledge to inform their decisions.

With an attitude of continuous monitoring and a willingness to adapt, real estate investors can achieve a flexible yet calculated level of predictability in the face of many challenges. It all starts with the mindset to understand that it takes commitment and partnering with the right people to get where you need to be. Times have changed – fast action, continuous monitoring and observation of the interaction between all these factors is a full-time job that is quickly becoming a necessity for private landlords and property investors.

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