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Tuesday Oct 09, 2018

Rental increases expected to be low

Some minor relief is in store for Capetonian tenants as they wait with bated breath for the final axe to drop in the form of an annual inflationary rent increase, says RE/MAX of SA chief executive Adrian Goslett.

Following an onslaught of attacks on their disposable income over the past few months owing to a weak rand, fuel cost hikes and consequent food price increases, city dwellers can strike one worry off the list of things that keep them up at night with the knowledge that this year’s annual rent increase will be nowhere near the 8% to 10% they may have experienced in the previous year, he said.

Michael Hauser, the estate agent at RE/MAX Living operating in the City Bowl, said the past nine to 10 months had been challenging for landlords who have been used to a cut-throat rental market yielding high returns and an unending supply of tenants.

The Cape rental market has seen its first major price correction since 2008. Rental amounts often had to be advertised at 20% to 30% below the previous year’s rental amount, he said.

That was because of an oversupply of rental properties on the market – in part thanks to the many new developments being completed but equally so to the drought which has caused many Airbnb flats to go up for long-term rentals as they could not be let due to a lack of visitors in Cape Town.

As great as the news is for tenants, landlords will see it as a bitter pill to swallow. Sitting in the same financial crunch as their tenants, landlords might be tempted to push up their rentals in order to make ends meet.
Hauser, however, discouraged that as it would probably hurt their pockets.

I would recommend that landlords look after reliable tenants and not increase the rental price for the coming year. With some of our leases, we had to advertise at well below the previous rental amount to be able to re-let after a tenant relocated.

Since it is unlikely for the market to change drastically until after the elections next year, landlords should bite the bullet and keep rentals constant to hold onto their tenants until the market takes another upward curve, Hauser advises.
However, it is not all bad news for landlords. In the current market, it is possible for them to snatch up a bargain on another investment property.

As a prudent investor, I would utilise this market to purchase property. As some owners could not rent out their properties, they put them up for sale, which has subsequently resulted in a flooded property market. If you have the ability to purchase now, speak to a reliable rental agent who can help you set a fair rental amount to ensure that your property does not remain vacant. In the long run, it will be a good investment.

But, for now, it might be advisable to have enough saved to cover the bond instalments in case you find yourself without a tenant for a month or two, says Hauser.

That being said, we are entering the tourist season which should see the rental market pick up during the next few months.
Thankfully, the dam levels are at about 75% which should encourage more visitors and people moving to Cape Town. I feel confident that landlords will be able to fill their properties over the next few months – provided that they let out at reasonable prices, Hauser said..


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