Landlords are entering the New Year in a good position regarding their rental units.
The rental market is booming and there is a shortage of quality rental units all over South African cities. This means that landlords are able to pick and choose the tenants that they would like on their property.
However, this does not mean that landlords should take this for granted and throw away the financial advantage by imposing unreasonable rental increases during the next 12 months. It will only drive the tenants further and further away.
Higher cost of living
Even though there are recent decreases in food and fuel prices, most tenants are still feeling the pinch due to higher interest rates and much higher water and electricity charges.
Cost of living is still on the rise with Eskom imposing further increases on monthly electricity bills.
This is not even considering the fact that medical aids, pension funds, school fees, and insurance premiums are also set to become higher. With all this taken into account, there is bound to be resistance towards rental increases that are perceived to be unreasonable and more than the current rate of inflation.
Amidst all this, landlords need to take into account that there is also a shortage of quality tenants who pay on time, in full, and every month when rent is due.
Looking at the TPN Rental Payment Monitor numbers, they show that in the R3,000 to R7,000 a month category (which is the financial bracket that most tenants fall under) only 73% are currently paying on time and in full.
That leaves more than a quarter of tenants not being able to make full payment and not being able to adhere to the due date of payment as stipulated in the rental agreement.
Tough times ahead
This situation can get much worse in the coming year due to South Africa’s weak economy and the growing unemployment rate. Even those who are employed are facing uncertainty.
As it is, tenants with good credit and payment records know that they will easily be able to find another rental unit if the rent is pushed up to an exorbitant amount.
Alternatively, in tough times, they might even decide to move back to their families and be lost to the rental market altogether. Given all this, landlords should consider the costs they would carry if they had to find new tenants or if they had to sit with an empty rental unit.
In the first instance, they would have to spend money on advertising the unit from the start.
Secondly, they would have to spend money on repairs, cleaning, and perhaps even repainting the unit.
Thirdly, the danger of vandalism is much higher if the unit is empty which means that you might have to pay for increased security.
Armed response might not always be the best option. You might have to opt for a private security company and post a 24-hour guard outside of the unit to keep watch – and they aren’t cheap.
Considering what could go wrong if you lose the quality tenants you have now, it is better to cut them some slack and to go easy on the rent next year.
In other words, it would be better to keep the increase to a minimum to prevent them from looking for another unit. They could decide to move out and you could get new tenants who are untrustworthy, who wreck the place, and who have no regard for your property at all.
In the end, you should ask yourself what is more valuable to you: a little bit more money at the end of the month or people you can trust with your property.