Real Estate Investor Magazine South Africa July 2014 | Page 28

RENTALS
Insurance
The right agent would also offer a valuable service for
landlords who simply cannot afford any loss of income
from a delinquent tenant: insurance underwritten by
an insurer, where the rental income is guaranteed for a
period of time. Landlords can also obtain this insurance
directly from the insurer. Naturally this service comes
at a premium, but may be worth the extra cost.
Given the challenging environment for landlords
and tenants detailed above, Trafalgar says it is
expecting growth in their rental insurance products
to safeguard rental collections, to build momentum.
The rental stats certainly provide reason for landlords
and agents to reconsider insuring rental income. There
are a number of solutions available, including those
from Trafalgar, TenRisk and RentMaster.

“Rental stats certainly
provide reason to reconsider
insuring rental income”
Another player in this space is Rentshield with a zero
deposit service offering which alleviates the need for
a tenant’s deposit and protects the landlord against
non-payment by the tenant (for up to three months),
slow-payments and repair of the property (up to the
value of one month’s rent).
Payprop also offers an innovation in terms of
DepositGuarantee, which covers all of a landlord’s
claims against a tenant at the end of the lease –
for up to 2.5 times the monthly rent. Instead of an
upfront deposit, tenants pay the landlord’s premiums
under the PayProp DepositGuarantee, a much more
affordable proposition. Tenants who owe nothing
when the lease expires receive a no-claim cash bonus
as well as a good tenant certificate.
The P3 Investment Group has also innovated in
the space. In addition to their P3 Rental Insurance
product, which covers rental payments and evictions,
P3 members now also have access to a P3 Rental
Recovery service. The company has partnered with
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July 2014 SA Real Estate Investor

one of the largest debt recover y institutions in

South Africa, OneLaw, to streamline the process
of the recovery of outstanding rent. Claims can be
submitted online and only if debt is recovered, with
interest of 15.5% pa on the outstanding debt, is a
30% service fee payable to the collection company.

Yields
Payprop notes that yields drive the rental market as they
represent the expected financial return an owner will
get on an annualised basis for a property investment.
At a national level both gross and net yields have been
stable despite the increase in rentals. On the gross yield
side, that is because property value growth largely kept
pace with rental inflation. On the net yield side, this
is because owner expenses also grew in line with the
growth in average rental values. This highlights the
crucial importance of controlling costs.
Payprop believes that, based on the performance of
the first quarter, we are unlikely to see net yields of
above 6%. However, it is important to take into account
that the yield calculation is based on the current
purchase price of existing properties and excludes the
likely capital gain that owners will experience as their
property increases in value over time.
Landlords are advised to carefully screen tenants,
consider using a professional rental management
agency, to keep annual increases market related and
to consider rental guarantee and deposit insurance to
protect their investments.
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