COVER STORY
He adds that there has been a bit of negative activity when it comes to the labour market where either jobs or salaries are being cut .
“ Using some data , we can see that there have been job losses here and there , and we can see that there have been salary cuts in some industries . And our expectation in so far as the property market and the economy is concerned , is that this will have a negative impact on the demand for property and by extension on property prices .”
“ However , because of the low interest rates and the impact they have on first time property buyers , and the fact that South African first-time buyers below 35 haven ’ t participated much on the property market . This presents a perfect opportunity for property buyers in this group to jump into the market ,” He says .
He says this trend has been expected to spike property activity towards the end of the year 2020 and into the first half of 2021 . Mkhwanazi says now there is a lot of activity in record applications for mortgages and that the anticipated and predicted activity is picking up much faster and in advance than it was expected to . This has boosted property prices between June and July 2020 .
“ South African first-time buyers below 35 haven ’ t participated much on the property market .”
“ We expected the pandemic to have much more lingering effect on the property market due to the impact of the pandemic on the labour market . But we are seeing an extraordinarily strong rapid panned out demand which we think is driven by the aggressively low interest rates ,” He says .
In many cases , negative activities in the labour market often translate to the rental activity in the residential rental market . This , because unemployment is one of the microcosms of the inability to pay rent . And at the time where no one anticipated the lockdown and its impact on the economy , there is truly little , close to none , way out of this trap .
Alluding to Siphamandla Mkhwanazi ’ s sentiments about the further damage that could be done by the volatility of the economy of South Africa on the property space . Founder and MD for TPN Credit Bureau , Michelle Dickens says “ we are yet to see more challenges in the labour market , because if our commercial tenants are unable to pay rent , then there will be a cost saving mechanism implemented and salaries are , unfortunately , one of those high cost areas which might force retrenchments .”
Rental Market Stability
The effects of the lockdown have been bitter to almost all industries , making financial gains difficult for even the oldest of investors . Despite the repo rate cuts which benefited some industries and investors , playing in the property during the time of high lockdown regulations and restrictions brought a lot of pressure to rental property market investors .
And according to Dickens , who ’ s company investigated how rental market has been performing in the last couple of years , she says the rental payment trend in the commercial and residential sector has dropped significantly during the time of the lockdown .
“ Residential tenants in good rental standing ( those who can manage their financial commitments and continue to pay rentals ) in the last quarter of 2019 towards the first quarter of 2020 were sitting at about 83 %. What we ’ ve seen in the lockdown period , is that tenants in good rental standing have dropped down to 73.5 %, dropping by about 9 %.”
This has not only happened in the residential industry . The commercial rental industry is also feeling the pinch too .
In the commercial , precisely retail , and industrial industries , good standing means full settlement of tenants ’ accounts , this includes arrears , current month ’ s billing , and rental billing as well as additional charges . These all qualifies tenants as tenants in good standing .
“ We have seen this industry hitting rock bottom , slashing down to 50.36 % in the lockdown period , meaning one in two commercial retail and industrial tenants are in good standing . This is propelled by the arrears more than anything . Even though tenants might be recovering in current month , there is still a backlog in our commercial tenants , even after rental discounts and reversion of rents have been applied .”
This information seeks to caution possible rental real investors to look and study thoroughly the trends that shape up the rental property market . For investment purposes it is important that one investigates further from the information that Dickens provides about rental distributions in both residential and commercial industries . Below are details the various investment avenues for any investor seeking to invest in the rental property space .
Banks & Lenders
In the midst of the economic scare in the property market and the country ’ s economic state , it is only fair that some recognition is given to financial services and credit providers like banks and financial lending solutions providers like Paragon for the support they have offered towards those who are finishing their bond repayments .
Paragon lending solutions CEO and Founder , Gary Palmer says credit should be given where it is due in so far as the banks are concerned .
“ There are interesting reports that have been released by the banking association of South Africa , that banks were completely aligned to borrowers since the beginning of the lockdown . Together with landlords , there had been payment holidays that have been provided to borrowers from banks and from landlords ,” Palmer says .
“ About 95 % of all businesses that applied for payment holidays , were approved by the banks , and about 84 % of
10 SEPTEMBER / OCTOBER 2020 SA Real Estate Investor Magazine