PE rental demand increasing as high interest rates discourage first-time buyers

Port Elizabeth has a reputation for being “the friendly city”, and its great schools, sandy beaches, salt-scented air and relaxed pace of life have certainly won the town many devoted residents. Thanks to the uncertain South African economy and increasing mortgage interest rates, however, many of those residents are hesitating to take that first step onto the property ladder. This trend, while not ideal for the short-term property market, is having a very positive effect on demand for local rentals.

“Port Elizabeth has always had a fairly strong rental market,” says 
Erna Dyer, the Rawson Property Group’s rental franchisee for the city. “Our tenant demographics include students, young couples, older people scaling down, families relocating from other provinces, and – of course – people who are not in a financial position to qualify for their own property purchases.”
While this diversity has kept rental demand healthy for many years, Dyer has noticed increasing numbers of tenants choosing to continue renting instead of making the move to own property themselves.

“The banks’ lending criteria are very strict, so there are people who may previously have qualified for a mortgage that no longer do,” she says, “but I also think buyers are becoming more cautious, and are choosing to wait and see what happens with the economy before making a long-term commitment like a property purchase. As a result, we’re seeing growing demand for rentals from people who would previously have been typical first-time buyers.”

According to Dyer, mid-range rentals remain the most popular, bringing in between R4000 to R6500 per month. Houses and townhouses with gardens and garages are increasingly sought-after.

“Students usually prefer apartments – and that market segment is still popular – but as people start settling down and starting families, they enjoy a little more space for kids and pets and entertaining,” says Dyer. “We’re seeing huge demand for rental properties that cater to these needs lately, which supports the theory that fewer people are buying starter homes and are opting to rent instead.” For prospective landlords, this could offer great investment potential.

“We definitely don’t have enough mid-range stock at the moment, so buy-to-let is a good bet in that segment,” says Dyer, “but landlords do need to be aware that they won’t cover 100% of their bond with rental income at the outset.”

Annual rental increases in Port Elizabeth are currently sitting between 5 and 6% on average, but could escalate in future as demand climbs. In terms of tenant reliability, however, PE is above the national average – at least across Dyer’s extensive portfolio.

“The national average has 82% of tenants paying their rent on time, but we manage to collect 95% of payments on time at our office,” she says. “A lot of this is due to very strict tenant screening processes, which are essential for any successful rental property.”

Dyer urges landlords who are not using a rental agent to examine prospective tenants’ complete risk profiles, rather than merely their income statistics. This includes looking at their disposable income, consumer account behaviour, and – most importantly – getting references from current and previous landlords or rental agencies.

“It’s easier and less risky to appoint a rental agent to manage your property and collect your rent,” says Dyer, “but if you do decide to handle things privately, it’s imperative that you tick all the necessary legal boxes. That means solid lease documentation, detailed tenant screenings and regular inspections. It can be time-consuming, but it’s the only way to ensure a secure and profitable investment.”

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