Hermanus rental market still treading water

The past six months have been filled with hope of seeing some renewed traction in the property rental market. Whilst feedback from most of the agents I spoke to was “no change”, the positive aspect is that the sentiment in the market is upbeat. As is typical of Hermanus residents, there is a lot of optimism that we will soon (if we haven’t already) be turning the corner on the issues that have plagued the market in the past year.

It will come as no surprise to the informed that there is still a major oversupply of unaffordable long-term rental accommodation and that demand for short-term rentals continues to be impacted by the fact that more houses have been listed. Some agents report that houses in the R 10 000 p/m and above bracket are remaining vacant for up to four months, after which they are either taken off the market or prices are reduced marginally.

There was a somewhat misguided perception that there would be a sudden upswing after the elections but, like with so many other economic markers, this did not transpire. Similar to a buyers’ market where buyers have more negotiating power, a trend has developed where rental tenants who are spoilt for choice are negotiating rental prices down, on properties that would be top of their list.

Some examples show a negotiated drop of as much as 30%. Good tenants with an existing lease are the winners at the moment, as owners are not forcing annual increases because they know they may not get another tenant immediately and then lose the ones they have. In a few instances, owners are more sympathetic about the financial issues of good tenants, with some even allowing a managed payment plan for rent, rather than going through a lease termination and possible eviction process. Some tenants are even cancelling long-term leases as they find the same or better accommodation at lower prices.

Annual rental increases are in the 3 – 5% maximum range. The days of a standard 10% increase levied by owners are long gone as they stand the risk of losing those tenants to lower-priced yet equally suitable accommodation.

A few new trends have become evident and time will tell whether these become permanent or simply a side-effect of the current market state. The one of most concern to rental agents and homeowners with Airbnb-type online listings is that accommodation seekers are trying to bypass booking on the portals. Having identified a property that suits their holiday needs, they try to approach agencies in the area to get them to contact the owners directly for a rental opportunity.

That then triggers a different negotiation around the commission for the agent and the rental income for the owner, and has the potential to create a lot of confusion and illegal transactions. By doing this, no-one pays the portal commission or service fees and the entire system is bypassed.

Another developing trend is that more and more people with listed properties that are not getting bookings are advertising the properties on various social media platforms, partly to avoid paying commission to the rental agents with whom the properties are listed. Whilst there is nothing to really stop them, they take a huge risk by not having any form of documentation or agreement in place and then handling the payment process directly, with no backup should any aspect of the booking become problematic.

Other comments from agents are that more shared rentals between families and friends are taking place to enable them to afford decent accommodation. Owners sometimes only find out about this after the tenants have moved in and, whilst not happy with the arrangement, they are not covered by anything in their rental agreement other than a clause referring to the maximum number of tenants. These days the CPA protects tenants so much more than landlords that it becomes a battle not worth fighting.

There have also been a number of disappointed homeowners who bought their properties with the specific purpose of renting them out for additional income, only to find that the market status as “sold” by the sales agent turned out to be anything but a “return on investment” opportunity.

A key point mentioned by almost all of the agents spoken to is that the community and tourism representatives responsible for the multitude of festivals, the wide range of sporting initiatives and marketing of Hermanus as a preferred destination should be doing a lot more to a) review all those that no longer serve the purpose of bringing income to the local market and b) align all of these initiatives to become a greater drawcard for international tourists.

It is fair to say that a lot of collaboration needs to happen in our community in order to spread the word globally. When it comes to holiday destinations, Hermanus and the broader Overstrand locales should be high on the list, leveraging all the festivals and events that happen here throughout the year.

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