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How has COVID-19 affected the rental market?

Is it still lucrative?

By Zeenat Moosa

, |

How has COVID-19 affected the rental market?

Is it still lucrative?

By Zeenat Moosa

, |

It’s seemingly inevitable that the COVID-19 pandemic is likely to result in a recession of some form – exacerbated by high levels of unemployment, a huge budget deficit, widespread revenue losses and a sharp drop in national GDP. But what does this mean for investors?

A good time to buy

Despite the grim outlook, there is a lot of evidence to suggest that now is the best time to buy property for investment purposes. While past statistics have shown that property prices tend to drop significantly after a period of uncertainty, this phase of low growth is often short-lived and the resilient property market tends to be the first to bounce back. Indeed, a strong indication of consumer confidence is a booming property sector.

Some investors have already started taking advantage of recent economic changes to help them get the most out of their investment. This is especially the case with international investors, attracted to the South African property market. Thanks to favourable exchange rates against the rand, overseas investors have been able to take advantage of huge discounts on local property and maximise their investment returns.

It is impossible to predict how long the pandemic will impact the economy. Nonetheless, people will still need a place to live, and the demand for rental accommodation is likely to increase in the immediate future, especially as more people work from home, struggle to gain clearance at banks for bonds, and choose to holiday locally.

Several developers, including those with upcoming off-plan projects, have been offering discounted rates on their properties, so savvy investors who are prepared to negotiate may find that they are able to get good value for their money on top of the already below-market rates that come with off-plan properties.

But what about local investors?

Pre-pandemic, many South African investors were buying buy-to-let property and reaping huge benefits. However, as we know, the cornerstone for any property investment, whether it’s residential, commercial, or industrial, is having a paying tenant. Without this, the value of the investment drops significantly.

In the midst of the pandemic, many tenants are simply unable to meet their rental agreements due to COVID-19-related impacts on their careers and personal health. So the South African letting sector, and especially short-term rental, has taken a clear hit, and rental income is likely to remain stagnant across the board for the foreseeable future.

Those investors who have purchased property in the affordable housing market may find that they have to dip into reserve funds to keep the investment afloat during these uncertain times. Investors who have purchased holiday homes will also feel the knock-on effects, as the hospitality industry continues to struggle.

Bottom line

To summarise, if you are looking for a long-term investment and you find a cheap property that’s in the right location where there is sustainable demand, then your investment is likely to perform just as it would have performed before the pandemic. But, if you are looking for a short-term investment, now may not be the best time to buy it.

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