Risks associated with hiking rental rates in this market
Category Rentals
We are seeing some owners who want to increase their rental back to the rental amounts before the onset of the Covid pandemic. The current target market is however, still struggling with affordability and a credit history which is not on par due to the pre-Covid period.
Although the rental market has stabilised, rental rates remain under enormous pressure as reported by the latest rental barometers from both TPN and PayProp. Lagging price hikes and rising interest rates are just some of the challenges that tenants now have to grapple with.
The risks of hiking rental rates in the current market are plentiful and property owners and landlords should think carefully before undertaking this. Being more accommodating to keep or secure a good tenant may be more useful.
A tenant who pays their rent on time and looks after the property is worth much more than the risk of putting someone into the property who may initially pay a higher rent, but might eventually look to move to cheaper accommodation.
Overpricing your rental property is a high risk strategy which could meet with low risk returns. It is costly and time consuming to replace a tenant. You would need to weigh this up against what you believe you could be earning extra to see whether there would in fact be a net benefit. The risk of higher rentals could also simply end up with a defaulting tenant and lead to further challenges.
With some much information available, today's tenants are well aware of the market and have access to the prevailing rental rates. If your property is overpriced compared to the market, you risk driving potentially good tenants to competing properties or areas.
Property is generally regarded as an excellent investment. The rental income can in fact assist with paying the bond and eventually offer a handsome return on your investment. Keeping it occupied is key to earning a return. For as long as a property is vacant, you are not receiving any rental income while you would still need to cover various costs such as property taxes, security and maintenance.
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Author: Gina Meintjes
