12 Oct 2012
During the current economic downturn, defaults in rentals have escalated.
This can have devastating consequences for landlords, not only because of massive utility and repair bills that may be left behind after tenants abscond or high legal costs associated with eviction, but also because many property owners could lose their properties.
Lee Greeff, who heads up the Amanzimtoti office of South Africa’s leading rental and management group, Just Letting division of Just Property Group, believes that RentSecure, a rental guarantee policy, is the best means of handling this problem proactively.
As a result, his office has secured the largest number of RentSecure agreements nationally this year.
RentSecure was developed over the past two years in conjunction with Just Finance, another division of Just Property Group.
“I really believe in this product which is why I automatically include RentSecure in all rental agreements. “
As the middle man, there is only so much we can do to protect our clients and this is not simply sales talk, he says.
Despite the tenuous position of landlords in the poor economic climate and stringent South African laws, that Greeff believes favour tenants over landlords, rental protection remains an unexplored “product” in South Africa. Policies that do exist often pay out only after the submission of a claim by a property owner, with the money often being released long after a tenant has defaulted or absconded.
RentSecure works the opposite way round.
Greeff explains that despite the fact that Just Letting vets all potential tenants, checking references and ensuring a high level of credit worthiness, there is always the risk of a default.
RentSecure allows Just Letting to collect rentals from tenants via a monthly debit order. If the tenant defaults the policy pays automatically, thereby guaranteeing that a landlord receives the rent on time every month, regardless of whether or not the tenant has paid.
RentSecure protects a landlord if a tenant stops paying, pays late or even just part pays. Should a defaulting tenant not comply, Just Finance will manage the entire process including a possible eviction.
Greeff says this process can sometimes take more than six months.
Meanwhile, the landlord continues to receive the monthly rental until the tenant is evicted.
He also receives an additional month’s rental which will allow him to repair his property, if needed, and covers delays while a replacement tenant is found. RentSecure covers rental, including legal costs, up to a maximum of R100 000.
Nationally, Just Letting has seen an increase in managed leases and believes that this is directly linked to RentSecure.
Both, single property landlords as well as owners of entire apartment blocks are opting for this protection.
As a result, total RentSecure applications have more than doubled over the past six months and now average 120 applications per month.
The default rate is less than one percent – a marked difference to the sector’s overall default rate of 11 percent, he says.
A RentSecure lease includes a once off payment equal to 2.5 percent of the total rental during the period of the lease. Greeff points out on a rental of R5 500 over six months, this amounts to just R940 – a fraction of a single month’s rental.
Nevertheless, he says, many landlords do object to the additional expense. “We know that the benefits outweigh the costs by far.
“Many landlords opt out or decide to let their properties themselves and burn their fingers and it is only then that they appreciate the true value of this product,” he says.
Greeff insists that RentSecure is included in all managed lease contracts where the property is managed on behalf of the landlord.
This is quite common in Amanzimtoti where many investors bought holiday homes during boom times and are now renting them out to cover additional costs.
In other instances, where property owners have moved away and decided to let their properties and rent elsewhere, rather than sell whilst house prices remain depressed, a rental default could mean that they cannot pay their rent, which in turn will affect their credit rating.
He is confident that RentSecure will continue to play an important part in leases signed in Amanzimtoti.
His Just Letting opened two years ago and has seen sustained growth since then and he says the rental market in the area is extremely strong, often with the result that there is more demand than suitable rental stock.
He says the strong rental market is often the result of people being transferred from other centres to major companies within the Prospecton area and surrounds.
Many prefer to rent properties before committing to buying.
Greeff believes this rental market will also grow in leaps and bounds in the area from next year, when the development of the new dug out port on the previous airport site begins.
Because this is expected to continue for 10 years and will attract professionals from around the country, as well as overseas, he believes that demand for rental properties will climb significantly and that this, in turn, will push up rentals as well as property prices.
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