Change Can Propel You to the Next Level

Change Can Propel You to the Next Level

“The Times They Are a-Changin'” is a song written by Bob Dylan and released as the title track of his 1964 album of the same name. Dylan wrote the song as a deliberate attempt to create an anthem of change for the time, influenced by Irish and Scottish ballads. Today we are seeing similar times changing and new influences in the world of business and real estate.

I have said it before in this column that technology is starting to revolutionize and disrupt the real estate industry by providing almost unlimited information to property buyers. Only ten years ago, a prospective property buyer would have spent the majority of their time with a real estate agent or commercial broker going through information that is now readily available on the Internet. They would have trusted word-of-mouth to find their “ideal” real estate agent to help them source a property.

Fast forward to today investors have access to a multitude of technology at their fingertips with more scientific in information available to seek their best investment.

We have also seen how AirBnB has disrupted the hospitality sector. In fact Airbnb data reveals that the average income earned by Cape Town’s hosts, averaged R39 348 renting out their space for an average of 27 nights a year. According to a Genesis Analytics report, there are now over 35,000 Airbnb hosts in SA and it generates over R1 billion in revenue for the country, with an estimated R8.7 billion of economic impact in 2017/18. Ten years ago they did not exist in South Africa. Further disruption in South Africa’s accommodation and property letting sector is on the cards as AirAdvance, a fintech startup, provides those offering private accommodation through Airbnb easy access to affordable finance. It uses a confirmed Airbnb booking as collateral for a cash advance. We will have to watch this space as to how this will disrupt this sector.

More and more online agencies are coming onto the radar screen which points to the fact that technology is making an impact on traditional agent models. However, while there are benefits of significant cost savings on the commission there are still a number of interactions and work behind the scenes that is required to close the deal. According to Regional Director and CEO of RE/MAX SA, Adrian Goslett says, “The traditional model will not become redundant unless online agencies progress to the point where they are able to offer the same personalised attention and area-specific expertise as the traditional model affords.“

Another disruptor that has caused a stir in the market is FNB’s introduction of new app that enables people to buy and sell property called nav>> Home. Sellers have an option to do it by themselves and choose this app or find an estate agent and a buyer also will know that the property listed is a bona fide seller vetted by the bank. Time will tell if this model can deliver to both buyers and sellers going forward.

However frustrating the economic climate may be, it is important to consider that it is better to fill your property at a lower rental than to let it stand empty according to Seeff Properties. Your profit margin may be a bit lower and while not the ideal position that you would want to be in, at least you are still earning rental returns. There is little to gain by a landlord who sticks to a high rental rate or escalations that are out of step with the economy as this may prove unsustainable

The likely outcome of sticking to high rental rates or hiking your rate by an above inflation escalation, is that you will end up with tenants who are unable to continue paying the high rental amount. Once a tenant goes into arrears, it often becomes very difficult to recover from that.

Another characteristic of a recession, is rising vacancy periods. You will find that tenants will opt for smaller and cheaper units to relieve some of the pressure on their budgets. Empty rental properties are a financial burden and while one month may not seem like much, it can quickly become two or three months or more. These are fundamental to help you geting better returns on your investments.

Successful investing

NEALE PETERSEN
Founder & Editor-in Chief

MASTER QUOTE

“In a chronically leaking boat, energy devoted to changing vessels is more productive than energy devoted to patching leaks.”

WARREN BUFFETT

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