No-deposit rentals, even up to R100,000 per month
Some 11% fewer homes were transferred in Q3 2016, compared to Q3 2015, which translates into a market where buyers just cannot afford to purchase the homes listed on the market. Tenants have also been forced to rent for longer due to a lack of affordability or, simply, because they have not been able to save for a deposit as well as transfer and attorney fees.
Tenants are also finding it more difficult to move into new rental properties due to many landlords insisting on between two and three months’ security deposits – which means tenants either stay put where they are, or are forced to move into cheaper accommodation just to afford the security deposit requirement.
Oobainsure last year launched Rent Protector to solve the problem of tenants missing out on living where they really want to, but simply cannot due to short-term security deposit unaffordability. This year, Jawitz Properties, Seeff, Century 21, Harcourts, Wakefields and various smaller property companies around the country, have introduced the product to their landlords.
“The product requires that tenants need not put down a deposit, and instead works as a rental insurance policy covering missed payments, legal expenses and offering a host of other benefits, making this a tangible and financially beneficial product for both tenants and landlords,” says Natalie Muller, regional head of rentals for Jawitz Properties in the Western Cape. “And we offer it to all our landlords nationally, as well as to tenants looking for alternatives to high deposits.”
In practice, a property for rent for R10,000 per month would normally see a tenant required to pay R20,000 deposit (equal to two months’ rental), as well as the first month’s rent, which adds up to R30,000 before anyone has even moved and settled in.
Rent Protector works like an insurance product, in that if a property is listed at R10,000 per month, a flat 10% premium is charged (R1,000 in this example) over and above the rental.
“That extra R1,000 per month is what protects the landlord from late payments or defaulting tenants,” says Alex Bartels, national sales manager for oobainsure. “The landlord can claim up to three months’ worth of rent should a tenant miss payments or abscond, and oobainsure tends to the eviction process and covers up to R50,000 towards legal fees.
“Extra cover includes unpaid utility accounts and damages that occur during tenancy. The product is fully compliant with the Consumer Protection Act and is available to all tenants who pass the vetting process. This zero-deposit option for tenants who do not always have the ability to pay one or two months’ rent upfront to secure a lease, results in reduced financial risk for all parties involved.”
The best part is there is no cap on the rental amount, and the premium remains 10% of the rental price. Muller says that while there is no cap on the rental price, most policies are put in place for rentals between R5,000 and R15,000, although her agency has properties that are insured for almost R60,000 per month.
“This product allows tenants to move up on the affordability scale,” she says. “Not having to pay a deposit upfront can stand their cash flow in good stead and allow them to look for a better or more expensive property because they can afford the rental. Often, because of the deposit, tenants have to apply for cheaper housing from an affordability perspective.”
And while this is a game-changing product that will really help landlords and tenants alike, not all landlords have been so quick on board.
Landlords are still of the old mindset of wanting their deposit in a trust account, giving a sense of security.
“The current model of deposits sitting in trust accounts has, however, given landlords a false sense of security over the years,” says Muller, noting that this product is offering a new, more modern way of securing investments. “Like any new technology, it takes time for it to become the norm. We see this product as the model for future rentals. We at Jawitz believe that this is the best way forward, giving even more security than previously available.”
If the tenant does not pay consistently, there is up to three months’ cover available and eviction will be processed. Broken down, the policy provides landlords with a month of owed rent and up to the value of a month’s rent towards unpaid utilities, as well as up to another month’s worth of rent to cover damages.
Because the lease is compliant with the Consumer Protection Act, the consequences for tenants who exit the lease early is that they could be liable for penalties of between two and four months rental, depending on how much time is outstanding on the lease agreement and how long it takes to find a replacement tenant. They could also be liable for marketing costs and agent commission.
Be that as it may, the Rent Protect product which enjoys the support of large, well respected estate agencies will go a long way in bridging the affordability gap for tenants to rent in suburbs previously inaccessible due only to excessive up front security deposit amounts.