How to set a rental price in today's market

High interest rates have driven activity away from homeownership and back towards the rental market. While this is can be good news for landlords, caution should still be applied when setting the right rental price.

According to the PayProp quarterly Rental Index for Q2 2023, “[i]n pure pricing terms, the national average rent for this quarter was R8 375, up 4.4% from R8 032 in Q2 2022.” However, the report also states that “[t]he national percentage of tenants in arrears ticked up slightly this quarter, from 18.0% to 18.4%.”

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, states that in order to attract and retain reliable tenants, landlords need to set a fair rental price. “While the demand for rental homes remains high across the country, landlords will still need to secure a reliable tenant to avoid the risk of missed or late payments. If a rental price is set too high, this is likely to deter sensible tenants and could put landlords at risk of signing a lease with a tenant who actually cannot truly afford the rent,” Goslett cautions.

He reminds landlords that most consumers are feeling pinched by the current economic climate. “Apart from inflation eating into monthly budgets, any debt payments, such as credit cards or car loans, have become more expensive with every interest rate hike. This leaves possible tenants with less disposal income to spend on things like rent,” he comments.

To get the rental price right, Goslett advises landlords to rely on the advice of a reputable rental agent. “Based on a rental agent’s research and comparative market analysis, a competitive rental price can be set. This should be in line with the market and the broader economic conditions but should also reflect the unique features and condition of your property,” says Goslett.

Location is one of the most significant factors affecting rental prices. The higher the demand for an area, the higher the landlord can charge in rent. Properties located near to good schools or popular restaurants can typically command higher rents.

Goslett says that the size and features of your property, such as the number of bedrooms and bathrooms, square footage, and amenities like a pool, gym, or covered parking, will also affect the rental price. “Larger homes that have more amenities generally warrant higher rental prices. Keeping an eye on what other rental homes in your area offer should also inform your pricing strategy.”

As a final word of advice, Goslett reminds landlords that finding the right rental price is a balance between attracting reliable tenants and maximising your rental income. “It's essential to stay informed about the local real estate market and adapt your pricing strategy to reflect the current conditions. Working closely with a real estate professional will be crucial to maximise your potential earnings,” he concludes.