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Backyard Rentals Offer Real Gains, With Help From Better Utility Management

Rapid urbanisation exacerbated by the effects of Covid-19 on an already contracting economy has placed significant strain on metropole housing requirements. The informal housing rental (or backyard rental) sector is transforming as it expands, and utility management is key in the new landlord-tenant relationship.

“According to a report for the World Bank, more than 13% of urban households in South Africa reside in backyard structures and that number has most certainly grown in this very challenging year. Better utility management is at the heart of helping landlords as well as tenants. Good utility management also ensures municipalities can collect their dues and therefore ensure better service delivery,” says Michael Franze, Citiq Prepaid Managing Director.

The growth of informal rentals as governments struggle to cope with rapid urbanisation and the provision of affordable housing is not set to slow as the South African economy continues to take a pounding. Enterprising landowners, many of them poor themselves, and particularly those in the peri-urban areas on the outskirts of the big employment centres, are converting part of their properties into rental units.

However, reports show that because this sector is largely operated outside of the usual regulatory framework, both government and traditional financial institutions view this growing rental market as high-risk and therefore inferior.

One company, however, which has seen the potential in helping homeowners realise new and safe income streams through the financing of developments, is Cape Town-based Bitprop. According to the company, informal housing comes in many forms, but has shifted since the Covid-19 lockdown.

“Informal renting or backyarding trends can be seen as a spectrum, ranging from informal shacks erected in a backyard, to triple-storey blocks of flats developed by an entrepreneur. Pre-lockdown the biggest market demand was for bachelor style units, with en-suite bathrooms. These sorts of developments are taking place predominantly in Cape Town, Johannesburg and Durban, where there is an increasing rate of urban migration and demand for affordable rental accommodation,” explains Bitprop Marketing Manager, Dylan Walls.

Utilities should help not hinder

Financing the unit doesn’t stop at just the construction of the new homes. As informal renting becomes more commonplace and, with the landowners taking a more long-term business outlook at their investment, ensuring effective utilities management has become a must for new developments.

In a low-cost rental environment, the cost of utilities can add up to a sizeable percentage of the rental charge. And, if allowed to slip into arrears, as is so often the case with post-paid scenarios, backyard landlords can be left with crippling unpaid municipal bills – something the municipalities and owners want to avoid.

Prepaid sub-metering brings with it many advantages for the landlord and tenant. Prepaid ensures that tenants pay upfront, making utilities management significantly easier. Clear and shareable reporting makes for easier administration. It also brings greater transparency and massively reduces the potential for disputes – improving the landlord / tenant relationship and fostering longer-term occupancy.

“Ensuring uninterrupted access to electricity and water should be top of mind for landlords. Installing prepaid meters at the outset gives property owners a real head-start when it comes to their relationship with their tenants,” explains Franze.  “Informal renting is going to continue to grow, especially as more people flock to cities looking for work. It makes sense to help landlords create safe, durable accommodation and build sustainable businesses. Using prepaid sub-meters is one of the measures that can assist in this goal.”