Buying property and renting it out to tenants has always been a solid investment in South Africa, but it’s not the only kind of rental you could be investing in. There has been an emergence of another kind of housing type, and that is backyard rentals, which is growing increasingly in popularity every year. Backyarding or backyard rentals refers to a land-practice where the land owner of a formal house (versus informal) rents out a portion of their yard area to occupants. While not a new notion, backyard rentals have become increasingly popular especially in urban areas.
According to a research paper prepared for the World Bank Group, Brueckner et al (2018, revised 2019) note that by 2016 at least 13.4% of urban households resided in backyards, up from 8.9% in 2011. The principal reasons for the popularity of backyard rentals, for the tenants, was better access to services, better locations, and greater personal safety. Backyarding is predominantly an urban phenomenon (84.2% of households that live in backyard dwellings reside in urban areas as defined by Statistics South Africa as of 2011), thriving in areas with good access to employment centres. It also mainly attracts, and is composed of, single people and young couples, with limited earnings who struggle to find affordable housing in areas close to job opportunities.
As the fastest growing housing type in South Africa, and many other developing countries, it makes sense for homeowners to consider this as an opportunity to subsidise their income or pay off their home loan faster. Many homeowners have already taken advantage of this, as well over 1.8 million people in the country are currently living in backyard dwellings (according to stats recorded in 2016). These homeowners are either partitioning some of their primary residences off for rental, building separate housing out of brick or wood with formal electrical and plumbing infrastructure, or using existing granny flats in order to rent out to tenants on a long-term basis.
The pros and cons of backyard rentals for the landlord
Paying off a bond is a large and long-term financial commitment, and the faster it can be paid off the more money can be saved in the long run. This makes backyarding attractive and a relatively low effort investment for homeowners in order to make their property work harder for them. The monthly rental can either subsidise their income, or it can go directly towards paying off the bond quicker.
Properties that are in urban areas closer to job centres are able to charge more for their rental as the demand there is much higher. According to Housing Finance Africa, the prime backyard rental market is mainly composed of single people or young couples, limited earnings and affordability for many tenants is a major challenge.
There are some disadvantages of backyard rentals, however, some of which can be avoided with the proper legal documentation (such as a formal lease) and utility infrastructure, but they do not eclipse the advantages of renting. A formal lease agreement takes care of the rental fee, but for many tenants, the actual cost of the utilities, such as water and electricity, remains a grey area. Some landlords choose to include these as a flat rate in their rental agreement, however, this does not motivate the tenant to use these expensive resources sparingly and the landlord might find that they are losing money every month.
How prepaid electricity meters complement backyard rental
A prepaid sub-metering system, such as Citiq Prepaid’s electricity meters, solves issues regarding utilities usage and billing. Prepaid sub-meters are installed downstream from the existing Eskom/Council water and electricity meters to monitor how much water and electricity the tenants are using. Tenants pay upfront for their utilities and there is transparent monitoring, which means that both tenant and landlord have access to the water and electricity meter data. Transparency leads to two benefits, 1) the tenant can monitor their usage more carefully and save on water and electricity costs, and 2) it helps improve the relationship with the landlord by avoiding any disputes that could have arisen (and which so often does).
The landlord is protected from being left with a hefty monthly utilities bill, and will no longer have to chase after tenants to recoup costs. The prepaid sub-meter is also advantageous to the tenant, as they will be able to monitor and adjust their own usage to suit their budget – a selling point that should be advertised when listing a backyard rental!
With backyard rentals becoming increasingly popular and with more South Africans looking for ways to supplement their income, this might be a worthwhile opportunity for landlords to consider.