Tenants in good standing on the rise
Numbers recover to 85.08%
THE PERCENTAGE of residential tenants in good standing recovered to 85.08 percent in the second quarter of the year after the shock 2.8 percentage point decline to 82.17 percent in the first quarter, the third-largest deterioration in this category of tenants on record.
The “tenants in good standing” category includes tenants who paid on time, paid in the grace period and paid late.
However, TPN Credit Bureau said in its latest residential quarterly rental monitor other credit payments, such as short-term credit and secured credit, declined further in the second quarter, indicating a financially distressed consumer.
Stability TPN said stability returned to the residential rental market after two successive interest rate hikes in the first quarter with no further rate increases in the second quarter.
It said 67.46 percent of tenants were in the “paid on time” category, while 6.29 percent paid during the “grace period” and 11.33 percent paid late.
TPN said the number of tenants who paid during the grace period was higher than usual, but this was probably because of the timing of the public holidays in April and May rather than an outright deterioration in payment.
The current national vacancy rate among rental properties is 5.07 percent.
TPN said properties in the affordable segment, with monthly rentals from R3 000 to R7 000, fared best with a vacancy rate of only 4.31 percent.
The vacancy rate of properties in the mid-to-high income
monthly rental bracket of R12 000 to R25 000 was almost three times higher at 11.98 percent.
TPN stressed vacancies were a product of supply and demand, adding that it was easy to understand how an oversupply of rental properties available would result in higher vacancies.
It said the other factor impacting vacancies was that most estate agents and landlords who restricted their pool of applicants to qualified tenants were shrinking the demand pool, which placed further pressure on vacancies.
TPN said its market strength index, where a result of 50 points would suggest a market in equilibrium, showed that nationally the rental market at 61.47 points was slowing moving in the direction of equilibrium as the demand rating dropped off to 78.15 points and the supply rating edged upwards to 55.22 points.
Worst performing TPN categorises tenant behaviour across five rental value bands and indicated 80 percent of tenants were renting for below R7 000 a month.
It said tenants in the exclusive rental bracket above R25 000 a month remained the worst performing in terms of payments on time and distressingly only one in two tenants in this segment would pay on time, although the cash flowing from this bracket only affected 1 percent of the market.
TPN said the low income rental band below R3 000 a month was also a challenging tenant category and almost one in 10 low income tenants did not pay their rent at all. “Given that these tenants make up 22 percent of the market, this poses a more significant risk for investors. On the upside, a vacancy rate of only 4.5 percent is a positive factor,” it said.
TPN said the national rental escalation rate of 2.89 percent indicated just how price sensitive South African tenants were at the moment.