Payment uncertainties for home rental
THE OVERALL credit profiles of many residential property tenants were deteriorating and unless this trend stabilised, it was simply a matter of time before rental payments would be negatively affected, credit bureau TPN has warned.
It said there had been a 4.2 percent shift in active tenants from an excellent to good overall credit profile into an average credit profile.
However, TPN said it was positive that there had not been any substantial increase in the size of the group of tenants with below average to poor credit profiles. In addition, TPN said tenants in good standing in the third quarter of last year remained favourably positioned at 84 percent from 85.08 percent in the second quarter after the shock 2.8 percentage point decline to 82.17 percent in the first quarter.
Tenants in good standing in the third quarter comprised the 66.57 percent of tenants who paid on time, 6.24 percent who paid during the grace period and 11.2 percent who paid late.
More fastidious
Commenting further on tenants in good standing, TPN said landlords had become more fastidious in tenant selection and it could be argued that there was a related increase in the placement of better quality tenants, who ultimately paid well.
Residential properties in the R7 000 to R12 000 rental price band had the highest percentage of tenants in good standing at 88.37 percent, of which 73.52 percent paid on time, followed by the R3 000 to R7 000 rental price bracket at 86.47 percent.
TPN said rental payment performance in the less than R3 000 a month rental price category had deteriorated conspicuously and had the lowest percentage of tenants in good standing at 75.87 percent, with 11.52 percent of tenants not paying rent in the third quarter and only 57.7 percent paying on time.
The credit bureau said although tenants in the exclusive R25 000 or more rental bracket also remained a challenge with only 53.27 percent paying on time, an even bigger problem was the 14.67 percent in this category who only made partial payments, followed by the rental band of more than R25 000 a month at 77.31 percent.
TPN said 79 percent of the residential tenant population rented for less than R7 000 a month, with 55 percent of these tenants renting properties for between R3 000 and R7 000. However, TPN said there had been a slow growth of tenants migrating into the R7 000 to R12 000 a month rental price category.
It said the Western Cape remained a very enticing market for buy-to-let investors, which was dampened only by a subdued gross yield of 7.71 percent in the Cape Town Metro. FNB said in a separate report the buy-to-let market remained mediocre and primary residential demand remained king.
John Loos, a household and property sector strategist at FNB, said buy-to-let purchases were estimated by estate agents to have declined to 8.55 percent of total home buying in the fourth quarter from 10.1 percent in the previous quarter.
Loos said that in the current weak economic environment, with consumers financially constrained, it was realistic to expect secondary home buying to be somewhat on the “backburner”.
Tenants’ overall credit profiles are deteriorating and rental payments will soon be affected.
TPN said the Western Cape achieved the highest average rental of all the provinces at R7 463 a month and this market continued to improve, with 89.64 percent of tenants in good standing and double digit rental escalations of 13.15 percent.
It said Gauteng had the lion’s share of the rental market population and remained an attractive segment despite tenants in good standing, sliding below the national average to 83.14 percent in the third quarter and also experiencing below average rental escalations of 4.03 percent.
TPN said there was a common misconception the standard rental escalation was 10 percent a year across the country when the highest national escalation rate was 9.35 percent in the third quarter of 2013. However, the national rental escalation rate had been on a steady decline since then, TPN said.
Rental escalations increased year-on-year in the third quarter by 4.25 percent.