Ten­ants’ rental pay­ments take a turn for the worse

The tough eco­nomic cli­mate is tak­ing its toll on ten­ants, but in the Western Cape ten­ant pay­ment be­hav­iour is the best in the coun­try and land­lords are en­joy­ing dou­ble-digit rental es­ca­la­tions, ac­cord­ing to TPN’s lat­est mon­i­tor. re­ports

Weekend Argus (Saturday Edition) - - LIFE -

The av­er­age per­cent­age of res­i­den­tial ten­ants in good stand­ing with their rental pay­ments fell by 2.8 per­cent­age points in the first quar­ter of this year, abruptly re­vers­ing the trend of im­prov­ing pay­ment be­hav­iour that be­gan in the first quar­ter of 2015. This is ac­cord­ing to the lat­est rental mon­i­tor by TPN, a credit bureau that spe­cialises in vet­ting ten­ants.

How­ever, TPN said the na­tional av­er­age va­cancy rate dropped to 6.05 per­cent in the sec­ond quar­ter of this year, from 7.82 per­cent in the first quar­ter, as the de­mand for rental prop­er­ties con­tin­ued to out­strip sup­ply.

Fur­ther­more, the na­tional av­er­age ob­scures wide dis­par­i­ties in pay­ment be­hav­iour across the prov­inces, where rental es­ca­la­tion rates also dif­fer widely.

The na­tional good-stand­ing av­er­age was 82.17 per­cent in the first quar­ter, down from 84.97 per­cent in the fourth quar­ter of 2015. TPN said the de­cline was the third-largest since it be­gan track­ing pay­ment be­hav­iour in 2007, but was not nearly as se­vere as the 11-per­cent­age-point de­cline dur­ing the 2008/9 fi­nan­cial cri­sis.

TPN clas­si­fies ten­ants as be­ing in good stand­ing if they pay the full monthly rent by the due date, or within the grace pe­riod, or late. Ten­ants are not in good stand­ing if they pay only in part or not at all.

The per­cent­age of ten­ants who paid on time fell from 69 per­cent to 67.27 per­cent. The per­cent­age that paid within the grace pe­riod fell from five to 4.73 per­cent, and the per­cent­age that paid late dipped from 11 to 10.17 per­cent. The per­cent­age of ten­ants who did not pay at all rose from five to 6.04 per­cent, and the per­cent­age that paid only part of the rent rose from 10 to 11.79 per­cent.

Michelle Dick­ens, the man­ag­ing direc­tor of TPN, said the de­cline in good stand­ing should be seen in the con­text of the two in­ter­est rate hikes in the first quar­ter, the ris­ing rate of unem­ploy­ment and the con­trac­tion in the econ­omy.

She said af­ford­abil­ity was be­com­ing an is­sue for many ten­ants. Over the past two years, TPN had no­ticed an in­crease in the num­ber of ten­ants who pay rent of less than R3 000 a month mi­grat­ing to the R3 000-toR7 000-a-month band. How­ever, this trend re­versed in the first quar­ter, with the per­cent­age of ten­ants in this band fall­ing by two per­cent­age points to 57 per­cent, while the per­cent­age in the below-R3 000 band rose from 22 to 24 per­cent.

Dick­ens said a wor­ry­ing trend was the con­tin­ued uptick in the per­cent­age of ten­ants in the below-R3 000 band who fail to pay rent. It rose to al­most 10 per­cent in the first quar­ter. At 78.69 per­cent, the good-stand­ing per­cent­age for this rental band was below the na­tional av­er­age.

The top rental band of over R25 000 a month re­mained the most risky for buy-to-let in­vestors. This band saw the big­gest fall (two per­cent­age points) in good stand­ing, to 75.69 per­cent. Only 51.54 per­cent of ten­ants in this band paid their rental by the due date, 17.29 per­cent paid late and 15.29 per­cent paid only part of the rent.

The best rental band in terms of ten­ant risk was R7 000 to R12 000 a month: ten­ants in good-stand­ing fell by only 0.88 per­cent­age points, to 87.51 per­cent.

The per­cent­age of ten­ants in good stand­ing in the R3 000- toR7 000 and the R12 000-to-R25 000 bands was also above the na­tional av­er­age, at 85.12 and 83.58 per­cent re­spec­tively.

WESTERN CAPE SHINES

The Western Cape re­mained the best prov­ince in which to be a land­lord in the first quar­ter. It had the high­est per­cent­age of ten­ants in good stand­ing, at 87.94 per­cent (down from 88.7 per­cent); the high­est rental es­ca­la­tion, 11.02 per­cent, far in ex­cess of the na­tional av­er­age of 3.29 per­cent; and the sec­ond-high­est av­er­age rent, R6 968, com­pared with the na­tional av­er­age of R6 062.

The first quar­ter was the sec­ond con­sec­u­tive quar­ter in which the Western Cape recorded a dou­bledigit rental es­ca­la­tion.

The Eastern Cape was the sec­ondleast-risky prov­ince, although here, too, the per­cent­age of ten­ants in good stand­ing fell, from 88.2 to 87.48 per­cent. How­ever, both rental es­ca­la­tions (3.15 per­cent) and the av­er­age monthly rent (R5 294) were below the na­tional av­er­age.

North West be­came the most risky prov­ince in the first quar­ter, with ten­ants in good stand­ing fall­ing from 82.2 to 81.43 per­cent. Although North West had the low­est av­er­age rent in South Africa (R5 247), rental es­ca­la­tion was 9.53 per­cent in the first quar­ter, af­ter dou­bledigit de­clines in the two pre­vi­ous quar­ters.

Col­lec­tions also fell in Gaut­eng, from 85.4 to 83.69 per­cent, where the av­er­age es­ca­la­tion was 4.4 per­cent (down from 4.92 per­cent in the fourth quar­ter of 2015) and the av­er­age rent was R6 463.

Dou­ble- digit rental growth re­sumed in the Free State (10.28 per­cent) af­ter it fell to 6.7 per­cent in the last quar­ter of 2015. How­ever, the av­er­age rent was below the na­tional av­er­age, at R5 457. The per­cent­age of ten­ants in good stand­ing rose from 81.1 to 82.28 per­cent.

The North­ern Cape re­mained the most ex­pen­sive place to be a ten­ant, with an av­er­age rent of R7 181 a month, down from R7 693. How­ever, rents de­creased by 3.57 per­cent in the first quar­ter af­ter nearly three years of dou­ble-dig­i­tal in­creases. The av­er­age rental in­crease in the first three quar­ters of 2015 was about 30 per­cent. Col­lec­tions in the North­ern Cape were vir­tu­ally un­changed, at 86.4 per­cent.

The sharpest rental de­crease was in Lim­popo (8.27 per­cent), mark­ing the fifth con­sec­u­tive quar­ter in which rents have de­clined in the prov­ince, although the fall is no longer in dou­ble-dig­its. The av­er­age rent fell from R5 543 to R5 511. Col­lec­tions were vir­tu­ally un­changed, at 84.5 per­cent.

The good- stand­ing per­cent­age rose in KwaZulu-Natal, from 81.2 to 82.3 per­cent. The av­er­age rental es­ca­la­tion was 3.94 per­cent, down from 6.43 per­cent. The av­er­age monthly rent was R6 163, down slightly from R6 183.

Rental growth picked up in Mpumalanga, at 3.37 per­cent, af­ter 12 months of no-to-neg­a­tive growth. The av­er­age rental was R6 271 a month. The per­cent­age of ten­ants in good stand­ing fell from 85.4 to 84.34 per­cent.

DE­MAND OUT­STRIPS SUP­PLY

In Jan­uary this year, TPN started to sur­vey land­lords and prop­erty man­agers to as­cer­tain the ex­tent of the sup­ply and de­mand for prop­er­ties in their area.

In the sec­ond quar­ter, 69.22 per­cent (down from 73.44 per­cent) of land­lords and man­agers re­ported that de­mand was strong, 27.4 per­cent (up from 23.93 per­cent) said it was av­er­age and 3.38 per­cent (up from 2.63 per­cent) said it was weak.

In terms of the sup­ply of rental stock, 25.98 per­cent said it was strong (down from 26.83 per­cent), while 53.91 per­cent (50.23 per­cent) said it was av­er­age.

As in the first quar­ter, the dis­par­ity between sup­ply and de­mand was most ev­i­dent in Cape Town, where 94.44 per­cent of those sur­veyed re­ported that de­mand by prospec­tive ten­ants was strong, whereas sup­ply was weak (48.15 per­cent) or av­er­age (44.44 per­cent).

Nel­son Man­dela Bay was, once again, the area with the sec­ond-largest dis­par­ity between sup­ply and de­mand. Most land­lords and man­agers re­ported that de­mand was ei­ther strong (81.25 per­cent) or av­er­age (18.75 per­cent), whereas 25 per­cent said it was weak and 62.5 per­cent said it was av­er­age.

In all the other ar­eas, the “strong” de­mand for prop­erty was below the na­tional av­er­age of 69.22 per­cent. It was 61.36 per­cent in Ekurhu­leni, 61.54 per­cent in eThek­wini, 64.54 per­cent in Jo­han­nes­burg, 60 per­cent in Lim­popo, 54.55 per­cent in Mpumalanga and 59.65 per­cent in Tsh­wane.

Ar­eas where the “strong” sup­ply of stock ex­ceeded the na­tional av­er­age of 25.98 per­cent were Ekurhu­leni (29.55 per­cent), Jo­han­nes­burg ( 37.96 per­cent), Lim­popo ( 40 per­cent) and Tsh­wane (28.07 per­cent).

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