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
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).