Times are tough, but landlords still get their dues
EVEN as South Africa continues to return sluggish economic growth figures and retrenchments pile up, payment trends in the residential rental market are improving.
Michelle Dickens, MD of rental credit bureau TPN, said tenant rental payment figures from the third quarter of 2015 show an improvement in performance after a deterioration in the preceding three quarters.
“The current ratio of tenants in good standing is 84.7%, up half a percent on the previous quarter. There has also been a 2% improvement in the paid-ontime category.”
According to Dickens, this improvement — as in the broader property market — is being driven by constrained supply, leading to an oversupply of tenants. This provides rental agents with the ability to place the best tenants into properties.
Anecdotally, from speaking to rental agents around the country, Dickens said agents were often able to choose from more than 10 applications for each rental property.
However, National Credit Regulator statistics show that 56% of credit applications by consumers are rejected. This indicates that many rental applicants have too much debt and are risky tenants.
The oversupply of tenants is, however, not providing significant rental escalations for landlords. The national average for rental escalations is 5.1% in the last quarter, with Gauteng registering 4.4%, the Western Cape 7.9%, KwaZulu-Natal 4.9% and the Eastern Cape 6.9%.
The Northern Cape reflects an average escalation of 27.9%, but that has been driven by isolated mining developments in towns that have an undersupply of existing accommodation, Dickens said.
“We saw this happen in Mpumalanga, Limpopo and the North West before, and those provinces now have negative escalations — de-escalation as bad as negative 11%. In the major metro regions, escalations tend to vary between 4% and 7%.”
She said escalations had been unremarkable because operating costs, including municipal tariff hikes for items such as electricity and waste removal — which are rising quickly in major metros — are being passed on to tenants.
The forecast for next year is a continued shortage of quality tenants, low escalations and higher operating costs.
Of concern for the rental market, said Dickens, was the proposed sectional title reserve fund legislation that will increase levies to build scheme reserves.
The rental landscape will also be changed by the imminent introduction of the Rental Housing Amendment Act, which will, for the first time, clearly delineate the responsibilities of landlords and tenants, make illegal any verbal rental agreements, prevent arbitrary evictions, compel landlords and tenants to maintain the property as fit for purpose, and protect deposits from the landlord’s insolvency or death and estate wind-up.
The current ratio of tenants in good standing is 84.7%