South Africans are strug­gling fi­nan­cially, so if your ten­ant coughs up in full and on time, don’t let them move out

Weekend Argus (Saturday Edition) - - PROPERTY 360 - VI­VIAN WARBY [email protected]

WITH A rapid in­crease in the num­ber of late-pay­ing and non-pay­ing renters and even fraud­u­lent rental ap­pli­ca­tions, land­lords are urged to “hold on to the good ones”.

The coun­try’s tough econ­omy has had a rip­ple ef­fect, with some ten­ants un­able to meet monthly rental obli­ga­tions and in turn af­fect­ing land­lords, many of whom use rental pay­ments to pay off bonds.

Both renters and land­lords have their backs against a wall, say those work­ing in the mar­ket.

In ad­di­tion, evict­ing de­fault­ing ten­ants is not a sim­ple mat­ter for a land­lord, says Gary Palmer, chief ex­ec­u­tive of Paragon Lend­ing So­lu­tions.

The Preven­tion of Il­le­gal Evic­tion from and Un­law­ful Oc­cu­pa­tion of Land Act (PIE) has made sourc­ing ten­ants “of good stand­ing an ab­so­lute ne­ces­sity”, he says.

“Land­lords who have good ten­ants who pay in full and on time should do ev­ery­thing in their power to hold on to them. This could be any­thing from a de­layed or re­duced an­nual in­crease to hav­ing pay­ment re­prieves if the ten­ant finds them­selves in a cash flow crunch,” says Palmer.

An­drew Schae­fer, manag­ing di­rec­tor of na­tional prop­erty man­age­ment com­pany Trafal­gar, agrees that 2018 has been “a par­tic­u­larly chal­leng­ing year” for the rental sec­tor, with this show­ing up as “higher va­can­cies, lower es­ca­la­tions, con­sumer pres­sure and dif­fi­cul­ties around qual­i­fy­ing ten­ant ap­pli­ca­tions be­cause of the preva­lence of de­faults and judg­ments, and uncer­tainty con­cern­ing im­proved busi­ness and con­sumer con­fi­dence”.

Land­lords, par­tic­u­larly at the lower end of the mar­ket, are strug­gling with ten­ants who are not pay­ing, says Do­gon Group manag­ing di­rec­tor Rob Ste­fanutto.

“This has even led to some own­ers go­ing into fore­clo­sure as they can’t ser­vice their bonds.

“In terms of the law, the land­lord’s in­vest­ment is not pro­tected. There re­ally should be a le­gal mech­a­nism that pre­vents the banks pro­ceed­ing against land­lords un­able to make pay­ments sim­ply be­cause ten­ants re­neged on con­tracts. Own­ers are at a huge dis­ad­van­tage, with lit­tle pro­tec­tion,” says Ste­fanutto.

Palmer lays the blame for this trou­bled mar- ket on a sig­nif­i­cant jump in the cost of liv­ing, a slug­gish econ­omy and un­em­ploy­ment reach­ing a 27.5% high, say­ing it has placed ad­di­tional strain on those look­ing to se­cure both res­i­den­tial and com­mer­cial prop­erty leases.

The PayProp Rental In­dex for March showed that only one in four ten­ants is pay­ing their rent in full each month, with ten­ants in ar­rears jump­ing from 18.5% in April 2017 to 23.2% in March 2018.

When speak­ing to clients who own prop­er­ties and to lenders who have fi­nanced prop­erty port­fo­lios, there also seemed to be a marked in­crease in rental fraud re­ported, with jumps in the num­ber of fal­si­fied bank state­ments, fake em­ployer doc­u­ments and even fake IDs from peo­ple ap­ply­ing for rentals.

“This could make it hard for land­lords to man­age their in­vest­ment prop­er­ties (evic­tion is not straight­for­ward and can be a lengthy and costly process), to ser­vice their bonds if they’re not get­ting timely rental in­come and se­cure ad­di­tional growth fi­nance against their as­sets,” says Palmer.

John Loos, FNB econ­o­mist, says it is im­por­tant to re­mem­ber that lev­els of fi­nan­cial stress/ pres­sure on house­holds is ris­ing and a sig­nif­i­cant por­tion of the as­pi­rant ten­ant pop­u­la­tion won’t nec­es­sar­ily be fi­nan­cially strong.

“We are of the im­pres­sion a sig­nif­i­cant in­crease in the num­bers of ‘as­pi­rant’ rental ten­ants will come about in the near term, along with a more con­strained sup­ply of rental stock. How­ever, land­lords will prob­a­bly still be chal­lenged to iden­tify the strong ten­ant from the fi­nan­cially pres­sured ones as the econ­omy con­tin­ues to ap­ply pres­sure on house­holds in gen­eral.”

For ten­ants who are in good stand­ing, the ball is in their court. Her­schel Jawitz, chief ex­ec­u­tive Jawitz Prop­er­ties, says much like the sales mar­ket, the rental mar­ket is in te­neants’ favour be­cause of an over­sup­ply of rental units in cities such as Joburg and Cape Town.

“Ten­ants are find­ing they are able to ne­go­ti­ate lower than in­fla­tion in­creases in rentals and may even be able to rent a sim­i­lar prop­erty at a cheaper price.”

We are see­ing a quick so­cial me­dia search on the prospec­tive client will throw up anom­alies about what they may have told you ver­sus re­al­ity. Many of our clients have picked up dis­crep­an­cies on em­ploy­ment, length of em­ploy­ment and other per­sonal in­for­ma­tion on prospec­tive ten­ants.

Check­ing the peo­ple who are listed as past land­lords or em­ploy­ers can also be a ne­ces­sity as fraud be­comes more com­plex. Us­ing apps like TrueCaller, which al­low you to iden­tify un­known num­bers, is one method to make sure the per­son call­ing you is re­ally who they claim to be.

Con­firm ref­er­ences

AN EVIC­TION is a lengthy process and un­sat­is­fac­tory. How­ever, if you have tried to ac­com­mo­date a de­fault­ing ten­ant, tried to come to a com­pro­mise (see story left) and the ten­ant still does not make pay­ment on a new agreed-upon date, you can: Send the ten­ant a writ­ten breach of con­tract let­ter with your in­ten­tion to re­port the pay­ment de­fault to credit bu­reaux should the ac­count not be set­tled within the seven-day pe­riod. This let­ter is usu­ally sent by a reg­is­tered debt col­lec­tor. You, or a debt col­lec­tor, are en­ti­tled to reg­is­ter a de­fault record against the ten­ant 20 busi­ness days af­ter a let­ter of de­mand has been sent. If the ten­ant fails to make pay­ment within seven days, you can send a writ­ten no­tice to can­cel the lease agree­ment and to de­mand the ten­ant im­me­di­ately va­cate the prop­erty. If the ten­ant still fails to va­cate the prop­erty or dis­putes the can­cel­la­tion of the lease agree­ment, you will have no choice but to call in le­gal as­sis­tance and to pro­ceed with an evic­tion or­der.

Land­lords whose ten­ants are strug­gling to pay rents on time, or are not pay­ing at all, are find­ing it dif­fi­cult to meet bond pay­ments on their rental prop­er­ties.

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