The number of tenants in South Africa who are not paying their rent or only paying some of it has increased since last year.
It makes economic sense that the gradual increase in interest rates has boosted the rental market. Many people simply can’t afford to pay higher instalments or higher deposits so often demanded by the banks and are forced to take the rental route. This should be good news for investment property owners; however, there are risks involved when leasing out a home and, if TPN’s latest residential rental monitor report is anything to go by, things aren't looking all that good on the tenant front.
According to stats released by TPN, the percentage of tenants in good standing dropped by 2.8 percent to 82.17 percent in the first quarter of this year, down from the 84.97 percent recorded in the fourth quarter of last year. While this figure may seem low and somewhat insignificant, it's highly disturbing considering that this is the third-largest deterioration on record. What's even more disturbing is that this category does not include tenants who pay their rent late.
Of those categorised as being in good standing, 67.27% of tenants paid on time, and 4.73% of tenants paid during the grace period, while 10.17% of tenants paid late.
“Currently at 6.04 percent, the number of tenants in the 'did not pay' category is edging upwards. However, the 'partial payment' category has risen at a disturbingly faster pace to 11.79%. - an indication that tenants are still endeavouring to make payments, but affordability is becoming increasingly difficult.”
At this stage, 81 percent of tenants rent properties for less than R7000 per month and although TPN stats have shown an upward migration of tenants who rented for under R3000 into the R3000 to R7000 per month bracket over the past two years, that trend completely reversed in the first quarter of 2016.
At things stand rental payment behaviour has deteriorated across all the Rand value categories. Nearly 10 percent of those who rent for less than R3000 per month did not pay rent at all, a trend that is inching higher and higher every quarter. Only 51.54 percent of tenants renting for more than R25 000 a month paid their rent on time while 15.29 percent partially paid what was owing and 9.02 percent didn't pay at all. Despite all this, the biggest losers were landlords renting out homes in the R12 000 to R25 000 segment which saw a 1.81 percent decline of tenants in good standing.
The report highlights that the Western Cape continues to deliver the best regional performance in terms of rental collection with 87.94 percent of the province’s tenants regarded as being in good standing. The North West recorded the lowest percentage of tenants in good standing at 81.43 percent, followed by the Free State at 82.28 percent KwaZulu-Natal at 82.32 percent and Gauteng at 83.89 percent. Although the report indicates that demand is outstripping supply, this doesn't necessarily mean that every buy-to-let property will be a money spinner. The report notes: “one of the fundamental precursors prior to making a buy-to-let or buy-to-regret decision is not only “location, location, location” but more importantly “research, research, research!”