With all the news reports floating around concerning horror stories of defaulting tenants, it would be easy to assume that the majority of those who rent property are hell bent on taking landlords for a ride. However a recent report released by the Tenant Profile Network (TPN) indicates the complete opposite – overall the number of those paying their rent on time is improving.
This is pretty positive news, considering the tensions that have plagued the South African economy so far this year. The TPN report highlights that residential rental payment behaviour has been relatively stable – in fact being even slightly more positive during the second quarter of 2014. It warns, however, that signs of weakening have started appearing, predictably in the upper value bracket, which is traditionally the first segment of the rental market to experience deterioration after an interest rate hike.
Upper income bracket
While this may appear to be concerning, it is important to note that tenants who rent in this bracket (paying rentals of R25 000 and above per month) only form 1% of the national rental population. That said, the figures do make for some pretty alarming reading. The report states that only 51% of those renting these extremely high-end properties actually pay on time. There is, it seems, a good reason for this. While property rentals are not initially directly affected by the interest rate hike, tenants in this sector are generally more credit active and as such tend to feel the pinch that inflated interest rates bring, faster than others.
Middle income bracket
High-flyers aside, nationally 86% of tenants are in good-standing, and investors can take heart from the fact that more tenants have been paying on time and in full. Nationally, 72% paid on time, clocking up a welcome increase from 69% in the previous quarter. Interestingly, the majority of tenants (61%) who pay between R3 000 and R7 000 per month are making rental payments on time. This, given the numbers, is good news for the bulk of property investors. As things stand 87% of these tenants are in good standing; 73% paid on time, 4% were in the grace period and only 9% paid late.
Lower income bracket
It has however been noted that those with rental payments below the R3 000 mark may be in for harder times and this could affect this segment of the market. Increases in the price of electricity and transport costs as well as food inflation could have a major impact on this sector in the future. Currently however, 82% of these tenants are in good standing; 66% are paying on time, 6% are making payments within the grace period, and 10% are paying late.
There is little doubt that the economy is always going to play a major role in the payment habits of tenants. It is encouraging that for now, most are more concerned about keeping a roof over their heads and are cutting back on unnecessary expenses in order to remain on the right side of their landlords.