Financial gurus around the globe say what is best during tough economic times is to curb consumer debt. By encouraging frugal spending, and resisting the temptations of the upcoming Festive Season, consumers can prevent themselves from falling deeper into the debt trap.
Although Statistics SA in August reported the total number of civil judgments for debt to have declined by 17.3 percent year-on-year in June, after dropping by 16.4 percent in May, the National Credit Regulator’s first quarter report of 2011 states that 46.4% of SA’s 18.6 million credit-active consumers have an impaired credit record.
The message from economists is to ride out the storm by optimising financial stability and security. Reduce debt to increase disposable income, which will allow savings for the unknown to increase the prospects of future property ownership.
One such choice would to be to rent a property as opposed to purchasing it. It produces the known quantity of a pre-determined monthly rental versus bond re-payments coupled with unknown factors and add-ons, both which have to withstand escalating living costs. Banks are repeatedly urging proud, yet troubled homeowners to throw in the towel earlier rather than later, and to seek debt counseling so as to avoid foreclosure and the possible loss of a home.
While the long term benefits of owning a home, both material and psychological have been proven, the rental market also offers the benefit of gaining a scrupulous credit record. Would-be homeowners who rent are encouraged to save the difference between rental costs and the costs of owning a home, that will include once-off purchasing costs, monthly bond re-payments, levies, and unforeseen additional extras. In making such forced savings, in addition to creating a positive tenant profile, it will increase the prospects of obtaining a mortgage from a financial institution, while cultivating the priceless discipline of planning to reach future goals.
In an ideal situation, communication between landlords and tenants will provide for contracts clear on responsibilities relating to unforeseen costs such as maintenance, damages, and faults. Tenant behavior as shown by the TPN Registered Credit Bureau statistics for the second quarter in 2011, reflects the impact of increased consumer costs such as electricity, transport and food inflation. With only 58% of tenants to be paying on time, it shows tenants in the R3 000 – R7 000 category to remain the best performing with 83% in good standing. Yet, the report shows tenants in the above R12 000 category to only have 74% in good standing with 57% paying on time and 16% not paying at all. It also shows that rentals below R3 000 are the worst performing, with just 72% in good standing.
Regionally, the best performing provinces for tenants in good standing are the Eastern Cape with 87% ,71% paid on time, 16% paid late, the Western Cape at 83% and 71% who paid on time and 12% paying late, and only 7% and 8% respectively in the Did not Pay category. Gauteng remains the worst performing province with only 75% of tenants in good standing, 62% who paid on time and 15% who did not pay at all. Kwazulu Natal is slightly off the mark at 82%, with the real difference being less Paid on Time at 64% and a high pool of tenants who Paid Late at 18%, and Did not Pay at 11%.