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Tenants are battling to pay rent
Category Property News
Buy-to-let investors who let properties for between R7 000 to R12 000 a month are seeing the best tenant payment records, with almost 90% of these lessees said to be in good standing. On the other end of the spectrum, landlords of properties with rentals of less than R3 000 and more than R25 000 have reason to be concerned.
According to TPN’s latest Residential Rental Monitor, 13.45% of tenants renting for R3 000 or less are recorded as “did not pay”. This rental category has 20% of the market share so this is of “increasingly serious concern for investors”.
TPN director Michelle Dickens says tenants in this monthly rental bracket are hardest hit by transport, cost of living and municipal and electricity increases. “Tenants in this segment are significantly financially constrained, with 53.92% able to pay their rent on time.”
By comparison, tenants in the above R25 000 monthly rental segment only comprise 1.6% market share, but similarly face a nearly 50% “paid on time” challenge. “The best paying tenants are in the R7 000 to R12 000 rent a month segment, with a good standing percentage of 87.21%. Investors will be impressed with the 71.91% of tenants who paid on time and the limited number of non-paying tenants at just 4.21%.”
Nationally, 82.3% of tenants were deemed to be in “good standing”, with 63.65% having paid on time, 6.28% paying during the grace period, and 12.37% paying late.
Delinquent tenants are the 11.11% who made a partial payment, and the 6.58% of tenants who paid no rent at all. Although there has been a cooling off in the market strength of the Western Cape and a slowdown in price growth, this did not have any effect on the 89.6% of tenants in good standing in the province, the report shows. In fact, only 2.88% of tenants are non-payers. The Western Cape also had the lowest vacancy rate at 3.6%.
“In KwaZulu-Natal only 59.85% of tenants paid on time. Due to the deteriorating credit profile of tenants in this province, vacancy rates have climbed to 8.9%, the highest of all the provinces. To mitigate rising vacancies, property escalations are now negative at -0.95%.”
Gauteng, with a significant portion of the market share, may be showing signs of improvement. Rental increase rates are rising, vacancies have stabilised at 6%, and the market strength index shows a province in almost perfect supply/demand equilibrium. However, the number of tenants in good standing has deteriorated to 81.32%.
“In addition, at 20.37% combined, the grace period and late payment situation is becoming a serious problem.”
According to the FNB Estate Agent Survey for the second quarter of the year, demand for buy-to-let properties is slower. The bank’s property economist, John Loos, says there could even be a possible decline in significance of this category from already modest levels.
“As a percentage of total home buying, buy-to-let purchases are estimated by survey respondents to have moved lower, from 7.9% in the previous quarter to 7.24%.”
Loos says the recent estimates of buy-to-let levels remain moderate in comparison to last decade’s boom period, where they were estimated as high as around 25% of total home buying during 2004.
The FNB survey shows that buy-to-let buying in Cape Town is the strongest, with this category making up 9.5% of total home buying for the first six months of this year.
“One of the big potential attractions of buy-to-let buying, at times, is the expected capital growth that can be achieved. However, house price growth currently remains benign at 4.6% year-on-year average in May 2018. For those more focused on the rental income stream, rental growth has not been overly exciting either, with the latest Stats SA CPI-Rental survey recording 5.14% year-on-year rental growth.”
Landlords must price realistically
In 2017, several factors contributed to the steady decline in the southern suburbs rental market, including slowing semigration and the reluctance of landlords to adjust their price expectations, especially in the higher price bands, which continue to be subdued by a growing stock surplus.
Lorraine-Marie Dellbridge, rentals manager for Lew Geffen Sotheby’s International Realty in the Southern Suburbs, Noordhoek and False Bay, says: “Many owners are holding out for rents last achieved in 2015, but in an overcrowded market further impacted by the fast-dwindling Airbnb hype, their unrealistic expectations are becoming more costly. This is especially true of properties priced above R25 000 a month, where the growing number of listings contrasts sharply against the shrinking tenant pool.
“Although the entry and middle rental markets have been active with consistent demand for properties under R20 000, landlords are vying for the attention of consumers.” Dellbridge says the importance of realistic and accessible pricing, a clear understanding of current market trends and catering to tenant’s needs was evidenced last month when their office achieved record listings in a subdued market.
Southern Suburbs co-principal, Arnold Maritz, cautions that landlords must not forget that cash-strapped consumers are still under considerable pressure. “In most instances, tenants are required to fork out a hefty lump sum for a double deposit before they have taken moving costs, new curtains, higher petrol expenditure and school uniforms into account.”
Author: Lew Geffen Sotheby's International Realty