Residential tenant rental payments improve

The level of residential tenants in good standing, which includes tenants whose accounts have been settled in full by the end of the month including any arrears, is continuing to improve from the lows during the hard Covid-19 lockdowns in 2020.

TPN Credit Bureau’s latest Residential Rental Monitor for the fourth quarter of 2021 reveals that the percentage of tenants in good standing improved further to 81.4% at the end of 2021.

The percentage of tenants in good standing dropped sharply to 73.5% in the second quarter of 2020, which was the quarter in which the hard Covid-19 lockdown was implemented in South Africa.

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TPN said the percentage of tenants in good standing has on average been improving since the hard lockdown low of the second quarter in 2020.

However, it noted that some rental bands are not yet on the road to recovery. It said the below R4 500 rental band, for example, continued to struggle to break through the 80% in good standing mark.

The group added that tenants renting in the below R3 000 category are struggling to make any sort of rental payment, with the number of tenants who made no payment remaining stubbornly high at just under 17% in the fourth quarter of 2021.

Vacancies 

“In addition to the lower rental collection, units below R3 000 were also standing vacant with a recorded vacancy rate of 14.42% in the fourth quarter of 2021,” it said.

TPN added that the percentage of tenants in the below R3 000 rental band who did not pay has been increasing steadily since 2014.

“Although this rental band broke through the 70% good standing mark in the third quarter of 2021, it dropped back below 70% towards the end of the year,” it said.

The best performing rental segment was the R7 000 to R12 000 per month rental band where 87.29% of tenants were in good standing.

TPN said this rental band also delivered the lowest ‘did not pay’ number at just 4.2%.

The R12 000 to R25 000 rental band was second best category, with 86.1% of tenants in good standing and only 4.71% in the did-not-pay category.

“This sector of the rental market had the lowest vacancy rate of all rental bands at just 10.23%,” it said.

Luxury market

TPN highlighted that luxury property rentals at above R25 000 per month had a good standing of just under 80% but this category had the highest percentage of tenants who paid in a grace period at 5.81%.

The credit bureau said while all indications are that the property sector is through the worst of the pandemic-induced crisis and showing signs of recovery, landlords need to be aware that tenants will continue to be placed under pressure as a result of rising interest rates, geopolitical events fanning the flames of inflation, persistently high unemployment and the recent floods in KwaZulu-Natal, which all impact economic growth.

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“The rental market may see an increase in risk as more consumers come to rely on part-time income streams to address the rising cost of living.”

“It will become increasingly difficult to rely solely on employment status to determine tenant risk in the foreseeable future as tenants require innovative new ways to make and supplement their incomes. The key to successful property investments will be to select the right location, find the right tenant and ensure that they remain prompt payers while at the same time managing and minimising costs as far as possible,” TPN added.

‘Better than expected’

FNB property economist John Loos said the improvement in tenants in good standing was better than expected but a lot of things have been better than expected given the magnitude of the 2020 recession.

“I’m pleasantly surprised that the overall tenants in good standing [percentage] is back above 80%,” he said.

Loos believes the interest rate cuts in early 2020 saved a lot of people and businesses.

“Even tenants will have a lot of debt. I think those rate cuts provided a very significant financial cushion across the economy,” he said.

Loos said it was not a surprise either that there was an improvement in the residential rental market when there were no further interest rate cuts following the cuts in early 2020 and interest rates moved sideways for a while and are now rising.

He said the residential market would be expected to improve in strength somewhat when interest rates are rising because there are likely to be more new labour market entrants and aspirant first-time buyers who are holding back on buying and deciding to rent for longer.

“That is probably what has taken the national vacancy rate down from last year’s [2020] high,” he said.

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Loos added that it was also not a surprise that the worst hit were the lowest rental bands because a lot of these tenants are in jobs that have less reliable incomes, such as casual jobs in restaurants and more informal jobs that “could be lost very quickly at the drop of a hat”.

Despite the improvement in the rental market, Loos does not believe landlords will be in a rush to rapidly increase rentals.

“The landlord population has to remain realistic in terms of how much they can increase rentals by.

“The tenant population is paying better but it’s certainly a pretty fragile economic and financial situation for the household sector in general.

“I think a lot of landlords probably realise these days that if you have got good tenants, you probably look after them,” he said.