Tenant lockdown hangover hitting buy-to-let landlords hard

Data from specialist credit bureau TPN shows that while the number of tenants in good standing has recovered somewhat from the lows reached during lockdown last year, there remains a very long hangover of tenants in arrears.

Residential tenants in good standing in Q1 rebounded to 78.4% from a low of 73.5% reached during last year’s second quarter. Preliminary data shows this has edged up to 79% in Q2 “indicating a continuous slow recovery”.

However, of the tenants in arrears, 54% of these – over half – are more than one month in arrears. In 2015, this number was 40%. It is clear the effect of lockdowns due to the Covid-19 pandemic, where many did not receive income and hundreds of thousands of people lost their jobs, will weigh on the residential rental market for some time to come.

There has been some improvement since mid-year last year; TPN says “there is a visible turnaround of tenants more than three months in arrears. Similarly to consumer credit, rental relief was a short term solution to assist tenants who had lost some or all of their income during a period where they were restricted from moving”.

However, those tenants in arrears for six months or more has remained stubbornly high at 12.9%.

Put another way, out of every 100 residential tenants, 78 are in good standing.

TPN defines this as when “rent is paid on time and in full”.

“In other words, their account is settled in full with no arrears on the account by the last day of the month.”

Of the 22 out of every 100 tenants who are in arrears, roughly 12 are more than one month behind on rent and three are behind by six months or more.

Source: TPN

A separate data point, TPN’s squatting indicator (which tracks the number of residential tenants more than four months behind on their rent) has more than doubled from historical levels of between 0.6% and 0.8% to as high as 1.8% during hard lockdown last year. At the end of Q1, this number was 1.4%.

Segment performance

Different segments of the market are performing differently, as could be expected.

TPN says “rentals below R3 000 per month remain under pressure with 65.73% of tenants in good standing”.

“In fact, a very significant 17.76% are unable to make any contribution to rental payment and occupy the ‘did not pay’ payment category.”

It says the so-called “sweet spot”, properties with rent of between R7 000 and R12 000 per month, “has grown to 23.3% market share, and landlords will be happy with the 84.37% of tenants in good standing, a mere 4.86% who were unable to make any payment at all”.

Supply outstripping demand

TPN CEO Michelle Dickens says the residential rental demand rating has deteriorated to 53 from 88 in 2016.

The supply rating increased from 48 to 68 over that same time frame which leads to the current situation where “supply outstrips demand [and] which gives a market strength of 42”. This is substantially below the equilibrium mark of 50.

The latest data shows the vacancy rate stable at about “13% for the last three quarters”, while escalations are negative at -0.27% in Q2.

Read: It’s now firmly a renter’s market

The number of tenants in good standing remains far below more normalised levels of 85% between 2013 and 2016. Prior to lockdown, the number of tenants in good standing was 81.5%.

Worryingly for buy-to-let landlords is the fact that this number has been deteriorating consistently over the four years between 2016 and the start of the global pandemic last year.

Source: TPN

Rent remains a top priority versus all but one (mortgages) of the other types of credit. This is evident in the large gap between tenants in good standing and those consumers whose credit records are in good standing.

TPN says “in the period leading up to the pandemic, consumers in good standing on the credit bureaus were in decline, dropping to 57.1% in 2019″.

“Payment holidays [rolled out in 2020 and which were recorded on the credit bureaus without adversely affecting consumer credit profiles] had the effect of actually improving the number of consumers in good standing to 62.6%. Payment holidays were only ever a short-term relief and consumer good standing has again started to slide, ending at 61.8% in Q1 of 2021.”