Tenants within the lower end of the rental market are still struggling to pay their rent, as recovery slowly inches to pre-lockdown levels, according to TPN credit bureau data.
The reality is that millions of South Africans are struggling with job losses and financial pressures due to the deep economic contraction that began in the second quarter of 2020, at the start of the Covid-19 pandemic.
“While the residential tenant payment performance recovery is on the right trajectory, current figures remain well below those recorded pre-lockdown, indicating that both the economy and the employment rate is battling to fully recover after Q2 2020 and the strictest lockdown,” says TPN Chief Executive Michelle Dickens,
TPN’s rental monitor shows rentals across South Africa saw their inflation convert to deflation in the 4th quarter of 2020.
“On a national average, TPN’s average rental value deflated by -0.75% year-on-year in the 4th quarter of 2020. This represents the first quarter of deflation following 13 consecutive quarters of slowing year-on-year inflation.
“The Western Cape was the first major region to move into rental deflation 2 quarters ago, with Gauteng following suit for the first time in the 4th quarter of 2020. As at Q4 2020, the Western Cape’s rental deflation measured -1.61% year-on-year while Gauteng’s rate of rental deflation was -1.7%.
“By rental/month value bands, the “Less Than R3,000/month segment has the highest rental inflation at 1.03% year-on-year, while the value segment of R12,000+/month in the lowest negative territory to the tune of -2.15%.
TPN data however, does show an improvement in tenants’ good standing from a low 73.5% of tenants paid up in the second quarter, a slight increase to 74.57% in the third quarter, to 77.6% in quarter four.
Slow return to pre-lockdown levels
Preliminary data for the first quarter of 2021 points towards further improvement although not quite to pre-lockdown levels above 80%. Landlords with properties in the R7,000 to R12,000 rent per month category are seeing 83.63% of their tenants paid up.
However, tenants at the low end of the market with rentals below R3,000 per month are still in distress with only 65.61% in good standing with their landlords.
Dickens says that the margin of error for complacent tenant administration has, even prior to the hard lockdown, been under threat for some time.
“Low escalations and higher than inflation property costs are slowly eroding profit for some landlords who have not been proactively managing their portfolios. BankservAfrica data shows the number of ‘banked’ employees continues to shrink, particularly in the lower end of the pay scale.
However, while the net result is less people on payroll, those employed are seeing an improving average take-home pay of R15,821, which is up 4.75% year on year.
Financial pressure is not only reflected in tenant payment performance but also in a steadily rising residential vacancy rate. Vacancies are at 13.31% in the first quarter of 2021. The worst affected segment of the residential property market is the lower rental category of less than R3,000 rent per month.
Dickens says that TPN estate agents and landlords report an 18.45% vacancy rate is this category, a figure which corresponds with BankservAfrica data concerning declining numbers of lower-paid earners.
“Financial pressure has resulted in certain rental households pro-actively ending their leases in rental properties and seeking alternatives such as moving into shared accommodation or moving back into parents’ home until finances improve.”
As far as vacancies are concerned, the middle R7,000 to R12,000 per month segment was again the ‘sweet-spot’, recording a relatively low 10.23% vacancy rate in the first quarter of 2021.
The formal rental housing market remains a vital source of accommodation to over three million households in South Africa.
However, Dickens says that job security and income growth are necessary to ensure that landlords have a strong pool of tenants who have both the necessary creditworthiness in place and can afford rental housing.
“With the month-on-month extension of the National State of Disaster entering its second year, evictions now require that if the courts decides to grant the eviction order prior to the end of the National State of Disaster, the court must consider the health of all individuals and restriction of movement, the impact of the disaster on the parties and their immediate access to an alternative place of residence.
“These are all additional burdens on the landlord which are not ordinarily their responsibility,” says Dickens.
Article courtesy of Lexis Digest and property24