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More tenants paying their rent on time

Personal Finance

The percentage of residential tenants in good standing with their rental payments recovered to 85.08 percent in the second quarter of this year after a sudden fall to 82.17 percent in the first quarter. This is according to the latest rental monitor by specialist tenant credit bureau TPN.

The national good-standing average was 84.97 percent in the fourth quarter of 2015.

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TPN says the 2.8 percentage-point fall in the first quarter may have been a “seasonal adjustment’ – the result of tenants struggling financially after over-spending during the December/January holiday.

TPN classifies tenants as being in good standing if they pay the full monthly rent by the due date, or within the grace period, or late. Tenants are not in good standing if they pay only in part or not at all.

The percentage of tenants who paid on time rose slightly from 67.27 to 67.46 percent in the first quarter. The percentage who paid within the grace period rose from 4.73 to 6.29 percent, and the percentage of who paid late increased from 10.17 to 11.33 percent.

TPN says the percentage of tenants who paid during the grace period was slightly higher than usual, and was probably because of the timing of the public holidays in April and May, rather than because of an outright deterioration in payment.

The percentage of tenants who did not pay at all fell from 6.04 to 5.36 percent, and the percentage who paid only part of the rent fell from 11.79 to 9.56 percent.

 

Payment by rental band

TPN categorises tenant behaviour across five rental value bands, in which 80 percent of tenants pay rent of less than R7 000 a month. (Refer to this table.)

Behaviour payment improved across all rental value bands in the second quarter. Tenants who pay between R7 000 and R12 000 a month had the best payment behaviour: 73 percent paid on time and 88.56 percent were in good standing, compared with the national good-standing average of 85.08 percent. However, vacancies of 5.55 percent in this rental value band are slightly higher than the national average of 5.07 percent.

Nevertheless, the “sweet spot” for landlords remains the band of R3 000 to R7 000 a month. Tenants in this band make up most of the market, at 57 percent. Vacancies in this category are the lowest, at 4.31 percent, and landlords enjoy above-average payment behaviour, with 86.44 percent of tenants in good standing.

The two most challenging categories remain the low-income band of less than R3 000 a month and the exclusive band of more than R25 000 a month. Only one in two tenants in the exclusive segment pays on time. Nearly one in 10 low-income tenants do not pay their rent at all. Given that these tenants make up 22 percent of the market, this poses a significant risk for investors. On the upside, this band has a vacancy rate of only 4.75 percent.

 

Payment behaviour by province

Western Cape tenants continue to out-perform the rest of the country, with 89.52 percent in good standing (refer to this table). Buoyed by extremely high demand and constrained by a serious lack of stock, the TPN Market Strength Index indicates a province where, although landlords demand a rental increase of 12.13 percent, tenants still maintain excellent levels of payment. Despite that, it seems that property investors in Cape Town can earn a gross yield of only 7.71 percent, according to the TPN-FNB gross yields survey.

Gauteng has a good standing average of 84.98 percent, but the escalation rate is low, at 3.23 percent, probably because supply and demand are almost in perfect equilibrium. Johannesburg is the major metropolitan area with the best gross yields of 9.51 percent, with Ekurhuleni and Tshwane at 8.94 percent and 8.79 percent respectively, according to the TPN-FNB gross yields survey.

Click here for tables that show rental escalation trends nationally and by province.

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