Residential tenants payment trends deteriorating slightly

Published Jun 25, 2018

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JOHANNESBURG - The percentage of residential tenants in good standing deteriorated to 82.3 percent in the first quarter of this year from 83.35 percent in the fourth quarter of last year, according to credit bureau TPN. 

But Michelle Dickens, the managing director of TPN, refuted reports earlier this month that one in four tenants in South Africa did not fulfil their rental obligations, stressing that far from falling off any cliff, tenants in good standing declined a marginal 0.47 percent year-on-year in the first quarter of this year. 

Tenants in good standing comprise all tenants who paid on time, those who paid late and those who paid in a grace period. 

Dickens confirmed the first quarter of each year suffered from the traditional “Januworry” holiday hangover syndrome, resulting in the “paid on time” status of a relatively higher number of tenants possibly shifting to the grace period or late payment status. 

The TPN Rental Monitor for the first quarter of this year highlighted rental payment problems in the lowest and highest price brackets and in both Gauteng and KwaZuluNatal. 

TPN said 63.65 percent of tenants paid in full on time in the first quarter compared to 66.38 percent in the fourth quarter and 67.29 percent in the third quarter of last year. 

The percentage of tenants who paid late or in the grace period increased to 18.65 from 16.97 percent in the fourth quarter. 

TPN said 17.69 percent of tenants were delinquent in the first quarter of this year. 

They comprised 11.11 percent of tenants who made a partial payment and the 6.58 percent of tenants who did not make any rental payment at all. TPN said price was one of the most noticeable differentiators for rental collection. 

Constrained Dickens said it was clear that tenants in the below R3 000-a-month rental bracket were significantly financially constrained, with only 53.92 percent or one in two tenants able to pay their rent on time. 

“Of increasingly serious concern for investors is the fact that 13.45 percent of these tenants are currently recorded as ‘did not pay’.

“It is worth noting that tenants in the rental category below R3 000 a month comprise a considerable 20 percent market share,” she said. 

By comparison, tenants in the R25 000 a month or more rental segment only comprise 1.6 percent of the total market, but face a similar challenge with almost one in two paying on time. 

Dickens said the resulting problem for landlords in this rental bracket is the pressure applied to cash flow from the property during the period because of a combined 22.78 percent of tenants either paying late or in the grace period. 

TPN said the best paying tenants were in the R7 000 to R12 000 a month rental segment, where 87.21 percent of tenants were in good standing.

 “Investors will be impressed with the 71.91 percent of tenants who paid on time and the limited number of non-paying tenants at just 4.21 percent,” she said. The Western Cape had the best rental performance, with TPN reporting an “impressive” 89.6 percent of tenants in good standing. 

“Most remarkably” only 2.88 percent of tenants were non payers and it had the lowest vacancy rate at 3.6 percent. Only 59.85 percent of tenants in KwaZulu-Natal paid on time and vacancy rates increased to 8.9 percent, the highest of all provinces. 

The number of tenants in good standing in Gauteng deteriorated to 81.32 percent, while TPN said the combined 20.37 percent of tenants who either paid late or in the grace period was “becoming a serious problem”.

-BUSINESS REPORT 

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