Nearly two out of every five tenants in South Africa are risky. On average, 14.2% of South African tenants are classified as minimum-risk according to their credit scores, while 37.2% are classified as high-risk.
PayProp head of data and analytics, Johette Smuts says that according to the PayProp Rental Index from Q3 2018, this high-risk contingent of tenants spend about 33% of their net income on rent.
Smuts says that there is a widely accepted unwritten rule that a tenant shouldn’t pay more than 30% of their net income for rent.
“While PayProp data shows that the average percentage of rent paid by tenants in the third quarter of 2018 was indeed 30%, we also see a correlation between a tenant’s risk level, determined by their credit score, and the percentage of net income that they spend on their rent.”
“Tenants with higher credit scores (and therefore a lower risk rating), spend less of their income on rent than high-risk and very high-risk tenants. Lower-risk tenants spend less than 30% of their income on rent, and tenants with the lowest risk spending only 24% of their income on rent – that is 20% less than the average tenant,” says Smuts.