SA tenants battle to pay rentals

Tenants renting properties priced at less than R3 000 and more than R12 000 per month are reportedly hit by inflation and the high cost of borrowing.

According to the latest Tenant Profile Network (TPN) Rental Payment Monitor Q3 2011, for the second quarter in succession, tenants paying monthly rentals of less than R3 000 fared worse versus the national average of tenants in good standing.

In the third quarter, tenants in good standing accounted for 73 percent, 57 percent paid rent on time, 16 percent paid late, 10 percent did not pay their rent.

Michelle Dickens, managing director of TPN says these tenants are affected most by inflation.

“The significant decline in this rental value bracket should be viewed as a conspicuous indicator that raises a flag for investors to consider.”

Dickens says since the residential property market has experienced two years of stability in terms of rentals and interest rates, wise investors will have foresight to leverage reasonable margins across their portfolios.

This will provide for interest rate increases and a possible slide in rental payment behaviour.

In the third quarter of the rental monitor, tenants renting properties priced R12 000 and above were affected by the cost of borrowing money.

Even in the low interest rate environment, 76 percent of tenants were in good standing, 59 percent paid rent on time, 17 percent paid late, 10 percent made partial payments and 14 percent in this category did not pay rent.

“Should interest rates increase, landlords will need to brace themselves for deterioration in rental payments, albeit with a 9 month lag period during which to adjust.”

The report revealed that tenants renting properties priced between R3 000 and R7 000 per month had 83 percent of tenants in good standing, 70 percent paid rent on time, 13 percent paid late, 9 percent made partial payments and 8 percent did not pay.

Tenants renting properties priced between R7 000 and R12 000 had 83 percent of tenants in good standing, 69 percent paid rent on time, 13 percent paid late, 8 percent made partial payments and 10 percent did not pay.

Overall, Dickens says the residential rental payments trends remained stable in the third quarter as they have done so for the past 18 months.

She says there are warning signs that the present situation in rental payments is becoming increasingly fragile, as a result of among other things, the weakening Rand, increased CPI, electricity and transport costs.

“Inflationary pressure on interest rates is inevitable, signalling trouble ahead for many consumers with high debt and little or no savings.”

Dickens says this year, landlords and tenants have benefited from the flat trend in interest rates, the lowest they have been in 30 years. However with historical data showing a clear correlation between tenants in good standing and fluctuations in interest rates, rental payment profiles are set to dip when interest rates rise.

Dickens says this year, landlords and tenants have benefited from the flat trend in interest rates, the lowest they have been in 30 years.

However with historical data showing a clear correlation between tenants in good standing and fluctuations in interest rates, rental payment profiles are set to dip when interest rates rise.

At regional levels, the number of tenants in good standing was similar to Q1 and Q2 of this year in the Eastern Cape, Western Cape, KZN and Gauteng, with the latter province remaining consistently below the national average of 80 percent (77 percent, 75 percent and 76 percent respectively).

Click here to read more on the second quarter report.

Nationally the number of tenants in good standing (tenants who paid on time plus those who paid rent late but in full) has remained consistently at around 80 percent since quarter 3 of 2009, in line with the stability of the prime interest rate.

Rental value categories between R3 000 to R7 000 and between R7 000 to R12 000 were steady, while tenants in the category over R12 000 per month continued to perform below the national average.

She adds that the higher number of defaults in the category below R3 000 per month also remained similar to the previous quarter.

According to Anne Porter Knight Frank (APKF), there is an increase in the number of people wanting to rent as they cannot afford to buy.

APKF managing director Lanice Steward says although the agency’s rental stock is mainly in the middle to upper middle and top price brackets, demand for rentals in the price bracket of between R4 000 and R30 000 has increased.

APKF believes rents will increase because there is shortage of rental stock.

The agency warns buy-to-let investors that returns are not spectacular and one can expect returns of between 5 percent and 6 percent gross returns currently although likely to peak to 7 percent within a year.

Steward says the higher the price of a home, the lower the return on it and surveys have shown that the risk in the upper bracket can be just as high as in the less expensive properties.

“The worst defaulters are found at the bottom and top ends of the market, the middle rank tenants being the most reliable payers.”

She says landlords and rental agents need to check every aspect of a potential tenant’s track record including employment history, standing with current employer, credit record and relationship with previous landlords, if they have rented before.

Steward says in her experience many successful investors focus on a specific niche market such as student accommodation, townhouses or security estates.

“New developments have the big advantage of not having to charge transfer duty as this is incorporated into the bond,” she says.

In Paarl in the Western Cape, Rawson Properties say more and more people are looking to rent homes because the area is an active business hub attracting people who work in Stellenbosch, Somerset West, Bellville and Cape Town.

Anne Porter Knight Frank warns buy-to-let investors that returns are not spectacular and one can expect returns of between 5 percent and 6 percent gross returns currently although likely to peak to 7 percent within a year.

Lizette Joubert, Rawson franchisee for the area says tenants who move to Paarl from other areas often rent for a year or two while checking out the market before some of them buy properties.

“Renting right now gives those setting out in life or re-establishing themselves in a new career, a chance to save and to build a nest egg – which may or may not eventually go into a home,” she says.

Joubert says residential buy-to-let investors are currently getting returns of between 5 percent and 6 percent.

For holiday tenants in Cape Town, steep daily rates seem to be of no concern as they will happily pay for luxury villas and apartments offering exclusive views of the beach.

Seeff Properties report that luxury villa and apartment rentals remain an appealing option for those who can afford the rentals.

Tanya Joubert, Seeff Luxury Villa Rentals agent says most of these pricey luxurious villas are located on the Atlantic Seaboard and demand peaks between November and April.

“This results in a significant spike in short term rental income for home owners and holiday property investors,” she says.

Joubert says leisure lets is the biggest contributor to the city’s short term rental market, accounting for between 60 percent and 70 percent of annual earnings.

The highest daily rental this year was R47 000 per day for a five-bedroom Bantry Bay villa, rented for a three week period by a local high profile client with interest in online casinos.

This luxury Clifton villa comes with housekeeping, a chef, airport transfers and a concierge service. It can accommodate up to 200 guests for a lavish lunch or dinner and will fetch R80 000 per day as a whole or between R17 000 and R35 000 per day for the individual apartments.

She expects that holiday makers will look to spend a little less and perhaps stay for shorter periods this summer, but does not expect them to cut the holiday out completely, especially middle to upper income earners.

Trendy neighbourhoods this summer include Camps Bay, Clifton, Bantry Bay, Fresnaye and the V&A Waterfront.

Luxury villas in these locations can fetch between R8 000 and R20 000 per day and are the pick of upper income earners looking for luxurious, home-away-from-home accommodation that is serviced and staffed.

Holiday makers with a slightly lower, but still significant budget could look at any of a wide range of apartments on offer in all of the coastal suburbs, from Camps Bay to Fresnaye and especially in the ever-popular Sea Point, Mouille Point and Green Point.

Apartments are priced between R4 000 a day in Sea Point and R6 000 per day at the V&A Waterfront for a two bedroom unit. – Denise Mhlanga

Readers' Comments Have a comment about this article? Email us now.

They sure know how to use (abuse) water and electricity! They think it's free! - Ian