MAIN IMAGE: Michelle Dickens, CEO of TPN Credit Bureau
The latest TPN survey reveals welcome signs of recovery in the residential rental market as more residential tenants can meet their payment obligations but concerns remain over the lower rental segment.
One year ago, the first severe nationwide lockdown brought the percentage of tenants in good standing to a low of 73.5% in the second quarter of the year. “This reflects just how severe the deep economic contraction of the second quarter of 2020 and its resultant tenant employment and income loss actually was,” says Michelle Dickens, CEO of TPN Credit Bureau.
Since then, as economic activity resumed with a gradual lessening of restrictions, so the payment performance improved. The third quarter saw a slight increase to 74.57% which improved even further to 77.6% in quarter four. 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.
This is according to TPN’s Quarter Four Residential Sector Rental Monitor for 2020 which confirmed an improvement in tenant payment performance although ‘full’ recovery to pre-lockdown levels is yet to be achieved.
However, areas of concern remain:
- 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. “This segment is populated by the most financially fragile part of the tenant population,” explains Dickens, “with very few financial ‘buffers’ with which to weather storms that may translate into income loss.”
- Shrinking pool of wage-earners. While the residential tenant payment performance recovery is clearly 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 the contraction of the second quarter of 2020. The total salaries for February 2021 paid via the BankservAfrica National Payment System shows a slight 0.2% increase for the first time since May 2020, but -2.8% fewer monthly earners and -10.6% fewer daily wage earners were on the payroll in February.
“The reality is that 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,” Dickens reveals.
- The steadily rising vacancy rate is another reflection of the shrinking pool of workers. 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. TPN estate agents and landlords report an 18.45% vacancy rate in 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,” says Dickens.
As far as vacancies are concerned, the middle R7,000 to R12,000 per month segment was again the ‘sweet-spot’, recoding a relatively low 10.23% vacancy rate in the first quarter of 2021.
Also read: Index shows record low rental growth in 2020
Careful vetting of tenants vital
The formal rental housing market remains a vital source of accommodation to over three million households in South Africa. However, as Dickens points out, job security and income growth are necessary to ensure that landlords have a strong pool of tenants who have both the necessary credit worthiness 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 decide 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.
Significantly, TPN data showed that average rental costs moved from slowing inflation into deflationary territory in the fourth quarter of 2020. This move was expected, says Dickens, given that the average national rental property vacancy rate has been rising significantly for some time.
“There is a chance that the StatsSA measure of rental inflation – a major part of the Consumer Price Index (CPI) – will also go into deflationary territory. While this is not good news for landlords, it is a key factor in keeping CPI inflation low at near 3% levels, which in turn keeps the pressure on the Reserve Bank not to hike interest rates any time soon,” she concludes.
