TPN Rental Report - Number Of Residential Tenants In Good Standing Declined For 3 Quarters In A Row

Despite weak consumer disposable income levels due to rising and high interest rates, the South African residential rental property market has not only shown resilience - it has seen vacancies dropped from 13,31% (1^st quarter 2022) to 6,19% (1^st Quarter 2023). According to TPN Credit Bureau, residential rentals have benefitted from high interest rates, which have dissuaded consumers from committing to long-term bond repayment contracts.

Traditional market factors indicate that the residential rental market is buoyant with improved returns and lower vacancies. TPN's Market Strength Index pinned the balance between demand and the availability of residential rental property above the market equilibrium and at 59.14 points, levels reportedly last seen in 2017. Given the uncertainties in the local and international economy, further interest rate hike before the end of the year is possible. This would further deter property purchases and retain the present very healthy demand for residential rental property.

Tenants In Good Standing:

The worst is reportedly being felt on the extremes of the rental scale, with tenants paying less than R3 000 in monthly rent and those paying over R25 000 feeling the most pressure in trying to keep up with payments.

The number of residential tenants in good standing has however declined for the past three consecutive quarters, according to TPN's latest Residential Rental Monitor, with those paying less than R3 000 per month continuing to struggle to pay their rent. Tenants between the R7 000 - R12 000 rental band have been the best performing category since 2014 with the highest proportion of tenants in good standing of all the rental bands, followed by tenants paying between R12 000 - R25 000 per month.

The report also highlights that while tenants in the Western Cape are most committed to paying their rentals, KwaZulu-Natal has the highest number of squatting tenants, up from 4.67% in Q2 2022 to 5.09% in Q1 2023.

Predictions For The Rest Of 2023

Although overall sentiment in the sector remains positive, according to Waldo Marcus (Industry Principal at TPN Credit Bureau) property owners need to consider how a tenant's late or no payment will impact them. Tenants classified as squatting pose a severe risk to the ability of landlords to collect and recover rental due. Landlords, therefore, need to act proactively and utilise the various legal tools available to them to collect the outstanding rental.

Early signs indicating that consumer credit repayments are slipping, combined with lacklustre economic growth, still clouds the positive outlook for the residential rental market for the rest of the year. The current economic landscape means that the risk of defaulting tenants is more likely, making proper background checks and vetting more important now than ever before. A good and well-paying tenant is worth his or her weight in gold.

Despite this surge in rental property demand with the expected gradual climb in rental pricing, TPN warns that the rental market may towards the end of 2023 start to feel the pressure from consumers who are struggling to keep up with the high cost of living.