A third of residential tenants won’t pay full rent this year

Using 2009 as a guide, how bad can it get for landlords?
It took the residential tenant population three-and-a-half years to recover from the global financial crisis, but landlords may be more sympathetic to the problems faced by ordinarily ‘good’ tenants this time around. Image: Moneyweb

Only 67% of residential tenants will, on average, be in good standing with their payments when measured across the whole of 2020.

John Loos, property strategist at FNB Commercial Property Finance, says this “weak” figure is “likely to include a very significant rise in the percentage of tenants being given a grace period to get through the lockdown too”.

Read: Lockdown: Poking the bear? 

According to credit bureau TPN, the figure for tenants in good standing in the first quarter was 78.57%, a decline of over 3.3% from the last quarter of 2019. Loos says that while lower, this figure will still help the annual average look “less severe”.

TPN counts those who paid rent in full, whether it was on time or late, as tenants in good standing. The two other categories are those tenants who only made a partial payment, and those who did not pay at all.

Read: Things you should know about your rental deposit

Loos’s model uses the recession in 2009 caused by the global financial crisis as a guide. He says “using TPN tenant performance data, we observed that a sharp dip in the percentage of tenants ‘in good standing’ with their landlords coincided with that recession early in 2009″.

“From around 85% early in 2008, the percentage of tenants in good standing dropped sharply to 71% by the first quarter of 2009, while the percentage that paid on time dropped from 70% early in 2008 to 54% by the end of 2008.”

During the contraction in 2008/9, “the percentages of tenants that ‘did not pay’ as well as the percentage receiving a grace period from landlords spiked quite sharply around that time”.

Source: TPN

If a “mild recession, including a 1.5% annual dip in 2009, caused the tenants in good standing percentage to bottom at 71% early in 2009, we should probably expect a more significant decline in this percentage in 2020, based on the more severe FNB GDP contraction forecast of -4.5%,” says Loos.

This is the most recent forecast by the bank, but Loos notes that “certain other forecasters are more pessimistic”.

Based on a contraction of 4.5% in GDP, Loos expects “the quarterly bottom point [of tenants in good standing] to likely be in the 50-60% range, possibly in the second or third quarter of 2020”.

A decline of closer to 10%, as some scenarios project, will surely drive that number to below 50%. This will be dire for landlords.

Residential tenants Q4 2019 April 2020*
In good standing 81.88%
– Paid in full and on time 66.23% ±64%
– Paid in full, but late 15.65%
Partial payment 11.14% ±16%
Did not pay 6.98% ±16%

* Preliminary data, as at April 21

Preliminary TPN data for April, released three weeks into the month, showed that at that point approximately 16% of tenants had only partially paid their rent for April, while a further roughly 16% had still not paid. TPN MD Michelle Dickens said: “The main priority right now is rent collection, there is still time in April for late payment collection which of course will reduce the number of tenants currently reflecting as partial or non-payers.”

It is worth highlighting that according to TPN data from April 7, 24% of tenants were in the ‘did not pay’ category.

Dickens said that TPN has seen a 30% increase in tenant letters of demand so far. Evictions are not permitted under National State of Disaster regulations. But she cautioned that “the stark reality for many tenants with limited or no income for the month of April means they are facing 1 May with no savings for rent”.

Source: TPN

FNB’s Loos notes that the year-on-year decline in GDP bottomed out in the second quarter of 2009, “one quarter after the ‘tenants in good standing’ percentage hit rock bottom”.

“But while the GDP post-recession peak was early-2011, the residential tenant population took significantly longer to fight its way back to health, the post-recession peak in the percentage of tenants in good standing only being achieved at a level of 85.95% in the third quarter of 2013, over two years after the economic growth recovery peak.”

This translates to a recovery period totalling 3.5 years, following the global financial crisis. This benchmark, says Loos, is “perhaps a useful perspective on how long we should expect the full process to be”.

However, Loos says one aspect that could see the number of tenants in good standing surprise “on the upside is the possibility that many landlords are sympathetic to the problem many good tenants face during lockdown, and may [be] far more accommodating this time around [compared to 2009] in terms of granting grace periods to tenants”.

Compounding the woes of landlords, Loos says the weaker market will mean rental deflation this year and next. His forecast is for -3% in 2020 and -4% in 2021.

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It’s far worse in the lower end of the market.

Based on properties I have experience with? 60% of tenants can’t buy food, let alone pay rent. If another month passes like this, the number will soon push into the 80 to 90% range.

The removal of the right to earn a livelyhood approaches a form of genocide and is impacting far more people than would ever get the virus.

There is no proportionality to the lockdowns, nor are they effective in reducing the viral spread.

On the contrary, they appear petty, vindictive, and are certainly hugely damaging to life and the economy and will do lasting damage to this economy and human life.

Like all bad policies followed by the ANC, I would expect a doubling down on the lockdowns instead of their removal.

The notion that you will be able to resurrect things into some sort of equality paradise after the economy has pretty much burnt to the ground is like imagining that SAA will undertake a miraculous turn around in current market conditions, or that a shiny new airline will emerge run, once again, by government.

I would not be surprised if landlords would be forced into retaining non-paying tenants. Social agendas, with private money, are being pushed to the fore. This will just be another avenue. If things get really bad, there will be a government moratorium on housing evictions. They do not have the capability to deal with the political fallout.

Already moratorium of evictions in the DM regulations.

Good points. NOT MANY people globally contracted the C19 virus as yet. It is 0,05% (one twentieth of a percent).

So the rest of the globe’s 99,95% while ‘waiting’ to be infected, destroys ourselves completely.

Covid 19 has totally f*d me, financially and now starting emotionally… ……i never even got it, let alone seen it…. All my staff (17 members) had to lay them off 3 weeks back…. They in the same boat as me.. If this lock down goes on for more than another month I won’t have a bussiness worth resurrecting once this thing is over…. I go under I take around another 70 dependants with me…. This little story is playing out thousands of times right now across the whole of sa. This covid19 bark has been way worse than the bite.

Ally cat, am with you 100%
(Sorry to hear & sympathies for your financial ruin. You won’t be alone, nor the last one. Going to affect all of us, be it jobs, business, pension 🙁 Please stand strong & don’t lose all hope. After all, business owners like you are societies’ most valuable breed. As a ‘cat’ you may end up losing 1 life, remember you still have 8 left.. 🙂

The “lockdown” responses from governments globally will go down in the annals of history as the most dumbest response to a flu virus! 🙁 Ever!

I personally knows of NO ONE yet (i.e. of family, friends, neighbors, clients, acquaitances) that became infected with C-19, let alone died of it, and yet I need more than a few hands to count people I’m aware of being financially effected (in various severities).

This will go down as humankind’s biggest stuff-up in history!

(Except for Sweden…)

Headline very optimistic.It will be far worse. BTL FUBAR. Reflects the destruction of wealth by the corrupt ANC and friends.

…small time landlords I sympathise for, as many see the investment in property to let as an income in retirement..

The big property companies such as Growthpoint that are facing rent strikes, managed by honcho CEO’s, who are obscenely wealthy and obscene …couldn’t give a s…

Poetic justice

You don’t see this truth in Calgro M3 or Balwin’s share prices yet.

Property is the warst investment possible. They can’t even give them away in Cape Town anymore. The market has dried up almost completely, and will get even worse when more and more people don’t pay rent. Buy-to-let and AirBnb investments are very expensive liabilities.

As of last year the airbnb market was totally saturated…… No money on that market whatsoever anymore…. Had friend in kommitije area 4 years back that renovated his house for 4 extra bedrooms just for airbnb, was pulling around R2000 per a room… And fully booked up… He retired from his teaching job early to manage his accommodation ect…… Last year couldn’t even get full occupancy at R300 a room…… Same case on the high end side… The llandudno place was getting rented out daily at R25000….. And around 70 occupancy…. Last year stopped that…. Price was down to R7000 daily and occupancy wasnt even above 15 %….. Anyone thinking of going that route after lock down – don’t.

I have a friend with property in Kleinslangkop, he was managing to keep the banks at bay with some cash over, now all he has is muni bills and no income on those properties.

Cape Town is the new Virginia…. lets see if CoCT is able to deal with the new normal….as property values plummet. Will they reduce budget or raise cents in the rand. I Was planning on being gone already but I guess I did not panic early enough. I will however not be paying a cent towards rates until I’m allowed to work…. so I’m totally off grid in a CT suburb, could i move out and let the place until such time as I have recouped as much of my money as possible while my tenants live water and lights free?

…and wondering how would the figures look like of homeowners/landlords not paying their bond debt??

(Or shopping centers not paying city councils…)

The contagion seems to finally stop at the commercial bank? (Or does it…?) No banks = no modern economy.

Banks are transaction driven and derive income off these transactions – if volume and velocity drop less income and as such retrenchment of staff and ultimately will have to drop interest rate and invested funds and end up with oceans of bad debts as clients won’t be able to service their overdrafts.
This virus is going to shake our economy to the core and crime is going to get out of hand and Cele better pull his hat on hard as the whirlwind is coming

Na gonna stop at the reserve bank….. But the real buck is gonna stop at every pensioner and tax payer. I think we fast approaching the time for even the most noblest of us to turn around and say stuff this government and start looking after yrself.

They Need Financial Fitness Training !!!!

End of comments.

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