Embattled residential landlords are staring two major problems head on: an increasing number of tenants in arrears and a significant increase in vacancies, particularly at the high-end.
According to Payprop’s latest rental index, more than a quarter of tenants were in arrears in May (26.1%) and June (25.6%), following an increase in April from the approximate 19% level across the first quarter.
Not only are a greater number of tenants in arrears, the amount they owe has been increasing since the hard lockdown was implemented at the end of March. By June, according to Payprop, those in arrears owed more than one month’s rent. This number – at 105.8% of rent per month – is far higher than the 77% of monthly rent as at March.
When delving deeper into the arrears amounts, by June nearly 40% of those in arrears owed between one and one-and-a-half months’ rent (100-150%). This is “more than double the share of clients in this band of arrears in March”.
A further 15% of those in arrears had “an average arrears value of more than 150% relative to their average monthly rent”, an increase from 10% in May, which Payprop calls a “worrying trend”.
A separate survey from TPN shows vacancies have hit 11.39% in the third quarter, “noticeably up” from the 9.13% in the previous ‘lockdown’ quarter. This 11% amount is nearly double the roughly 6% level as recently as 2016.
Michelle Dickens, MD of TPN Credit Bureau, makes the point, however, that “now more than ever, a vacant property is preferable to a squatting tenant”.
“‘Lockdown’ regulations have dramatically suspended landlords’ rights to execute on their eviction orders,” she says.
TPN says the “hardest-hit sectors with soaring vacancies are the properties at the low-end and luxury property markets”.
“The affordable market [is] showing the most resilience,” it adds.
The luxury market, with rentals in excess of R25 000 per month, has a vacancy rate of 23%. The high-end of the market (rentals between R12 000 to R25 000) is also experiencing what TPN calls “extreme vacancies” of 14.9%.
“Downscaling is a stark reality for many households.”
“No sector of the rental market was left unscathed, with double-digit vacancies across the board,” says Dickens. “Although affordable properties in the R4 500 to R7 000 and R7 000 to R12 000 range with 10.31% and 10.34% vacancies respectively [remained] the least impacted.”
‘Staggering’ level of vacancies
On a regional basis, Dickens describes the vacancies recorded in Randburg (18.3%), Sandton (19.2%) and Soweto (19.4%) as “staggering”.
TPN says “market strength drives vacancies”, and its market strength index “confirms demand is drying up coupled with plenty supply on offer”.
“For those tenants with an income, it is a tenant’s market.
“Landlords should brace themselves for price negotiation and competing tenant incentive take-on benefits like zero deposit, first month rent free, new appliances and free WiFi.”
The demand rating for rental property has fallen to 53, “the lowest on record from the start of the TPN Rental Market Strength Index”. Coupled with this, the supply rating for rental property of 70, which is the highest on record, means “the market strength index has fallen sharply to 41. Equilibrium is achieved at 50, anything below 50 indicates a market with excess supply.”
In Gauteng, the market strength index came “crashing down” to 39 in Q3, from 47 in Q1. At 38, the Western Cape is the worst-performing province when it comes to market strength (this figure was also 47 in Q1).
|Southern Suburbs||Western Cape||13.4%|
|Atlantic Seaboard||Western Cape||12.44%|
|Cape Town||Western Cape||11.5%|
|Northern Suburbs||Western Cape||6.6%|
In Payprop’s data, one can see this weakness as well.
The year-on-year rental inflation rate has fallen – to 2.3%, 1.1% and 1.6% in April, May and June respectively. This is far below the overall rate of inflation at 2.2% in June. Save for two small monthly spikes, the rental growth rate has been below that of inflation for two-and-a-half years.
Payprop says the “effect of Covid-19 on rent is clear, as expected”.
“Rental growth over the last quarter was extremely low, and we don’t expect it to pick up anytime soon. Inflation figures over the quarter were the lowest they’d been in more than 15 years, fuelled by a drop-off in demand from consumers – most likely due to lockdown as well as affordability.”
Says TPN’s Dickens: “It is clear as day that landlords are under immense pressure with no end in sight. The impossibly difficult times we have been in are not yet over by any means.
“It is understandable then that a vacant property is a tough situation but not a disastrous one, given that even bigger challenges are felt by landlords with tenants whom they cannot evict immediately even though an eviction order has been granted.”
Listen to Nompu Siziba’s interview with Tobie Fourie, national rentals manager at Chas Everitt International: