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Residential rental arrears above 25%, vacancies top 11%

Which regions, sectors have been hardest hit?
For tenants with an income, it’s a tenant’s market. Image: Getty Images

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”.

Source: Payprop Rental Index

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.

Source: TPN Vacancy Survey, Q3

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.”

Read: Things you should know about your rental deposit

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).

Region Province Vacancy rate
Soweto Gauteng 19.4%
eThekwini KwaZulu-Natal 19.4%
Sandton Gauteng 19.2%
Randburg Gauteng 18.3%
Winelands Western Cape 13.6%
Southern Suburbs Western Cape 13.4%
Midrand Gauteng 13.4%
Atlantic Seaboard Western Cape 12.44%
Cape Town Western Cape 11.5%
Johannesburg Gauteng 11.3%
Pietermaritzburg KwaZulu-Natal 9.8%
Tshwane Gauteng 9.4%
Ekurhuleni Gauteng 8.8%
North Coast KwaZulu-Natal 7.5%
West Rand Gauteng 7.5%
Northern Suburbs Western Cape 6.6%
Centurion Gauteng 5.7%

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:

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Thank you corona command council for flattening every curve out there.

Even managed to flatten hospitals that were meant to be overwhelmed.

Well done. Time to manufacture a second wave so you can do more damage to people’s lives

The worst, stupidist response to any crisis in history

The Corona virus is not the fault of the ANC and, as far as I’m concerned, our government has handled it better than most first world countries. The impact on global economies is being experienced even in First World countries. Infact, the rental and retail rental sector in the US is worse than ours. We can lay a lot of blame at the door of a disfunctional ANC….but not this crisis.

Are you serious? A cigarettes’ ban resulting in a black market with people moving all over the place? An alcohol ban? Taxis can be full but employers must take employees temperatures? A ban on walking on the beach and mountain? Importing Cuban doctors at scandalous cost who cannot communicate while our GPs have no patients in their practices? No inter provincial travel unless you are a taxi and exempt from the law? Cold roast chickens but no hot chickens from that joke Patel?

Many first world countries mismanaged the China virus-and badly-but our great ANC leadership certainly mismanaged it even more! As importantly many first world countries can recover economically, and quickly , and could afford a lockdown. We cannot recover and could never afford it.

You are delusional, or suffering from Stockholm syndrome, or both.

@Mac. You always had good comment, and I respect you for that.

This time around, the ball may’ve been dropped. Articles like these, exactly confirms to us that SA was especially hard hit and not be able to afford our lockdown….which was arbitrary & nonsensical at best.

SA is só hard hit economically (already in ICU before lockdown), that this govt is going to need pensions to bail themselves out. This does not happen on a global scale. The highest unemployment rates on the planet, just got higher…

“We the ANC say…”

Oh hello Blade Nzimandi .. nice handle Mactheknife

This is a leading indicator of what will happen to the property market as well .

People that can’t find tenants will soon sell these so called “investment” properties and the housing market will take a knock.

I called the death of the property market (especially Cape Town’s) 2 years ago, and some poeples on this site called me “negative”

Now they are shedding bitter tears by investing in this junk.

Schadenfreude.

This all comes to supply and demand together with manufactured inflation through price controls which is created by destructive business laws.

In a free market there is never an under supply of a particular product, contrary to belief there is rather an abundance of supply.

The result of the high vacancy rate is due to landlords not willing to reduce the rental prices because they are waiting for the market to recover. The question is how long can landlords sustain their high rental prices relative to the number of people who can afford it?

If the government was really concerned about the lack of housing, then they would reduce the fees of owning a home and relax the laws for prospective home owners to rent out the properties. The laws tend to only effect the willing participants (good citizens)

The Countries with the highest home ownership Romania 95.8%, Hungary 91.7% and Slovakia 91.3%, this is a result the Soveit Union collapse where by the previous state owned all the homes, after the collapse the property market was completely privatised generating huge sums of money for the state.

The government could easily spur huge development in the housing market simply by relaxing ownership and rental laws then by setting up Public Private Partnerships where will be auctioning of land which target specific salary groups and types of ownership and special economic zones whose laws are fixed for a period of 20 years for the various salary income groups. Group 1 R3,200.00, Group 2 R5,000.00 and Group 3 R10,000.00
Once out to tender the willing private companies would front the cash and best determine the price per m2 various salary income groups.

And still some landlords refuse to drop rent prices and just sits with an empty place.

Better to sit with an empty space than have non-paying “tenants” racking up water and electricity charges the landlord then also becomes liable for, with little or no chance of being able to kick then out.

Griet, Well pointed out. The laws are in favour of the tenant, their is no disincentive to not pay rent and therefore the property owners counter the perceived risk by pushing up the rental prices and only allowing the properties to be rental out to those who will most likely pay for the occupancy.

Had the Goverment relaxed the law and allowed tenants to be evicted in the event of non payment, then market prices would drop as the risk of having a tenant who does not pay simply disappears.

Next I imagine the comrades and cadres of our glorious revolution (sounds like North Korea)will decide that all these vacant properties should be expropriated for free to house the masses : NOTHING surprises me anymore!

Why? Why put thoughts in heads that should not have thoughts?

Well thanks to all the investment ” advisors” and estate agents punting BTL as such an “excellent” investment and deriding Magnus for disagreeing. The writing has been on the wall for about 15 years now. Now the chickens are coming back to roost.

Can’t help but to think HOW (already many arrear) payments to local Municipalities are affected…

Looking for opportunities in the threats, I could refer to this development as “residential rightsizing”…

As long as you are not over-invested at the high or low end of the market (a super profit seeker or a bottom feeder), then this situation offers the potential to secure a win-win relationship with the potential for a far more stable flow of services and income for both parties into the future.

One of the key identifiers of a “coca-cola economy” is young people wearing fancy designer jeans and takkies and driving expensive sports cars but living in a shack.

As long as you are seeing this, it would not be unrealistic to expect another radical adjustment for one reason or another.

Caring more about your fashion status than the roof over your head is a value-based conundrum with hardcore implications for long term qualitative goals like infrastructure, social development, technology, investment etc.

The rental market has had a series of these adjustments well overdue. Might even expect more.

As a property owner myself who had tenants cancel under COVID regulations, my approach has been to further upgrade and improve features of the property, drop the rents a little and secure tenants who are downsizing from bigger places but gaining a far better quality offer, more suitable and affordable for their standard of living going forward-ie rightsizing.

Hopefully, this will also result in a happier tenant and a longer stay. Win-win all around… set for the qualitative 4IR rebound, less a few more super profit takers and bottom feeders.

Suits me K-O 10-4IR good buddy!!

Interesting facts in regard to the residential market but what about the industrial/commercial property market? Any statistics for that market? We have been trying to keep our tenants going by writing off rents on an individual circumstance basis, trying to save the loss if the premises are vacant. It has worked well with limited losses. It would be interesting to see how other commercial landlords are dealing with the problem. I would never touch residential property. The law is biased towards the tenant!!

Very happy that I invested part of my retirement lump sum directly offshore instead of buying an apartment to rent out as some people recommended. Six years later the returns are not even comparable. Property rental in South Africa was a risky business even before Covid-19, now it will be a blood bath.

I think a critical point of this debate is underreported. Returns, vacancies, utility costs etc etc are important for cash flow purposes. But for me the critical element is in having part of your wealth in an illiquid asset that is 100% ZAR-based. That asset is in a territory controlled (owned) by the ANC and functions under said currency, managed by the ANC (a bulwark in the form of the Reserve Bank for the time being). As you cannot physically move that asset, it also trades in a seriously illiquid market, as well as having friction costs in transfer duty, CGT and conveyancing fees, is it a valid business opportunity or investment? My answer is a resounding no! Toss in EWC and capital controls (soon to be tightened I’m sure), then only a fool would stick his/her cash in here

What is nowadays the average gross yield on residential?

Say a R3m townhouse or apartment. Ignoring rates & taxes and other costs for the landlord. Bought for R3m, expect what : R15kpm? That would be 6% gross yield. Unless you expect the capital to grow a lot, it is an illiquid low yield investment with fairly significant risk.

The only good thing about property is you can get exposure to a R3m asset with R300k of your own money. Banks won’t let you borrow at 7% and invest ten times your money-down in retail bonds. They should : makes much more sense

Johan

That is exactly right. The only reason why everyone and their uncle punts property is because they don’t understand that their growth is a result of leverage.

In your example the R300k is what you put in , if that property grows by 10% then you double your money.

The problem is , you only get a decent return over the long term and there is a lot of risk and additional costs.

You would do much better use a leveraged index tracker

End of comments.

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