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Looking at residential rentals for Q3

‘Where we thought we had seen the bottom of the vacancies…we’re starting to see those vacancy rates start to edge up again’: Michelle Dickens, CEO of TPN Credit Bureau.

SIMON BROWN: I’m chatting with Michelle Dickens, CEO of TPN Credit Bureau because their market strength index looking at rentals came out for the September quarter. Michelle, I appreciate the time today. Tenant demand in the third quarter – the short answer is it remains weak. There are some improvements, we can touch on those, but broadly it is still tough out there.

MICHELLE DICKENS: Yeah. I think tenant demand remains really, really weak with job losses in the market and loss of income. Again in the third quarter we’ve seen another enormous shedding of jobs and this is impacting tenants’ ability to remain in the marketplace and, in fact, many might start to exit again.

Read: South Africa bleeds jobs as riots take toll on commercial hubs

We’ve seen our quarter-three vacancy rates have come down. But just yesterday we looked at the quarter-four vacancy rates, and those are starting to trend back upwards again. So where we thought we had seen the bottom of the vacancies, unfortunately driven by weak demand, driven by job losses, we’re starting to see those vacancy rates start to edge up again.

SIMON BROWN: … I had noted that there was a slight uptick in vacancy rates, a slight improvement – that has now deteriorated. The interest-rate increase this quarter, only 0.25%, but that is going to hurt stressed consumers. Possible lockdowns are coming, particularly in the leisure industry. The picture is therefore not getting better in a hurry.

MICHELLE DICKENS: No. It will definitely become more challenging. If we look at, for example, the tourism industry, we’ve a loss of international tourists coming in now. That’s going to impact the short-term lets. The short-term-let landlords are going to pivot back into the long-term market; that increases supply [with] weak demand. It’ll push the vacancies back up. That drives down the escalations as well. So it remains a very challenging market at the moment.

SIMON BROWN: Is there a different situation at different price points of availability?

MICHELLE DICKENS: Absolutely. We’ve got our low-end of the market. These are tenants [renting] below R3 000 per month. These are tenants who actually have been the most affected by job loss and income deterioration. Our tenants in this particular bracket are really struggling; the demand is still there, but in terms of quality of tenant application it’s just not meeting the criteria for landlords at the moment.

We see that effectively 68% of these tenants are in good standing. To give some context to that, nationally 80% of tenants are in good standing, tenants who are fully paid up; there’s nothing outstanding.

So our landlords in the centre area of the market are dealing with tenants that are particularly under pressure from a financial position.

In our mid-sector, our affordable sector of the market, demand is fantastic. In this sector of the market one in three tenants rent at between R4 500 and R7 000 per month. As we know, this is an area of the market where there’s a lot of demand from tenants. Also, 80% are in good standing; eight in 10 tenants are up to date.

But the sweet spot, Simon, are those tenants in the R7 000 to R12 000 [range]; a whopping five [in 10] tenants rent here, and they’ve managed through this process from their income. They’ve maintained their level of income, and so they’re the best performing.

SIMON BROWN: We’ve seen some reduced residential buildings completed, and that number had spiked. It’s come down a bit. Is this a lead indicator of census, suggesting that perhaps over the course of next year less new stock is coming in, or is that a little grasping at straws?

MICHELLE DICKENS: The construction industry obviously has been under a huge amount of pressure, and particularly in the 2020 period when we were in hard lockdown, buildings came to a standstill. So we are seeing about 50% of the number of properties, new builds that are being completed in the last two years, compared to what we saw in the 2019 period.

In the 2019 period, though, we had 45 000 new residential dwellings coming into the market, but 50% of those – in fact nearly 60% of those – were into the Gauteng market. This is why the Gauteng market in particular is struggling with the high level of vacancies. Gauteng is a fabulous area because 50% of all tenants in South Africa reside in Gauteng. So you do expect the building activity to offer a lot of support for the needs of the tenants in this particular area.

But in the last few years, the reduced number of new builds means less stock are coming into the market. Hopefully we get ourselves back to equilibrium with [high] demand, low stock, new stock. Hopefully we get to a point of equilibrium again.

Fundamentally, though, Simon, we need jobs, people employed, earning an income and able to able to get back into the tenant or home-buyer market.

SIMON BROWN: I take your point on that. We saw the unemployment rate out on Tuesday, and we’re not getting those jobs. More than anything, employed people are what’s really going to help here.

Michelle Dickens, CEO at TPN Credit Bureau, I appreciate the time today.

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