Concern that tenants are using credit to pay rent

By Thabang Mokopanele

In the third quarter of this year tenants improved their rental payment performance across rental-value brackets and regionally, but there are concerns that they are using credit to pay rent.

The Tenant Profile Network (TPN) third-quarter rental monitor released on Tuesday says a 50-basis-point drop in prime interest may have offered some relief. However, the rise in unsecured lending of 36.12% year on year and in credit facilities of 43.14% year on year raises concern that tenants are using credit for monthly living expenses.

TPN says viewed against the backdrop of deteriorating consumer credit and a potential unsecured credit bubble — with house values declining in real terms and slower than expected gross domestic product growth — it is surprising that residential tenants’ payment behaviour improved in the third quarter.

Tenants in good standing improved to 83% — an improvement of 2% from the second quarter, which had remained flat along with the previous three consecutive quarters.

Tenants at the lower end of the market (rent below R3,000 per month) remain the most unreliable, followed by the top end (rent above R12,000 per month) with the middle categories (R3,000-R7,000 and R7,000-R12,000) faring best.

The Eastern Cape (89%) and the Western Cape (87%) continue to recorded above-average collections; Mpumalanga (89%) and Limpopo (85%) similarly reflected quality tenants.

However, Gauteng (80%) and KwaZulu-Natal (81%) continued to perform below average.

In a category of those that did not pay rent at all, the Eastern Cape was at 6%, the Western Cape 6%, Mpumalanga 5%, Limpopo 5% versus Gauteng 11% and KwaZulu-Natal 12%. This indicates that Gauteng and KwaZulu-Natal tenants are twice as likely to skip a month’s rent.

One of the reasons identified by TPN as a possible explanation for these provincial payment trends was suggested by looking at overall credit granted to the population per province: Gauteng appears to be the most heavily indebted at a factor of 3.95, with Eastern Cape and Limpopo the least in debt at a factor 1.03 and 0.77, respectively.

TPN has also observed the national average rental price is once again achieving double-digit escalations at 10.36% year on year.

The average rental is R5,102, while Mpumalanga has the highest average rental at R5,590, the Western Cape has R5,343, Gauteng R5,226, Limpopo R5,003, KwaZulu-Natal R4,829 and the Eastern Cape R4,328.

Census 2011 data show that of SA’s 14,450,000 households, 3,612,000 (25%) live in rented accommodation. Some 77.6% of these 14,450,000 households live in formal dwellings.

From a provincial perspective, Gauteng and the Western Cape have the highest proportion of rented tenure at 37.1% and 28.9%, while only 14.9% and 12.6% of households live in rented accommodation in the Eastern Cape and Limpopo.