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Property Talk

Property Talk

Date: 2014-09-19
If you are a Landlord or Tenant, an extra-ordinary innovation has been brought to the market by Payprop, South Africa's leading (and only) integrated property management, transaction and trust accounting platform. We have been using Payprop for years to manage our rental portfolio. It is exceptional software that provides an all in one trust account management tool to ensure its users are fully compliant with all current legislation and are able to efficiently manage large rental books. Payprop also publish the Payprop Rental Index every quarter, which is the only comprehensive report on the state of the residential rental market in South Africa.

 In its most recent report (2nd quarter 2014) it has reported that the damage deposit ratios have been increasing steadily. This means that the deposit quantum demanded by Landlords has increased. The average across 60,000 leases nationally is currently 1,34% or 1,34 months of rental held as deposits. Most Landlords are now demanding two months rental as a security or damages deposit. It can take two to three months to evict a non-paying tenant and increasing utility bills that may remain outstanding at the end of a lease further adds to the risk Landlord's typically face. For many tenants however the two-month deposit requirement may well be difficult to provide.

 In response to the Landlord's requirement for greater security and the tenant's requirement for not tying up increasing amounts of cash in a damages deposit, Payprop have partnered with RMB Structured Insurance, as underwriter, to provide the Payprop Deposit Guarantee, an insurance product that is used instead of a deposit. It is a very clever innovation and permits the tenant to pay a premium upfront on an insurance policy that provides up to 2,5 months of cover to the Landlord. Good tenants are rewarded with a large 40% no-claims bonus as a cash payment on termination of the lease and a good tenant certificate, which can be very valuable for future rentals. 

By means of an example I will illustrate the policy costs involved: A rental at R9,000 per month would now typically require the tenant to pay a deposit of R18,000 plus the first month's rental on signature of the lease agreement. In most cases there is also an additional utilities deposit of between R2,000 to R3,000 payable. By taking advantage of the Deposit Guarantee policy, a qualifying tenant will pay an upfront premium of 35% of the first month's rental, or R3,150 plus a once off admin fee of R175. 

These figures include vat. In addition the tenant will pay a monthly premium of 1,25% of the rental amount from month 2 onwards, or R112.50 including vat in our example. Total premiums over the full 12 month rental period amount to R4,387.50 including vat. The 40% no claims bonus would be calculated on the ex vat amount, and amounts to R1,539.47. The total premium cost for a good tenant would therefore be R3,023.03. This must be weighed against the tenant tying up at least R18,000 as a damages deposit for the lease period. 

The Landlord is provided with R22,500 worth of cover. The insurer also acts as a referee in terms of what can be claimed in terms of the lease agreement. Landlords attempting to claim wear and tear expenses will be blocked, which can be very re-assuring to those tenants that have had the experience of debating how their deposit is allocated at the end of a lease. It is therefore a win-win scenario for both tenant and landlord

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar
Seeff KZN Chairman
Principal - Seeff Dolphin Coast