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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2017-05-26

Rental Monitor Report

Tenant Profile Network is a registered credit bureau and provides interesting data on tenant behaviour in South Africa. Their most recently published Rental Monitor report on the residential sector for the first quarter of 2017 provides some insightful analysis and key indicators to watch as to where we can expect tenant performance to be headed in the near term.

Since 2014 the data indicates that there has been a gradual deterioration in tenant payment performance nationally. The tenant's "in good standing" with their landlords reached a multi-year peak of 85.95% in the 3rd quarter of 2014. By the first quarter of 2017 this figure had measured 82.77%.

Relative to the recessionary period of 2008 when this figure dipped as low as 71%, the current status is not that bad. The data for the tenants in good standing includes those who paid late and those who were provided with a grace period in which to pay.

If we only look at those tenants who paid in full and on time, this percentage has declined more substantially - from a peak of 72,5% in the 3rd quarter of 2015 to 66.08% in the 1st quarter of 2017. The early warning signals of a deteriorating tenant performance environment can be gauged by looking at those tenants who paid late or within the grace period (increased from 11% in late 2012 to 16.69% currently) and those who only made partial payments (increased more gradually at first from 8% and then began to accelerate to the current 10.82%.)

So what happened from 2012 to start this deterioration

The interest rate hiking over the past 2,5 years has been far more gradual and the household sector debt-to-disposable income ratio has declined from 87.8% to 73.4% currently, meaning that households are far less indebted.

There is a "magical" statistic of the household sector debt service cost ratio which expresses the cost of the household debt burden as a percentage of household sector disposable income. When you think about it a huge amount of economic information is reflected in this statistic - the level of indebtedness relative to disposable income, the impact on changes in interest rates, economic growth's impact on disposable income, and growth in household credit. What makes this statistic so useful is that in moves in almost perfect tandem with the percentage of tenants not paid in time and in full.

The near term prediction for tenant performance is however mildly positive as inflation is expected to moderate slightly, interest rates are expected to remain flat and household indebtedness is expected to remain the same or possibly decline further.

One very interesting finding in the TPN report was that the lower end rental price category leads the deterioration as the economic conditions tighten. The R3,000 p.m. and below category currently returns a dismal 55.51% paid on time performance while to R7,000 - R12,000 p.m. category has the best paid on time performance with 73.47%.