An unintended consequence of the sluggish economy has been a spike in the fraudulent behaviour of would-be tenants who are desperate to sign a lease, compromising the ability of the property owner to secure future growth finance.
According to Gary Palmer, CEO of Paragon Lending Solutions, when speaking to both clients who own properties and to other lenders who have financed property portfolios, “we are hearing about a marked increase in rental fraud”.
“A significant jump in our cost of living, a sluggish economy and unemployment reaching a 27.5% high, has placed additional strain on people looking to secure both residential and commercial property leases.”
The PayProp Rental Index for March showed that only one in four tenants are paying their rent in full each month with tenants in arrears jumping from 18.5% in April 2017 to 23.2% in March 2018.
“Evidence from our own property clients and lending networks has also shown a spike in falsified bank statements, fake employer documents and even fake IDs from people applying for rentals.”
Evicting defaulting tenants is not a simple matter, said Palmer. The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE) has made sourcing tenants of good standing an absolute necessity.
Palmer recommends property owners implement the following as a bare minimum before signing a lease:
- Do the legal search – subscribe to credit bureaus.
- Do the personal search – “more and more we are seeing that a quick social media search on the prospective client will throw up anomalies in what they may have told you versus reality. Many of our clients have picked up discrepancies on employment, length of employment and other personal information of prospective tenants.”
- Check the references – checking the people who are listed as past landlords or employers can also be a necessity as fraud becomes more complex.
Despite the number of people desperate to sign a lease, the lackluster economy has also taken its toll on rental growth and vacancies, Palmer said.
According to the PayProp Q2 figures, the growth in weighted average national (residential property) rentals has halved from a year ago and, as of June 2018, is at just 3.27%, down from 6.76% in 2017.
For properties with rentals higher than R12,000 a month, vacancies are at a worrying 14%, Palmer said.
“This means that landlords who have good tenants who pay in full and on time should do everything in their power to hold onto them. This could be anything from a delayed or reduced annual increase, to having payment reprieves if the tenant finds themselves in a cashflow crunch.”
“There is no doubt that property remains a solid investment. Attracting and retaining good tenants will not only make your investment more easily managed, but will de-risk it in the eyes of your investors and make additional growth finance all the more easy to secure,” Palmer concluded.