The residential rental market’s recovery following the shock of the hard lockdown in the second quarter of 2020 appears to have flatlined, with the sector now characterised by diminishing demand, increased vacancies and lower rental escalations, says Michelle Dickens, chief executive of credit bureau TPN.
TPN’s latest Residential Rental Monitor shows that residential rental tenants continue to downscale. From a payment performance perspective, the number of tenants in good standing is still not back to pre-Covid levels.
The credit bureau’s data for the first quarter of 2021 reveals that the worst-performing category of tenants from a payment performance perspective are those in the more affordable rental market.
Two-thirds of tenants rent for less than R7,000 per month, with one-third of rentals falling into the R4,500 to R7,000 per month price range.
Rentals below R3,000 per month remain under pressure, with only 65.73% of tenants in good standing.
A concerning 17.76% of tenants in this category cannot make any rental payment contributions, Dickens said.
The R7,000 to R12,000 rental per month category, on the other hand, showed growth of 23.3%, with 84.37% of tenants in good standing and only 4.86% of tenants who were unable to make any payment at all.
This category clearly represents a sweet spot for landlords, Dickens said.
“In the current environment, the growing rate of long-term delinquent tenants – those who make no rental payments for a minimum of 4 consecutive months – pose a growing risk for landlords.
“Our experience shows that although tenants don’t intentionally set out to be serial squatters, they can become delinquent if their circumstances unexpectedly change.
“The challenge for landlords in these circumstances is that mediation is usually not a viable solution which leaves them no option but to resort to legal action.”
However, taking the matter to court can be a long and drawn-out process, Dickens said. Not only are courts compelled to consider new eviction laws based on the state of disaster regulations, but court dates are not quickly available.
“Given the difficulty of evicting non-paying tenants, most landlords would rather endure a vacancy than a non-paying tenant.”
TPN’s data shows that vacancy rates appear to have stabilised in the second quarter of 2021 at 13.1%, down slightly from the first quarter’s 13.31%.
Rental escalations are typically negative, except for the low end of the market with rentals of under R3,000 per month.
TPN’s Residential Rental Market Strength Index for the second quarter of 2021 reflects the widely held sentiment that supply in the residential rental market exceeds demand caused by tenants cohabitating to cut costs.
“There is no question that consumers continue to be cautious in terms of how they spend their money as incomes remain under pressure,” Dickens said.
“Despite the fact that some jobs returned to the market in the last quarter of 2020 and the first quarter of 2021, the reality is that unemployment remains at record highs. The question now will be whether the GDP growth of the first quarter of 2021 can be maintained.”