The TPN Credit Bureau’s Q3 Residential Rental Monitor shows the number of tenants meeting rent obligations has increased over three consecutive quarters, underscoring the residential property sector’s resilience amid economic challenges.
Despite a tough economy and constrained household budgets, more tenants are consistently meeting their rent obligations, marking a positive trend amid a tough economy.
The third quarter Residential Rental Monitor from TPN Credit Bureau reveals an upward trajectory, with 81,86% of tenants in good standing in Q1, improving to 82,73% in Q2, and further to 83,34% in Q3 of 2023.
A tenant is classified as ‘in good standing’ if they fulfil all rental obligations by month-end. This includes those paying on time (POT), within a landlord-allowed grace period (GP), or late (PL) but covering the payment before month-end.
Waldo Marcus, industry principal at TPN Credit Bureau, says that despite challenges like high capital costs and downward pressure on rental returns, residential property investors benefit from improved on-time payments, providing relief to cashflow pressures.
Who are the late payers?
While the long-term positive trend in overall good standing is promising, concerns arise in the lowest and highest rental value bands, falling below national averages, says Marcus.
Late rental payments are most prevalent in the R3 000 to R7 000 band, with 12,41% of tenants paying late. The luxury rental segment, with properties costing over R25 000 per month, follows closely, with 11,56% of tenants paying late.
An interesting shift is the significant increase in tenants paying R12 000 to R25 000 per month. Since 2016, this rental band has almost doubled. This year alone, it has experienced three consecutive quarters of growth.
In comparison, the luxury rental market (R25 000 or more per month) has declined in recent years. Accounting for 1,8% of the rental market in Q1 in 2020, it decreased to 1,2% in Q3 this year.
“Low interest rates during the pandemic made it very attractive for these tenants to purchase property,” says Marcus. “However, with interest rates expected to remain high, growth in this rental band is anticipated. The challenge lies in whether cash-strapped consumers can afford these high-end rentals in the current economic environment.”
Not much rent increase
Rental escalations are following a slow upward trajectory, indicating a cautious approach among price-sensitive consumers. “The slowdown suggests consumers in the rental market have reached a delicate point,” says Marcus. “Property investors must exercise caution in escalating rentals, considering consumer pressure and the risk of increased vacancies if rentals become unaffordable.”
While TPN’s data shows tenants are willing to accept rental escalations, there’s a fine balance between residential rental vacancies and property investors’ ability to raise rents. “The data shows that where higher vacancies exist, lower rental escalations should follow,” he says. Failing to strike this balance could lead to compromised rental collections as tenants default on lease obligations.