Property Talk

Hot off the press is Tenant Profile Network's quarterly Rental Payment Monitor, which provides insightful analysis into the current state of the South African rental market and the payment behavior of tenants. It is interesting that for the first time that I can remember listed property funds have been actively buying residential property portfolios. Arrowhead Properties announced its acquisition of residential properties valued at just over R1bn and Redefine is reported to have agreed to purchase 51% of Respublica, a student housing developer for R204m.

The fundamentals underlying the residential rentals in South Africa indicate that 3,6 million households rent, and of these 2,6m rent in formal dwellings. Demand far exceeds supply, which continues to put upward pressure on rental rates. High growth areas such as Ballito and surrounds cannot deliver the rental stock quickly enough making shortages in supply evident to anybody who has recently tried to source rental accommodation. Good news for Landlord's who have the opportunity to be highly selective in the tenant's they accept.

The shortage of supply further drives rental payment behavior as poor paying tenants find it increasingly difficult to hide their credit worthiness as many larger estate agencies are linked to service providers such as TPN, which records all payments made by tenants and the exact dates within the month that payments were received. This type of profile information remains permanently on record for all subscribers to access and review. As a tenant this can act in your favour if you consistently pay in full and on time and can also act against you if you consistently pay your rental late or in parts.

TPNs current figures show that as at the end of the third quarter of this year, 86% of tenants were recorded as being in good standing with respect to their rental payments. This amount is made up of 73% who paid on time, 4% who paid within a grace period, and 9% who paid late. The 14% of tenants who fall into the not good standing segment consisted of 9% who made a partial payment and 5% who did not pay.

It is very interesting to see that Mortgage payments and Rental payments are the top two credit type payments with 91% of mortgage lenders being paid in full and 86% of Landlords. The trend for these two payment categories has been upwards over the past 7 years. In contrast payment behavior on short-term credit (73%), credit facilities (70%), secured credit (65%) and unsecured credit (61%) is significantly worse and has deteriorated. The idea of preserving a roof over your head and thereby ensuring your mortgage or rental is paid first does seem to be valid.

As a prospective investor in buy to let residential opportunities it is noteworthy to understand that 87% of tenants rent for below R7,000 per month, with 24% renting below R3,000 p.m. and 61% between R3,000 and R7,000 p.m. The best performing tenants are those within the R7,000 to R12,000 bracket with 73% paid on time and a total of 88% in good standing. The next best category is the R3,000 to R7,000 p.m. bracket with 71% having paid on time and 87% of tenants in this bracket recorded as being in good standing.

The lowest bracket (below R3,000 p.m.) and the highest bracket (over R25,000 p.m.) are shown by TPN to be the worst performers with paid on time figures of 61% and 58% respectively. A buy-to-rent strategy for prospective investors should therefore ideally focus on the property price range of R800,000 to R1,500,000

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

andreasw@seeff.com