Bugle Sales Talk Editorial

The national average of tenant's defined as being in "good standing" is currently 84.26%. This figure is a combination of tenants who paid on time (67.36%), plus those who paid in the grace period (5.48%) and paid late (11.42%). Tenants defined as "impaired" are those that only made a partial payment (10.13%) and those who made no payment at all (5.61%). One economic variable that impacts on tenant payment behavior is the interest rate. As interest rates increase we tend to find that payment behavior deteriorates with a lag effect of six to nine months.

The good news for Landlords is that amongst the different categories of credit, rental has a relatively high "good standing" score. Generally people pay their mortgages first (91.55% of mortgage holders are in good standing with their bank) and rental payments follow closely behind in priority with a good standing score of 84.26%. Below this we find good standing grades of secured credit (71.92%), credit facilities (71.63%) and short-term credit (70.54%). Unsecured credit has the worst good standing rating (and is therefore the most expensive form of credit) at 64.51%.

When considering a buy to rent investment you may ask yourself the question as to where the rental market is concentrated in terms of rental value. It is noteworthy that 59% of all rentals are in the R3,000 - R7,000 range. A further 13% are within the R7,000 - R12,000 p.m. range. Only 4% of tenants are within the R12,000 - R25,000 range and then it drops off to a mere 1% of tenants above the R25,000 p.m. range. The sweet-spot is therefore within the bracket dominated by the most prospective tenants. In our greater Ballito market this would imply properties within the R800,000 to R1,600,000 bracket. Properties in this bracket are instantly rentable and in ultra-high demand.

The current figures published by TPN show that the tenants within the R7,000 - R12,000 p.m. bracket have the best rating with a good standing score of 87%. On either side of this bracket good standing ratings are 85% but as we drop below R3,000 p.m. the good standing rating drops to 79%. It is interesting that the worst payers as measured by TPNs good standing score are those tenants in the bracket above R25,000 p.m. In terms of geographical tenant performance the Eastern Cape leads the way with a good standing score of 89%, followed closely by the Western Cape at 87%. KZN and Free Sate bring up the rear with a rating of 80%. At 8% of tenants that are classified as "did not pay" KZN unfortunately claims the honours .

The lowest "did not pay" scores at 4% were recorded by the Eastern Cape and Western Province. What I found particularly interesting across the different provinces was the recorded rental escalations over the period. This ranged from highs experienced in the Northern Cape of 26.46%, the Free State at 22.57%, the Eastern Cape at 9,49% and the Western Cape at 7.32% to Limpopo which experienced a decline of -10.46% in rental and the North West province which also experienced declining rentals of -2.69%. The rental escalations in KZN were recorded as 5.55%. The averages do however mask the performance of certain hotspots such as the north coast rental market where we find escalations at 10% per annum are now the accepted norm.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com