Property Talk

When choosing your tenants

The Payprop Rental Index is a fascinating quarterly guide outlining trends in the South African residential rental market and is compiled from transactional data collected by Payprop, the largest processor of residential letting transactions in South Africa.

The most recently published report by Payprop provides an excellent overview of the rental market in South Africa. This report analyses what a low risk tenant looks like.

A widely used rule of thumb holds that a tenant should not spend more than 30% of their net income on rent. Many tenants follow this rule to good effect, and many rental agents use it as a general measure of affordability.

Payprop research shows that the true measure is slightly more nuanced. Payprop found a correlation between a tenant's risk level as measured by his credit score and the percentage of income spent on rent.

Generally speaking tenants with higher credit scores (i.e. lower risk) spend less of their income on rent than high risk and very high risk tenants. Low risk tenants spend only 23% of their net income on rent while high risk tenants spend around 33%.

The average age for minimum-risk tenants is 50 - which is 25% older than the average tenant age and the highest age in Payprop's risk categories. With tenants older is definitely better.

Interestingly Payprop found that their lowest risk tenants had slightly higher debt-to-income ratios, but given the type of debt these older tenants usually have, their repayment history and their higher incomes, their credit scores are not compromised.

Considering the average profile of a tenant in KZN we see that the average rental paid is R8,129 p.m. (up from R7,580 in 2017) and higher than the current national average of R7,610.

Rental growth in KZN in 2018 was 7,25% on average (up from 5,29% in 2017) and this is substantially better than the national average of 4,14%.

One explanation of this could be more prospective tenants chasing a smaller stock of available rental properties. The average income of a KZN tenant is R33,954 p.m. which is up slightly on the 2017 average of R33,699 and a little higher than the national average of R33,037.

How risky are KZN tenants Actually according to Payprop 37,7% are considered risky tenants and although this is an improvement on the 38,4% of 2017 it is still higher than the national average of 36,3%.

Our KZN tenants have more debt as measured by the average debt-to-income ratio of 45,6% than they had in 2017 (37,9%) but reflect the national average of 45,5%.

KZN tenants spend 30,4% on average of their net income on rent, which is up on the 27,9% of 2017 and also ahead of the national average of 28,9%.

For Landlords looking for good tenants this means that older tenants, with higher incomes, even with higher debt, are potentially better prospects. Given the migration into the greater Ballito area, rentals can be expected to remain in short supply with rates continuing to increase.