TPN warns of unsecured credit bubble

Both the lower and upper segments of the residential rental market remained under pressure in the second quarter of this year, with credit bureau TPN warning about the risk of a possible unsecured credit lending bubble.

TPN issued this warning despite its latest Rental Payment Monitor revealing that the national average residential rental payment trends remained stable in the second quarter. It said tenants in the rental category below R3 000 a month had a high rate of nonpayment, with 18 percent, or almost one in five tenants, unable to pay any amount towards rent.

TPN said 17 percent of tenants in the R12 000-plus a month rental category were late payers, adding that this required landlords to have cash flow available to fund monthly costs while waiting for incoming tenant payments.

Tenants in the two medium priced rental categories continued to perform the best, with 84 percent of tenants in the R3 000 to R7 000 category and 85 percent of tenants in the R7 000 to R12 000 category in "good standing".

Tenants deemed to be in good standing include two TPN sub-categories, tenants who "paid on time" and tenants who "paid late".

TPN said residential rentals would always be in demand, stressing that a tenant's ability to make a full and timeous rental payment was not only dependent on the desire to make such payments, but also on their financial position.

"Given the risk of further deterioration in the overall credit market and unsecured credit lending concerns expressed by the NCR [National Credit Regulator], wise investors will be looking at affordability buffer zones in anticipation of a possible bubble," it said.

TPN said there was no change in the second quarter to certain key indicators that largely defined the residential rental market landscape.

Most importantly 81 percent of tenants were again deemed to be in "good standing" with their landlords, with the makeup of this bracket comprising 68 percent in the "paid on time" sub-category and 13 percent in the "paid late" category.

TPN said these figures had remained identical for the preceding two quarters, which was not necessarily a bad situation when compared with the catastrophic period four years ago, when the residential rental market plummeted to just 74 percent of tenants in "good standing" and only 54 percent in the "paid on time" category.

In the second quarter, 8 percent of tenants made a "partial payment" and a further 11 percent "did not pay".

TPN said the tough economic environment was dampening optimism despite the 50 basis point reduction in the prime lending rate to 8.5 percent in the second quarter, which would historically have contributed to an improvement in rental collections, albeit with a nine-month lag.

TPN said several factors currently pointed towards a less optimistic outlook. These included a further decline in the NCR's credit bureau monitor for the first quarter and the NCR's warning of the possibility of a looming unsecured credit bubble, as well as a decline in TransUnion's consumer credit index in the third quarter, which reflected rising consumer loan impairments and greater use by households of revolving credit to supplement monthly budgets.

There were also concerns about food shortages and price rises, while Eskom had proposed a 15 percent annual rise in electricity tariffs until 2017.

"Increased pressure arising from such factors will no doubt influence the budgets of most tenants and TPN expects those... in the rental category of R3 000 a month and below to be most affected," it said.

(Business Report)

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