Residential rental averages remain stable nationally

The TPN Rental Payment Monitor has shown identical rental payment results in the preceding two quarters, with the Western and Eastern Cape as the two top paying provinces in the country, with a solid 86-88% of tenants in good standing.

The national average for the second quarter has seen 68% of tenants having paid on time, while 8% made partial payments, 13% paid late, and 11% did not pay at all. However, the national average of tenants in good standing with their landlords is at 81%.

“There will always be a demand for residential rentals,” says Francois Venter, Director of Jawitz Properties. “It is essential for landlords to price properties appropriately in line with their value bracket and location, and to ensure that prospective tenants are thoroughly screened before they are allowed to move in.”

According to the Rental Payment Monitor, an affordability assessment should be concluded in screening of tenants, and is becoming crucial following the National Credit Regulator’s credit bureau monitor’s findings, warning that a possible unsecured credit bubble is on the cards.
TransUnion’s Consumer Credit Index has seen a decline from 51.2 in quarter two, to 48.6 in the third quarter, which reflects a greater use of credit in South African households to supplement monthly budgets. Meanwhile, the SARB Quarterly Bulletin indicates that the household debt to disposable income ratio has started to rise again, up from 74.6% to 76.3%, while food prices are suggested to be increasing on average by 15%.

These predictions are likely to influence tenant’s budgets, with the lower end of the market, in the rental bracket of R3000 per month or less believed to be most affected.

Tenants in the R3000 to R7000 and R7000 to R12000 rental brackets performed the best, with 85% on average in good standing.

“Over the long term, property will always be a smart investment, but it’s essential for owners to do their homework properly when selecting tenants so that their returns are not eroded,” Venter says.

It starts with doing a thorough credit check on prospective tenants and a reference check with their previous landlord.  “A credit check gives you insight into how they manage their financial affairs and a reference check with their previous landlord helps you find out if they paid their rent on time and kept the property in good condition.”

The next step is an income reference check with their current employer.  “It is vital to confirm a prospective tenant’s employment status as well as their income, as a general rule is that the rental amount should be more or less 30% of the tenant’s gross income” says Venter.
While it’s not always easy in the current economic climate to find tenants with perfect credit records, there are ways to limit your risk if you find you need to accept a tenant with a questionable credit history.

Firstly, take a larger deposit if the tenant has any marks against his name on his credit record.  Secondly, ask for more than one month’s rent in advance and, thirdly, negotiate a shorter term lease, with an option to extend, preferably an initial period of six months.  “That way, over the life of a six month lease you have a higher guarantee in the event of a non-paying tenant or a tenant that has absconded,” Venter concludes.

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