Tenants should be screened more thoroughly than ever if investors want to reduce risk, warned credit bureau TPN.
Signs of weakening have started to appear in consumers’ rental payment behaviour, according to credit bureau TPN’s latest Rental Payment Monitor for the second quarter of 2014.
This is especially clear in the upper value bracket, which is traditionally the first segment of the rental market to experience deterioration after an interest rate hike.
Nationally 86% of tenants were in good standing in the second quarter. Of these 72% paid on time. About 9% of tenants paid late, 9% made only a part payment, while 6% did not pay any rent at all.
According to TPN it usually takes six to nine months for the impact of an interest rate hike to filter through into rental payment performance.
The latest monitor, however, already shows a marked effect on rentals in the R25 000 plus value category where the number of tenants in good standing decreased from 81% in the first quarter to 71% in the second.
Although only 1% of the national rental population actually pays rentals of more than R25 000 per month, what the monitor found alarming is that only 51% of tenants in this bracket paid their rent on time.
The bulk of rental stock falls below R7 000 permonth, while 24% of tenants rent for less than R3 000 per month and 61% rent for between R3 000 and R7 000 per month.
According to TPN investors in property where rental is below R3 000 per month may well experience worsening collections in the third quarter of 2014.
This is because tenants in this rental bracket will feel the impact of food inflation, higher transport costs and other living expenses increasing more.
The monitor shows that the R3 000 to R7 000 per month rental bracket remained solid. About 61% of the tenant population fall in this bracket and 87% of them are in good standing as far as paying their rent is concerned.
TPN warns, however, that, because of the interest rate hike, investors should perform thorough affordability assessments.
Regionally the Western and Eastern Cape remained the top performing provinces, but big differences have been found within the same areas.
“Interest Rate Hike Impacts Rental Payments” was issued by TPN.