Demand for rental property still strong, but remain cautious

The Residential Rental Monitor report for the last quarter revealed that the rental property market had remained surprisingly resilient, despite consumers’ financial stress.

According to TPN’s findings, the number of tenants in good standing deteriorated in the first quarter of the year in all the provinces.

Waldo Marcus, an industry principal at TPN Credit Bureau, said the report found that tenants in the Western Cape were more committed to paying their rent in accordance with their rental agreement, and property owners in KwaZulu-Natal had the highest number of squatting tenants.

Gauteng is marginally behind in the number of squatting tenants in rental properties.

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“Rising South African Reserve Bank interest rates dissuaded potential buyers from entering the property market, thus creating a healthy demand for rental properties,” said Marcus.

“However, although the rental market continues to improve, property investors need to keep a close eye on the financial health of consumers and their ability to keep paying their rent.”

The report revealed that property vacancies in the year’s first quarter were at 6.19%, while TPN’s Market Strength Index, which measures the perceived demand and availability of supply in the residential rental market, remained strong at 9.14 points above equilibrium, a figure last seen in 2017.

“Traditional market factors indicate that the market is buoyant with improved returns and lower vacancies,” he said.

“A further interest rate hike before the end of the year is expected to deter property purchases further and retain healthy demand.

“Data further revealed that tenants in good standing declined slightly for three consecutive quarters as economic challenges continued to filter into households.

“The number of tenants who monthly fall into a category of non-payment saw an increase in the last two quarters,” said Marcus.

“Although overall sentiment in the sector remains positive, property owners need to consider how a tenant’s late or no payment will impact them.”

He explained that tenants classified as squatting posed a risk to landlords’ ability to collect and recover rental due.

Therefore, property owners must act proactively and use the various legal tools available to collect outstanding rental fees.

“Landlords must ensure that adequate tenant risk monitoring is implemented to mitigate the risk of an increase in defaulting tenants,” he said.

“Although a lower vacancy rate and higher escalations are a move in the right direction, a successful property investment ultimately relies on the ability of tenants to pay their rent.

“Early signs indicating that consumer credit repayments are slipping are more likely, making proper background checks and vetting of the utmost importance.”

He said the right tenant in the right rental bracket was gold.

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