Nearly one in five tenants behind in rentals

Some 18.4% of residential tenants in SA are in arrears on their rent, a figure that is somewhat improved from the nearly 25% recorded at the height of the Covid pandemic.

An analysis by PayProp Rental Index for the second quarter of the year suggests the latest figure is “within the normal range seen before and after the Covid-19 pandemic, but it could be a cause for concern if it continues to rise”.

Using another metric, the news is slightly better: the quantum of arrears as a percentage of rent fell 1.2% quarter on quarter to 77.1%.

Stats like these cannot be comforting for those planning on building a property investment portfolio when nearly one-in-five are behind on their monthly rentals.

Ouch: Steep hike in prime interest rates

Many people saw an opportunity to purchase their first property when prime interest rates dropped to 7% in 2020, but they screamed up to 11.75% in the following two years.

A home loan of R1 million for an average two-bedroom investment property would have cost R7 753 a month in repayments in 2020/21 when the prime rate was 7%, says property analyst Miguel Martins in the PayProp Rental Index report.

Now it would cost R10 837 per month. That is an increase of R3 084 a month, and while rental growth is recovering well, it hasn’t kept up.

“If that landlord was making a healthy R1 000 per month in rental profit two years ago, they may now be incurring a R2 000 monthly loss at today’s interest rates, which the landlord is having to fund themselves,” says Martins.

Percentage of tenants in arrears since 2020

For reasons such as this, some 47.7% of residential landlords say they are considering selling their investment portfolios, though this could be an unnecessary short-term reaction on the part of landlords, according to Martins.

These arrears trends are a sign of a weak economy, says Greg Vermaak of attorneys Vermaak Marshal Wellbeloved (VMW) Inc.

The question for landlords is: at what point do they invoke the legal process and take tenants to court?

“Since Covid, decent tenants are harder to find. Landlords are much more likely to nurse tenants through rehabilitation than by running to the courts,” says Vermaak.

“It’s only now that we are seeing a drop in the level of vacancies, which were much higher during and after Covid.

“My advice is, if tenants are a bit slow in paying the rent, I would nurse them back to rehabilitation. A lot of landlords are doing this.”

Going the legal route can be costly, and time consuming. The eviction process can take three to four months, and that’s if the matter is not opposed by the tenant. If opposed, it can take six to seven months.

Eviction of tenants: Unpaid rent and the law

Grant Smee, MD of Only Realty Property Group, says while unpaid rent is just cause for ousting a problematic tenant, landlords need to do their research and have an intimate knowledge of the law before initiating eviction proceedings.

“The Rental Housing Act of 1999 governs the relationship between landlords and tenants in South Africa, outlining the rights and responsibilities of both parties,” says Smee.

“Under this act, tenants can only be evicted for valid reasons recognised by the law that constitute a breach of a lease agreement.”

Smee says typical grounds for eviction include:

• Rental arrears: Persistent late or incomplete rent payments may lead to eviction, though some landlords allow a grace period to settle the balance.
• Engaging in illegal activities on the property: Tenants involved in criminal activities like theft, drug dealing, or sex work can be evicted with proper evidence.
• Property damage: Tenants must maintain the property reasonably; negligence or failure to report structural issues may result in eviction.
• Lease agreement expiration: If a tenant stays beyond the lease’s end, and the landlord has given notice according to the lease agreement and legislation, they become an illegal occupier and must vacate.

If it goes to court, evictions can get messy unless the landlord follows proper eviction procedures. Any deviation from the law can be challenged by the tenant.

The Prevention of Illegal Eviction and Unlawful Occupation of Land Act requires a formal letter of breach from the landlord to the tenant as the first step, allowing the tenant a specific timeframe to remedy the breach.

Smee says if the tenant does not vacate the property when the lease terminates, the landlord must inform the tenant of their intention to seek an eviction order through the court. The landlord can then initiate the eviction process by filing an application at the magistrate’s court.

This article is republished from Moneyweb under a Creative Commons licence. Read the original article.