Consumer Information

Author: Michelle Dickens
CEO of TPN Credit Bureau
23 February 2021

Negative rental escalation / Where have all the tenants gone?

The state of South Africa’s economy, coupled with an onslaught of permanent or temporary loss of income means many South Africans are facing some significant financial pressures – impacting the rental market both from a rental price as well as vacancy perspective.

“Tenants are feeling financially vulnerable,” reports Michelle Dickens, CEO of TPN Credit Bureau, adding that 75% of tenants surveyed reported a loss of income during the lockdown. A recent TPN Tenant Survey conducted at the beginning of 2021 found that nearly one in ten tenants confirmed a permanent loss of income, while 12% of tenants received no income for a limited period but are now back to earning their full salary, and 50% of tenants received only partial pay for a temporary period. Only 25% of tenants confirmed their income was unaffected during lockdown.

Vacancy rates are trending upwards to 12.9%

At the same time, reveals Dickens, the TPN Vacancy Survey shows that vacancy rates are trending upwards to 12.9% as tenants retreat to family and friends to recover financially. In a blow to residential housing landlords but providing some respite for tenants, negative rental escalation has arrived. According to the specialised credit bureau’s research, residential rentals were -0.75% cheaper on average for the last quarter of 2020.

With the prime lending rate dropped five times in a row last year, to a record 7% – the lowest it’s been in 55 years – it’s now cheaper to buy a property than it is to rent one of the same value, says Carl Coetzee, CEO of BetterBond, SA’s largest bond origination company.

“Although debt became cheaper, with millions of jobs lost and the reality of temporary or permanent loss of income for millions, consumers are poorer overall,” points out Dickens. “The survey also found that 53% of tenants rent because they cannot afford to buy. This figure was 46% in the same period in 2020. A further five percent of tenants say they are renting because it is cheaper than owning property.”

Yet says Coetzee, first-time buyers can afford 30% more now than you could in January last year.

“The average monthly rental on a R1 million property is about R7 800. At a prime lending rate of 7%, the monthly bond repayment on the same property would be comparatively less at R7 753.” Of course, there are additional costs associated with owning a house, but there is also the benefit of having a fixed asset instead of paying off someone else’s bond each month.”

Given the close correlation between the housing market, consumer spending and the state of the economy, the state of the property market is indicative of the current malaise in the economy – with those keeping a close watch now anticipating the outcome of Finance Minister Tito Mboweni’s 2021 Budget Speech. Job losses balanced against robust job creation, and how the economy evolves in response to the pandemic, will be a key indicator for the property market both in the residential sales and rentals sector in 2021 going forward.

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