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Friday Dec 22, 2017

Residential tenant payments improve as rental increases slow

Residential tenant rental payments improved in the third quarter for the second consecutive quarter as average rental inflation slowed year on year for the third consecutive quarter.

The latest quarterly residential rental monitor by the TPN credit bureau showed that tenants "in good standing" with their landlords improved to 83.47 percent in the third quarter from 82.83 percent in the previous quarter and 82.77 percent in the first quarter.

The "in good standing" category includes tenants who paid on time, paid in the grace period and paid late.

TPN said that by historic standards the most recent level of the percentage in good standing remained solid, although it was lower than the 85.95 percent multi-year high reached in the third quarter of 2013.

It added that, although the percentage of tenants who paid in full and on time did not increase in the second quarter, it rose in the third quarter to 67.29 percent from 65.78 percent.

TPN believed the recent mild improvement in tenant payment performance would ultimately prove to be more than mere data volatility.

"We are of the opinion that its direction is broadly predicted by the all-important household sector debt-service ratio, which was the interest cost on the household sector debt burden expressed as a ratio of household sector disposable income.

"This ratio has been improving (declining) gradually from 9.7 in mid-2016 to 9.4 by the second quarter of 2017," it said.

TPN said paying in full and on time was the ultimate aim for a landlord and the improvement in this percentage "is encouraging".

However, it said it was more than five percentage points below its multi-year high of 72.52 percent in the third quarter of 2014.

It said this translated into quarterly declines in the percentage of tenants paying late or requiring a grace period from 5.67 percent in the second quarter to 5.32 percent in the third quarter, the percentage making a partial payment from 10.81 percent to 10.63 percent, and those who did not pay from 6.37 percent to 5.9 percent.

TPN said the recent improvement in the percentage of tenants paying on time had been led by the high-end of the rental market, the R25 000-plus-a-month segment, where it increased noticeably to 61.48 percent in the third quarter from a low of 51.54 percent in the first quarter of last year.

"This high-end segment has now overtaken the lowest 'less than R3 000 a month' segment, which now has the lowest percentage of tenants paying on time, at 55.83 percent," it said.

TPN added that the R7 000-toR12 000-a-month rental segment remained the "sweet spot" for landlords, with the highest percentage of tenants paying on time at 74.96 percent, and it has had the best performing rental population since the second quarter of 2012.

On a national basis, TPN's average rental value inflated by 3.4 percent year-on-year in the third quarter, the third consecutive quarter of slowing year-on-year inflation from a two-and-a-half-year high of 5.6 percent in the fourth quarter of last year.

After adjusting for inflation, the year-on-year rate of change in residential rentals declined 1.4 percent in the third quarter and has been in negative territory since the fourth quarter of 2015, TPN said.

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