World Cup not so rosy for property rentals

The proportion of tenants in the residential property market who are in good standing deteriorated slightly in the first quarter after improving in the previous two quarters, according to credit bureau TPN.

TPN, in its latest rental payment monitor, also cautioned residential landlords not to be too optimistic about the expected positive impact of the World Cup on the rental market, particularly as the number of foreign visitors was expected to be much lower than initially anticipated.

TPN regards tenants in good standing as those who pay on time and those who make full payments, but pay late.

It reported that 63 percent of tenants paid on time in the first quarter of this year compared with 69 percent in the fourth quarter of last year, while the percentage of tenants paying late increased to 15 percent from 11 percent in the three months to December 2009.

In terms of TPN's definition, this means 78 percent of tenants were in good standing in the first quarter, down from 80 percent in the fourth quarter.

The percentage of tenants only making a partial payment rose to 10 percent in the first quarter from 8 percent but tenants not making any payment remained static at 12 percent.

TPN said January was a significantly poor month for rent collection in terms of the paid on time category.

It said it appeared this deterioration could be as a result of the holiday season because most of these tenants caught up their rental payments later during January.

The top end of the rental market, defined as rentals of more than R12 000 a month, was the only sector to improve in the first quarter.

TPN said there had been an overall improvement in tenants of good standing in this segment of the rental market to 72 percent.

However, it stressed that caution should be applied when interpreting this overall improvement because the "paid late" rating had more than doubled to 27 percent in the first quarter of this year from 12 percent in the previous quarter.

TPN said optimistic sentiment was running high among South Africans in general as the kick-off to the World Cup approached. But TPN warned that it would be irresponsible to look only at the brighter side of how the rest of the year might unfold.

It said it seemed less likely that the expected number of international soccer fans and their anticipated spending money would actually arrive, adding that Match, Fifa's ticketing and hospitality partner, recently gave up about 500 000 bed nights in South Africa during the tournament.

This, it said, was "not such a rosy picture for South African hotels and tourism".

It said tremendous hype had fuelled the residential property market, with landlords hoping to make tenfold profits during the few weeks of the event. However, these now appeared unlikely to materialise.

TPN said it appeared that the optimism of many landlords resulted in them not renewing leases with their current quality tenants, or even cancelling them. A further consequence for the residential market would be the glut of rental properties coming back onto the market in August when the World Cup was over.

"This will result in an additional burden on the already oversupplied market, and persist in keeping rental prices down," TPN said.

Business Report

Posted at 09:33AM Apr 28, 2010 by Editor in Residential  |  Comments[4]