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Thursday Mar 17, 2011

Tenant rental payment behaviour shows stability

Tenant rental payment behaviour has stabilised despite a slight deterioration in the percentage of tenants paying on time.

There has been a stabilisation in the number of overall tenants who are in good standing over the past six months, according to TPN credit bureau findings.

However, there has not been any change in the percentage of tenants who only partially paid or did not pay, according to TPN Credit Bureau.

TPN said that a number of factors had contributed to the stabilisation in payments, including the low prime interest rate, limited lending in the credit market and the trend of relatively flat or low rental rises over the past two years.

TPN's latest rental payment monitor for the fourth quarter said there had been a stabilisation of the overall "tenants in good standing" category over the past six months, which apart from a "blemish" in the first quarter of last year, had remained constant at 81 percent.

The "paid on time" category deteriorated by 2 percent to 66 percent but the "paid late" category improved by the same margin to 15 percent.

TPN considers a tenant to be in good standing if their rental is either paid on time or paid late.

There was no change from quarter to quarter in tenants in the "partially paid" category, which was at 9 percent, and the "did not pay" category which was at 10 percent.

TPN attributed the subdued increases in rental rates over the previous two years to a previous oversupply of investment properties.

It said substantially higher electricity costs were another factor that influenced lower increases in rentals last year, with many landlords enforcing the collection of increased rates and taxes from tenants as provided for by most lease agreements.

Average rentals increased year on year by 6.2 percent in the fourth quarter of 2008, by 5.2 percent in the same quarter in 2009 and by 0.24 percent in the fourth quarter of last year to R4 640.

The rental price bracket of R3 000 to R7 000 remained the best performing, with an overall good standing rate of 84 percent, while the good standing rate in the R7 000 to R12 000 bracket was in line with the national average of 81 percent.

However, TPN reported that the rental bracket of less than R3 000 was showing signs of collection weakness, with a good standing rate of 77 percent. This rental category also had the highest "did not pay" rate, at 13 percent.

There was further quarteron-quarter deterioration in the R12 000-plus rental price bracket, which had an overall good standing rate of 77 percent. TPN said landlords in the R12 000-plus rental price bracket would have to ensure they had a healthy cash flow to fund the extremely high number of tenants - one in four - who will pay late.

It added that sentiment in the industry from property managers indicated a shift in supply and demand as demand from tenants started to outweigh property stock, particularly in the low and affordable brackets below R7 000 a month.

TPN said there would be further pressure on tenants this year because of higher electricity charges, travel costs and food price increases, which might lead to a deterioration in rent collection.

"With the prime lending rate at its lowest in 29 years, TPN rental payment profile data confirms an inverse relationship between the interest rate and tenants in good standing, albeit with a nine-month lag period.

"Should interest rates remain unchanged or even increase, given the nine-month lag, this will hopefully result in only a marginal deterioration in rental collections for 2011, said the TPN.

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