Rental market showing signs of life after Covid-19 slowdown
When Covid-19 hit, the rental market took a battering, with many tenants seeking refuge with families and friends as income dwindled in protracted lockdowns.
But the market is showing signs of recovery, and by the second quarter of 2021 more than 80% of residential tenants were in good standing - compared to only 73.5% in the second quarter of 2020, according the latest TPN residential rental monitor.
With the unemployment rate reaching a record high in the second quarter of this year, according to the report, affordability remains under pressure for many tenants and above-inflation increases by municipalities hasn’t made this any easier.
Commenting on the latest rental performance, Michelle Dickens, CEO of TPN Credit Bureau, said though most major provinces have seen an improvement in tenant payment behaviour above 80%, Gauteng lags with just 78.67% of tenants in good standing. Negative escalations in the province continued for the third consecutive quarter. Despite the decline in tenant payment behaviour in Gauteng, the province took top honours on returns, with a gross yield measured at 11%.
Landlords in the Western Cape and Eastern Cape are clearly more risk-averse as illustrated by the fact that their tenants are ahead of the curve with about 85% and 84% respectively in good standing. But after a year of negative rental escalations, the Western Cape is experiencing rising vacancies at 14.38%. The province, which historically outperforms the rest of the country as far as property prices are concerned, only recorded total returns of 8.7%.
The Eastern Cape, on the other hand, has a low 4.28% vacancy rate coupled with strong demand which has allowed it to maintain its positive rental escalation at about 2%. As a result, the province’s gross yield of 10.7% is seeing it punch significantly above the national average of 10.3%.
While KwaZulu-Natal’s tenant payment performance has improved to 80%, its vacancy rate has jumped to about 14%, which means it’s only just achieved double-digit gross yield of about 10%.
“The most sought-after residential rental properties are in the R4,500-R7,000 a month price band with about a third (35%) of all lease agreements made up of this segment. The majority of tenants in this segment (82.76%) are in good standing with 67.67% paying on time. Though only 4.94% failed to make payments, 10.58% paid late, indicating that cash flow remains constrained,” said Dickens.
Landlords with properties in the lower end of the market - below R3,000 a month - continue to struggle with 16.08% of tenants unable to pay rent and a further 15.72% of tenants making only a partial payment. The vacancy rate of 15.19% in this segment of the rental market indicates that landlords would prefer no tenant to a defaulting tenant.
“The traditional sweet-spot segment is monthly rentals between R7,000 and R12,000. This segment continued to perform well in the second quarter of 2021 with the majority of tenants (86.32%) in good standing and close to 75% paying on time. Of concern, however, is the fact that affordability is acting as a key constraint in this segment while rental escalation remains in negative territory of -1.03%.
While lower-income earners were undoubtedly hardest hit by the pandemic, middle and high-end earners also appear to be under financial pressure. According to the national income dynamic study the biggest impact of the pandemic has been felt by those in poorly paid jobs.
There has been a 17% drop in the number of people who earn between R22,000 and R40,000 a month, while the take-home pay from the top million households earning over R40,000 dropped by almost 14% between March 2020 and March 2021.