More than 25% of tenants are not paying rent – but that’s actually not as bad as predicted
- From 82% before the crisis, the percentage of tenants who are paying their rent fell to 73% during lockdown.
- While this is a big deterioration, it is not quite as bad as expected, says the CEO of TPN, the biggest credit bureau that tracks tenant payments.
- This is partly due to rent concessions granted by landlords.
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The coronavirus crisis has wreaked havoc on residential rent payments, but – so far - it may not have been as catastrophic as feared.
In April – the first full month after the national lockdown started - 76% of tenants paid their rent by the end of the month, reports Tenant Profile Network (TPN), SA’s biggest credit bureau that tracks tenant payments. Before the crisis, in the first quarter of 2020, almost 82% of tenants were in good standing.
By May, this deteriorated to 71% of tenants who were in good standing, according to preliminary data from TPN. TPN predicts the final figure will be around 73%.
But despite the sharp fall, May turned out better than predicted, says Michelle Dickens, managing director of TPN.
The lockdown heaped financial stress on millions of households, with Treasury projecting that up to 1.8 million jobs could be lost in a worst-case scenario. Many workers have lost their income during the lockdown, and this was expected to have a severe knock-on effect on the ability of tenants to pay rent.
Dickens says this May’s number may have a lot do with rent concessions granted by landlords.
She says some landlords have arranged with tenants to use their deposit in lieu of rent, or have agreed to defer rent. They have also offered discounts comparable to tenants’ loss of earnings – so for example, if a tenant lost 20% of their earnings, they will get a 20% rental discount.
For June, preliminary data is tracking May collections. TPN predicts the final figure will be 73.13%
But Dickens warns that the fall out of the lockdown will not be limited to the period between April – June.
Given that many tenants may have agreed to offer their deposit instead of rent, or have agreed to defer rent payments, they will now have to start playing catch up, she adds. They with top up deposit and deferred rent repayments in the coming months starting 1 July.
John Loos, property strategist at FNB, expects that it could take another three years for tenant repayments to return to levels seen before the crisis.
The prices for rental properties are expected to fall – declining by 3% this year, and 4% in 2021.
As tenants come under increased financial strain, they are expected to move to cheaper properties, or move in with family. In addition, the abrupt halt to tourism and recreational travel in South Africa has left many short-term rentals, including Airbnb properties, empty – which could now return to the long-term rental market. This will add to the supply of rental properties on the market, which could drive prices lower.
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