According to the TPN Market Strength Index landlords in the Western Cape can afford rental escalation rates four times higher than that of the national average but still remain the province with the best tenant payment performances in the country.
During the second quarter of 2016 the national rating of tenants in good standing recovered to 85.08% after a drop to 82.17% in Q1. Some 67.46% of tenants paid their rental on time, 6.29% paid during the “grace period” and 11.33% paid late.
TPN reports that despite the recovery of rental payments other credit repayments have declined further; only 60.22% of South Africans’ short-term credit accounts are current while 66.85% are current on their secured credit. All of this indicates a financially stressed consumer.
Why then is the Western Cape’s rental market willing and, based on the 89.52% of tenants who are in good standing, able to absorb rental escalations of 12.13%?
Nationally the average rental escalation rate is 2.89%, an indication of the fact that the average tenant is becoming more conscious of their total rental account, while the average rental escalation in Gauteng is 3.23%, a low rate which TPN believes is partly due to market equilibrium in the Gauteng market where demand and supply is equal.
According to research done by TPN it can be argued that rental escalation in the Western Cape is driven by a lack of supply. In its Q3 2016 Vacancy Survey TPN asked respondents to rate demand as strong (100), average (50) or weak (0) and to do the same for supply. The data provided a Demand Rating, a Supply Rating with the difference being the Market Strength Index.
TPN reports that nationally the TPN Rental Market Strength Index is 61.47, slowly moving in the direction of equilibrium as the Demand Rating (78.15) drops off and the Supply Rating (55.22) edges up. In the Western Cape the Demand Rating is 92, hopelessly under-supported by a Supply rating of 37.23.
Comparatively the Market Strength Index for Gauteng is 54.65 indicating a market that is almost in equilibrium and explaining the low rental escalations in the province. The fact that supply in the Western Cape is so limited, coupled with the current scale of semigration to the province, explains the high rental escalation.
Conversely it could be argued that in an area where tenants have a one in three chance of finding the rental accommodation they desire, they will remain current on their rental payment once they are able to find this accommodation. This likely explains the fact that the province enjoys the highest rate of tenants in good standing across the country.