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Proper tenant management is vital during SA’s recession

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The latest PayProp Rental Index (Q2 2017) warned of tough times ahead for tenants and the property industry as a whole.

“South Africa is in a technical recession for the first time since 2009, GDP growth continues to be lower than population growth and for the first time weighted average national rental was in excess of R7,000,” said PayProp’s head of data and analytics, Johette Smuts.

It was reported that increasingly low confidence levels and mounting affordability pressures among South Africans will increase rental demand across the country. However, an important aspect that was highlighted is the fact that it is now more important than ever before for property owners to ensure they conduct their rental portfolio in such a way as to minimise risk and loss of rental income due to defaulting tenants.

While the recession will have an impact on rental demand across the country it must be kept in mind that not all provinces will feel the effect equally. Provinces where higher levels of consumer confidence have been recorded and better affordability levels are present are likely to fare better.

PayProp used the damage deposit ratio to comment on not only a province’s supply and demand dynamics in the rental market, but also the tenant’s ability to afford higher damage deposits. Therefore it is important for landlords to consider the underlying factors in a damage deposit ratio.

As an example, while the Western Cape, the province with the highest damage deposit ratio (1.63%), is marked as the only province with an upward trend in rental prices (an effect of the high demand and semigration the province has experienced); it has also experienced a relatively high increase in the damage deposit ratio when compared to other provinces – an effect of the agents and landlords being able to pick and choose their tenants and wait for those able to pay the higher deposit.

In contrast, two provinces that recorded an almost identical damage deposit ratio, Gauteng (1.23%) and Limpopo (1.25%) have different underlying reasons. In Gauteng there is an oversupply of rental stock, while in Limpopo the rental demand has been higher than the damage deposit growth – which could be interpreted as a yet another effect of falling confidence levels in the province.

Smuts advised that this should aid in highlighting the importance of proper tenant selection, firstly and, secondly, timeous arrears management. “Our analysis reveals that the average arrears amount that was paid in full over the last year was just over R8,100, while the average unpaid arrears amount was almost double that, at around R15,100,” she said. “This highlights that once arrears gets out of hand your chances of recouping outstanding rent diminish substantially.”

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