The FlowFindings survey has uncovered the staggering statistic that only 37% of South African tenants can afford to pay their rent in full – and a significant 22% cannot pay their rent at all.
The survey, comprising 22 questions, was sent to Flow’s database of over 80 000 registered tenants in May 2020 to assess the effect of Covid-19 lock down on their tenant experience.
Both the high end (rentals of R12 000+ per month) and low end (rentals R2 000 – R3 999 per month) of the market are affected – indicating that no part of the rental market has escaped rental affordability damage.
“This is, of course, also a major risk to landlords, who are used to high risk tenants representing just a fraction of their portfolio,” says Flow Co-Founder and CEO Gil Sperling.
“Landlords who are receiving partial payments are at risk of tenants stopping the payment of rent altogether as their savings are depleted and credit lines, maxed out. 49% of renters are certain that the negative monetary effects of the lock down will last longer than 3 months. 42.72% of tenants are relying on their salaries to pay their rent, 30.09%, their savings and 21.6% are relying on loans”.
With 78.8% of tenants’ income affected by Covid-19, 55% of respondents said they have either already applied or intend to apply for financial assistance to help pay their bills. Landlords have accommodated 35% of renters with reduced or waived rent. Individual landlords have proven to be more forgiving, with 44% agreeing to waive or reduce rental payments, with 24% of companies and trusts doing the same.
In the recent FlowFindings expert panel webinar, Pam Golding Properties CEO Andrew Golding says that it’s hard to predict the impact of the lock down on both sales and rentals, as it’s still early days: “We’re currently seeing a situation where 20% of our tenants are not able to pay their rent. People are having to find creative ways to pay what they can – borrowing from friends or family or extending the terms of personal loans,” he says. “What we can say is that the market is in for a significant reset. Signs are that the volume of sales is set to drop by 50%, with owners who aren’t forced to sell, not putting their properties on the market. It’s definitely going to be a buyers’ market, with plenty of opportunities for those who are placed to be opportunistic”.
Golding says that the few sales they have pushed through under lock down have been on aggressive offers by as much as 25% below the pre-lock down listing price. “Our best guess is that prices will contract by 15-20%. We’re going to see more people looking at renting than buying, from an affordability perspective, which will put downward pressure on rental levels,” he says.
The FlowFindings results indicated that lock down forced 88.47% of tenants to stay in their rental homes during lock down, with 17% having had intentions of moving from their current residence before lock down started. Having faced a variety of challenges during lock down, 32% of tenants have indicated that they’re likely to move out after lock down – 12.63% of those due to their lease ending, 50.93% due to lock down-related affordability issues and 15.11% of them, due to general affordability issues.
“In a typical month, the rental market sees 5% of tenants moving. Due to lock down restrictions, there’s been a huge spike in tenants staying in their current rental homes for much longer than usual – but we expect a far higher than average number of tenants moving, post-lock down – which will cause a huge bottleneck,” says Sperling.
Trafalgar Property Management MD Andrew Schaefer says that the rental market was already under pressure before lock down, and things have only gotten worse: “How do landlords plan ahead when tenants aren’t able to make payments if their income has been affected? They won’t be able to catch up with their arrears any time soon, so we need to consider how this all clears through the system. We believe that rental credits are the only way forward,” he says.
Just Property CEO Paul Stevens concurs, with rentals down as far back as the end of 2019: “Annual escalations are stagnant and we’re looking at a possible reversion of rental amounts,” he says. “It’s not only the middle class being affected – it’s hitting everywhere. Business owners are amongst the hardest hit, with responsibilities to keep their staff paid and pay rentals at the top end of the market”. Dexter Leite, Manager: Rentals at Pam Golding Properties says that it’s difficult for landlords to perform in lock down as they can’t visit the properties for inspections, making it difficult to attend to maintenance issues at this stage.
Tenants who engage with the Flow platform more regularly responded that they are less likely to move after lock down – indicating a link to the benefits they receive as Flow renters, in terms of discounted electricity, airtime and a host of benefits from rewards partners including Dis-Chem, Woolworths, Checkers and Uber Eats.
Paul Schaefer, CEO of Ithemba Property Management, adds that a new world is coming and there will be a big shift in how landlords, agents and tenants engage: “Typically, things have been very transactional, but now we are likely going to see a shift towards relationship business – and rewards systems like Flow’s can be a part of that. It’s a way for landlords, agents and tenants to participate in a value exchange, which is going to be essential, going forward”.