Residential tenants remained in good standing during Q2 2024 with 83% paying their rental in full and on time, according to the latest TPN Residential Rental Monitor.
“The fact that most tenants continued to meet their rental commitments in the second quarter despite high levels of household debt is the result of stringent vetting and collection processes on the part of property owners,” says Waldo Marcus, Marketing Director at TPN from MRI Software.
The monitor’s long-term data reveals that the good standing rate of tenants paying less than R3 000 has been declining since 2014. For the first time since 2021, their good standing exceeded the 70% barrier, reaching 70.41% in Q2 2024. This rental band has the highest proportion of tenants who made no rental payments (15.12%), while 14.47% made partial payment. Just over half (55%) paid their rent on time.
In the R3 000 to R7 000 per month rental value band, the majority (82.17%) are in good standing, 5.57% did not make any rental payment and 12% made a partial payment. This group accounted for the largest number of late payers, with the highest percentage paying late.
Tenants in the R7 000 to R12 000 rental value band are the best performing when it comes to meeting their rental obligations. The majority (88.58%) are in good standing, boding well for their landlord’s cash flow, 75.87% pay their rentals on time, and 9.44% pay late. Only 3.56% of tenants in this band failed to make any payment towards their rental.
The second best-performing tenant group are those renting between R12 000 and R25 000 per month with 88.24% in good standing, 6.63% made no payment, 10.11% paid late and 8.15% made partial payments during Q2 2024.
The luxury rental bracket, with monthly rentals exceeding R25 000 remained stable, with 82.29% of tenants in good standing. Interestingly, tenants in this rental value band have the second-highest percentage of tenants who did not make any payment towards their rental (6.21%) while 11.51% made partial payments and 12.73% paid late.
TPN’s data reveals that compounding rental escalations have pushed more tenants into higher rental bands. In 2014, 23.7% of tenants paid less than R3 000 per month and 61% of tenants paid between R3 000 and R7 000 per month. A decade later, this decreased to 13.1% and 47.8% respectively.
On the other hand, tenants in the R7 000 to R12 000 rental value band and those in the luxury market (paying over R25 000) have seen significant increases, up from 2.8% and 0.5% a decade ago to 28.5% and 1.5% respectively.
The number of tenants classified as ‘squatting’ – defined as those who have not made a rental payment for three consecutive months and are still occupying the property in the fourth month – has increased in 2024. The TPN Squat Index rose from 3.48% in the fourth quarter of 2023 to 3.7% in Q1 2024, and 3.71% in Q2.
The report also reveals that landlords eased rental increases to avoid vacancies, particularly in the R3 000 to R7 000 rental value band.
“Rental escalations slowed to 4.29% in the second quarter of 2024, down from 4.87% in the previous quarter, as landlords become increasingly sensitive to hiking rentals and running the risk of properties standing vacant. This is reflected in the lower vacancy rates recorded during the same period in the TPN Vacancy Survey,” says Marcus.
Gauteng has experienced three consecutive quarters of slower rental value growth. In the Western Cape, the rental escalation trajectory has reached a turning point. After robust rental escalations at 7.10% in Q1, escalations have now slowed to 6.98% in Q2. Only KwaZulu-Natal and the Eastern Cape had slight upticks in rental escalations compared to the previous quarter.
The TPN Residential Gross Yield shows a record return on sectional title properties of 10.79% in the second quarter of 2024. Sectional title properties have historically performed better than full title properties. However, full title rental yields are improving with the national full title yield increasing from 7.44% in Q1 to 7.52% in Q2.
There has been a shift in investor behaviour with individual property investors increasingly opting for smaller portfolios and tax-efficient structures such as companies and trusts. Interestingly, there are now more women than men investing in property. Women have outpaced men in individual property investments since 2020, with their share of the market increasing from 42% of the individual investor market in 1996 to over 50% today.
“It’s going to take time for tenants to start feeling the benefits of lower interest rates. In a price-sensitive market, investors are looking to good-quality tenants rather than aggressive rental growth with their efforts focused on operational efficiencies and accuracy to keep showing returns,” he concludes.
