South Africans are struggling financially, so if your tenant coughs up in full and on time, don’t let them move out
With a rapid increase in the number of late-paying and non-paying renters and even fraudulent rental applications, landlords are urged to “hold on to the good ones”.
The country’s tough economy has had a ripple effect, with some tenants unable to meet monthly rental obligations and in turn affecting landlords, many of whom use rental payments to pay off bonds. Both renters and landlords have their backs against a wall, say those working in the market.
In addition, evicting defaulting tenants is not a simple matter for a landlord, says Gary Palmer, chief executive of Paragon Lending Solutions.
The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (PIE) has made sourcing tenants “of good standing an absolute necessity”, he says.
“Landlords who have good tenants who pay in full and on time should do everything in their power to hold on to them. This could be anything from a delayed or reduced annual increase to having payment reprieves if the tenant finds themselves in a cash flow crunch,” says Palmer.
Andrew Schaefer, managing director of national property management company Trafalgar, agrees that 2018 has been “a particularly challenging year” for the rental sector, with this showing up as “higher vacancies, lower escalations, consumer pressure and difficulties around qualifying tenant applications because of the prevalence of defaults and judgments, and uncertainty concerning improved business and consumer confidence”.
Landlords, particularly at the lower end of the market, are struggling with tenants who are not paying, says Dogon Group managing director Rob Stefanutto.
“This has even led to some owners going into foreclosure as they can’t service their bonds. “In terms of the law, the landlord’s investment is not protected. There really should be a legal mechanism that prevents the banks proceeding against landlords unable to make payments simply because tenants reneged on contracts. Owners are at a huge disadvantage, with little protection,” says Stefanutto.
Palmer lays the blame for this troubled market on a significant jump in the cost of living, a sluggish economy and unemployment reaching a 27.5% high, saying it has placed additional strain on those looking to secure both residential and commercial property leases.
The PayProp Rental Index for March showed that only one in four tenants is paying their rent in full each month, with tenants in arrears jumping from 18.5% in April 2017 to 23.2% in March 2018.
When speaking to clients who own properties and to lenders who have financed property portfolios, there also seemed to be a marked increase in rental fraud reported, with jumps in the number of falsified bank statements, fake employer documents and even fake IDs from people applying for rentals.
“This could make it hard for landlords to manage their investment properties (eviction is not straightforward and can be a lengthy and costly process), to service their bonds if they’re not getting timely rental income and secure additional growth finance against their assets,” says Palmer.
John Loos, FNB economist, says it is important to remember that levels of financial stress/ pressure on households is rising and a significant portion of the aspirant tenant population won’t necessarily be financially strong.
“We are of the impression a significant increase in the numbers of ‘aspirant’ rental tenants will come about in the near term, along with a more constrained supply of rental stock. However, landlords will probably still be challenged to identify the strong tenant from the financially pressured ones as the economy continues to apply pressure on households in general.”
For tenants who are in good standing, the ball is in their court. Herschel Jawitz, chief executive Jawitz Properties, says much like the sales market, the rental market is in teneants’ favour because of an oversupply of rental units in cities such as Joburg and Cape Town.
“Tenants are finding they are able to negotiate lower than inflation increases in rentals and may even be able to rent a similar property at a cheaper price.”
Check all references
Gary Palmer, chief executive at Paragon Lending Solutions, recommends property owners implement the following as a bare minimum before signing a lease:
Do the legal search: Subscribing and using products such as WinDeed, other databases and credit bureaus, for instance Tenant Profile Network, will reveal the personal history of your prospective tenant, including identity document verification, judgments against them and company searches, if they are signing the lease in the name of their company.
Do the personal search: We are seeing a quick social media search on the prospective client will throw up anomalies about what they may have told you versus reality. Many of our clients have picked up discrepancies on employment, length of employment and other personal information on prospective tenants.
Confirm references: Checking the people who are listed as past landlords or employers can also be a necessity as fraud becomes more complex. Using apps like TrueCaller, which allow you to identify unknown numbers, is one method to make sure the person calling you is really who they claim to be.
Corinne Ras Knight Frank letting agent, gives this advice to tenants who have a “neighbour from hell”. “When renting a property, often the homeowner does not know or have contact with the neighbour, so handing the matter over to the homeowner could be fruitless.
“If the neighbour is causing a continuous disturbance, it would be advisable to first have a chat with them. “It could be they are unaware their behaviour is disturbing those around them. By building good relationships with your neighbours it could develop into a lasting and mutually respectful relationship.
“If the disturbance is continuous after a few times of you having reached out to the neighbour, then authoritative action may be required in the form of reporting it to the local police.
“Tenants should always keep the homeowners in the loop because it is their property.”