Sunday, August 19

Rentals are not a risky business

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... but R870m monthly remains unpaid by tenants

Property owners providing rented accommodation in the formal housing market are losing as much as R870million a month in non-payment of rent, with many failing to implement or comply with the country’s “complex raft of laws”.

It is this inability to comply with these laws – including the Rental Housing Act, the Consumer Protection Act, the National Credit Act and the Prevention of Illegal Eviction and Unlawful Occupation of Land Act – that Deon Botha, chief executive of rental collection company RentMaster, believes is behind the problem.

This “seemingly bewildering array of legislation”, the prospect of non-payment, and the perceived difficulty in evicting errant tenants, is also why he believes many property developers build shopping malls and office and industrial parks rather than invest in residential development.

Read: Hanging on to rental stock

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However, the real problem, Botha explains, is not so much the law, which is designed to protect and balance the rights of landlord and tenant, but the failure of both parties to understand and comply with legislation and their contractual obligations.

Victims of property developers’ aversion to residential housing include growing numbers of people who aspire to move into the middle class.

“These residents are beneficiaries of economic empowerment who want to move out of the informal sector into formal housing. Their needs create a growing gap in the market, but this is not being filled because the perceived risks in catering for them are inhibiting investment in formal residential housing.

“Many of these residents don’t qualify for home loans because of more stringent bank lending criteria, but many can afford to pay rent,” he says.

He points out by simply following the letter of the law, risks in residential property development can be avoided.

Although RentMaster guarantees rental payment to landlords even if tenants do not pay, Botha says: “We seldom get to the point where we need to approach the courts for an eviction order because we comply with all legal processes until that point.”

Doing this, he says, will mitigate risk for residential investors and developers.

“We want to see property developers investing in housing instead of in more shopping malls. This can be de-risked by implementing effective processes in screening tenants and managing disputes and non-payment.”

Property credit bureau Tenant Profile Network (TPN) estimates 2.1 million households in South Africa live in rented accommodation in the formal sector. Botha estimates that 66% pay on time, with the remaining 34% being slow or poor payers. Of these, about 10% fail to pay rent.

Based on the average rental payment of R6368 a month, landlords stand to collect about R13.4billion a month, but 6.5%, or about R870million, is shown to be unpaid according to the quarterly TPN rental
monitor.

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