Landlords should feel comforted by the fact that tenants continue to prioritise their monthly rental payment ahead of all other credit commitments, barring mortgage repayments.
Tenants who pay a monthly rental inclusive of utility charges may not escape this month’s VAT increase as landlords are obliged to pass on these escalations to their tenants.
Considering the end of 2017 saw more tenants paying their rent late, they will, like most consumers, find themselves under increasing pressure in the coming months.
The latest TPN Rental Monitor, which looked at data for the last quarter of 2017, found there was a “noticeable shift” in the numbers of tenants who went from paying on time to paying late or in given grace periods. The almost 1% decline is, according to Michelle Dickens, TPN managing director, “concerning”, especially when considering the VAT increase was not yet in effect.
“Notwithstanding that residential lease agreements are VAT exempt, there are other rental charges which will attract the increased 15% VAT rate. Charges such as electricity, water, sewerage and refuse removal will go up and landlords will need to pass the cost to the tenant. Ultimately, the tenant’s monthly bill goes up. The landlord is no better off and is simply a conduit to collect the increased VAT.”
Dickens says landlords should feel comforted by the fact that tenants continue to prioritise their monthly rental payment ahead of all other credit commitments, barring mortgage repayments. Nationally, the figures show 60.6% of consumers’ overall credit profiles are in good standing, while 83.35% of tenants are in good standing with their rent. This includes those who pay on time, late or in grace periods.
The Western Cape still leads the other provinces with 89.67% of tenants in good standing. Only 7.66% made partial payments and 2.68% did not pay at all.
TPN’s figures also show the average basic rent in the Western Cape at Q4 was the highest in the country, at about R8 300, compared to the national average of R6 300. Furthermore, its escalation in Q4 was 8.23%. The national average increase was 1.56%.
“Tenants on average pay R6 368 a month basic rent, which does not take into account additional charges such as electricity, water, refuse removal and sewerage, where double-digit escalation, and the latest VAT increase, will continue to stifle the landlord’s ability to increase rent,” Dickens says.
Annual rental increases are, unfortunately for tenants, a fact of life as landlords need to cover expenses and protect their investments. But this does not mean landlords can just “pick a number”, says Jacqui Savage, national rentals business development manager for the Rawson Property Group. There is also a common misperception that the standard increase is 10%.
“There are no legislated minimums, maximums, or standard figures. Annual escalation is set on a case-by-case basis. The Rental Housing Tribunal is clear that increases must be reasonable, which means landlords need to be able to back their escalation figures with properly researched industry trends.”
Escalation trends also vary by region, suburb, property type and supply-and-demand statistics. Savage says landlords also need to take their particular tenants into account. Good tenants who look after the property, pay on time and communicate well with managing landlords or agents are “worth their weight in gold” so a slightly lower escalation rate is worth considering.
This, says Savage, is the key to a tenant’s bargaining power during negotiations.
“You want to be the kind of tenant your landlord doesn’t want to lose.
“That means paying your rent on time, and being proactive when it comes to small maintenance chores and minor fixes.”
Savage says losing a tenant because of unreasonable rental escalation is a real possibility, even in traditionally high demand areas like the Western Cape.