While restaurants, shopping malls and beaches may look somewhat similar to what they did before the pandemic, nevermind lockdown regulations and social distancing protocols, the real estate rental market has not recovered quite as well as the consumer market.
Studies conducted by the TPN Credit Bureau have indicated that, at the start of the hard lockdown of 2020, only half of short-term credit accounts were paid in “current” terms. Already in the third quarter of 2020, the repayment of credit accounts had increased to 70%. The rental market has not been so fortunate in its recovery.
Due to job losses and increasing financial insecurity, the prospect of defaulting on rental payments has become an ominously looming possibility for many tenants. However, TPN’s research has indicated that the number of tenants more than three months in arrears is steadily declining, thanks in part to the rental relief that was provided by numerous landlords when tenants’ financial situations were in dire need of every cent that could be spared. While tenant payment has increased greatly since the third quarter of 2020, it seems as if it was an improvement that levelled out in 2021.
When looking at the section of the market that is still most affected by non-payment, it is unfortunate that it proves to be properties with a rent of under R7 000, which is commonly considered the more affordable market. With the under-R3 000 market, only 65.73% of tenants are currently in good standing according to statistics. This is a clear indication that the tenants struggling the most with rent are also those who have felt the impact most due to lesser wealth.
Research makes it clear that there are numerous tenants who are more than six months in arrears still occupying properties, placing landlords in an increasingly difficult predicament. The unfortunate reality is that where mediation was previously possible, the employment circumstances of many tenants are unlikely to change soon, making mediation a redundant process. The last resort left to landlords thus becomes a court-ordered eviction. However, evicting long-term delinquent tenants who have invertedly become squatters is a costly and drawn-out process. Once a landlord’s legal counsel has advised them on the avenues of legal action available to them within eviction law and the state of disaster regulations, the difficulty of securing a court date makes a court-ordered eviction a problematic solution, to say the least.
When it comes to squatting tenants and evictions, landlords also have to keep in mind that they may not hinder a tenant’s ability to reasonably occupy the property, even if they are in arrears on rent. The law prohibits landlords from activities such as removing doors, cutting off electricity, or changing the locks of the doors – activities certain landlords have previously resorted to in hopes of making the occupation of the property so unbearable that the squatting tenants would leave on their own.
The fear of non-payment has become one of the greatest concerns for landlords in general, leaving many landlords preferring a temporarily vacant property over risking tenants who will end up in arrears and the possibility of squatting. As proof of this, the statistics show that while the national vacancy rate has stabilised at 13.5% in the second quarter of 2021, areas such as Sandton still show a vacancy rate of above 20%.
Hopefully the rental market will mirror the improved activity and regained sense of normalcy of the consumer market and continue to stabilise as 2021 heads into its final quarter. One silver lining around this cloud is that you are not alone. Whether you have further questions regarding tenants falling into arrears or want advice regarding your vacant rental property, our property experts are here to help you on your journey.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)