The State of the rentals market in the Western Cape

A3_newIn this issue of the Harcourts Maynard Burgoyne Landlord Newsletter we’re taking a look at some of the findings and conclusions of the the latest PayProp Rental Index Report for the Third Quarter of 2015, which was release last week.

PayProp is the largest processor of residential letting transactions in South Africa, and the rental data used in the compilation of their quarterly reports is harvested from actual, real time, financial transactions relating to 75 000+ active rental properties throughout the South Africa.

The results of PayProp’s Rental Index Report is very useful exactly because of the fact that the data that is used is from actual transactions.

Unfortunately, the PayProp Rental Index Report for the Third Quarter of 2015 has very little positive news – in fact, its summary and conclusion includes the following concerning comments . . .

we are concerned about the slowing growth rate in rentals, which, coupled with a drop in the damage deposit ratio, makes it clear that tenants are under pressure
when looking at the actual financial data of tenants, our concerns are supported by the increasing levels of indebtedness and a drop in average credit scores

Let’s look at some of this info in more detail . . .

The year-on-year average residential rental price increase has dropped below 10% in the Western Cape

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Source: PayProp Rental Index Q3 2015

Damage Deposit Ratios Drop Back More…

The damage deposit is usually the only security that the landlord has if anything goes wrong during the course of a tenant/s’ tenure in their property. Of course you always have recourse to the courts should their be a shortfall, but we all know that ‘a bird in the hand is worth two in the bush’, and damage deposits are no different.

Fortunately, landlords in the Western Cape seem to be better off than landlords in most other provinces in this regard.

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Source: PayProp Rental Index Q2 2015

Despite there being a slight decrease in the average damage deposit figures in the previous quarter reported in the previous PayProp Rental Index Report (unfortunately provincial figures weren’t published in the latest report), the above graph shows clearly that damage deposit ratios in the Western Cape are significantly higher than most other provinces.

At Harcourts Maynard Burgoyne our company policy remains unchanged with respect to damage deposits – we believe that a damage deposit equal to double the monthly rental should be a minimum requirement and we always advise our landlords against accepting any less. It might sound like a lot – and in light of the increased financial pressure that tenants are under it might seem very unfair – but, once again, this is the only security a landlord has to fall back on if things go wrong.

Tenant incomes are declining, while debt repayment commitments are increasing . . .

 “Over the past three quarters a concerning trend has been emerging that shows tenant incomes declining while debt repayment commitments have been increasing. As a result, tenants are currently spending close to 37% of their income on repaying debt, as opposed to 32% at the beginning of this year (otherwise known as the debt repayment ratio).”

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Source: PayProp Rental Index Q3 2015

In light of the above it is imperative that landlords make sure that any potential tenant is properly screened and vetted.

In Conclusion

Our advice to landlords remains to ensure adequate tenant risk assessments are done before signing any lease agreement, to ensure tenants are able to afford the rentals that they apply for.

Also make sure that you hold adequate security in terms of a decent damage deposit to minimise your risk if something does go wrong.

We’re here to help

If there is anything we can assist you with, please feel free to contact one of our rentals team members at any time.

Click here to find out more about Shaun Luyt – Rentals Operations Manager at Harcourts Maynard Burgoyne.

This article is a general information sheet and should not be used or relied on 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. Errors and omission excepted. (E&OE)

About the Author

Shaun is the Rentals Operations Manager for the Harcourts Maynard Burgoyne Group.