Data showed that the overall number of tenants in good standing had declined to 79 percent vs. 81 percent in Q1 of 2011. This consisted of tenants in the paid-on-time category at 66 percent (67 percent Q1 2011) and paid-late category at 13 percent (14 percent Q1 2011). In addition, the number of tenants in the did-not-pay category increased from 10 percent to 12 percent for the first time since the first quarter of last year.

Tenants in the below R3000 rand rental bracket were now the worst performing, with just 72 percent in good standing, due to higher electricity, transport and food prices having a severe impact on their overall budget (only 58 percent were in the paid-on-time category, while 18 percent were in the did-not-pay category) according to the report.

The bureau said that tenants in the above R12 000 category were not faring much better with 74 percent in good standing (57 percent paid on time and 16 percent in did-not-pay). Tenants in the R3000 to R7000 rand category remained the best performing, where 83 percent were in good standing (70 percent paid on time and only eight percent did not pay).

For some time now TPN Credit Bureau has been pointing out the mounting burdens faced by consumers in the form of higher unemployment, high household debt and substantial increases in the cost of electricity, fuel and food, all of which affect monthly expenses and hence the ability to pay rent.

Viewed in perspective with the current global economic slump and double-dip worries, the decline in rental payments raises a flag for investors to tighten their controls in respect of new tenant acquisitions and on-going rent collection according to the bureau.

Unfortunately there still appeared to be many property managers and landlords looking to secure their commission or first month's rent, who take an irresponsible short-term approach to the detriment of the long-term prospect of the tenant's ability to make monthly repayments, the bureau said.

The report found quality rental stock in the affordable and mid-price brackets below R3000 and R3000 to R7000 per month remained undersupplied. FNB's Property Barometer indicates only eight percent of properties purchased at present were for rental stock.

The bureau said that in addition to the investor's financial ability to secure further funding from wary banks, new and proposed legislation added further fear, discouraging many would-be investors from acquiring new rental properties.

For example, the Consumer Protection Act allowed tenants to arbitrarily cancel a lease agreement on 20 business days' notice albeit with a reasonable penalty, explained the bureau. Landlords could no longer cancel a lease with a defaulting tenant forthwith or after seven days' notice, but would have to wait 20 business days - seriously impacting their cash flow as mortgage bonds and levies would still need to be paid.

The Companies Act provides for business rescue, which would no doubt impact corporate leases. Furthermore the Municipal Act, although not finalised, was also compounding investor trepidation according to the report. The present situation makes the tough implications originally raised by the National Credit Act seem mild by comparison.

Article from: www.iafrica.com