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2020 is going to be a rough, rough year for everybody except those sitting prettiest right at the top of the food chain.
As we have quickly learnt, it’s South Africa’s poorest and most vulnerable citizens that suffer first, but the effects of the lockdown will be felt right across the economic spectrum.
With job losses mounting, one of the first problems that arises for those who are now unemployed is paying the rent.
A new Moneyweb report, based on research by John Loos, property strategist at FNB Commercial Property Finance, says that the number of tenants unable to pay full rent this year could be as high as 33%.
Loos has used stats from credit bureau TPN to look at what lies ahead:
TPN counts those who paid rent in full, whether it was on time or late, as tenants in good standing. The two other categories are those tenants who only made a partial payment, and those who did not pay at all.
Loos’s model uses the recession in 2009 caused by the global financial crisis as a guide. He says “using TPN tenant performance data, we observed that a sharp dip in the percentage of tenants ‘in good standing’ with their landlords coincided with that recession early in 2009″.
…Preliminary TPN data for April, released three weeks into the month, showed that at that point approximately 16% of tenants had only partially paid their rent for April, while a further roughly 16% had still not paid.
That number is expected to grow rapidly, and TPN MD Michelle Dickens states that TPN has seen a 30% increase in tenant letters of demand so far.
Evictions are currently not allowed, so there is some respite, but “the stark reality for many tenants with limited or no income for the month of April means they are facing 1 May with no savings for rent”.
Following the 2009 global financial recession, it took a full three and a half years before the percentage of tenants in good standing reached 85%.
Using that as a rough guideline for the current recession, landlords could be facing an uphill battle for quite some time:
However, Loos says one aspect that could see the number of tenants in good standing surprise “on the upside is the possibility that many landlords are sympathetic to the problem many good tenants face during lockdown, and may [be] far more accommodating this time around [compared to 2009] in terms of granting grace periods to tenants”.
That upside is tempered in part by Loos adding that the weaker market will mean rental deflation in the coming years, which he forecasts at –3% in 2020, and -4% in 2021.
Remember when buying a property and chucking it on Airbnb seemed like a surefire way to cover your bond a few years back? My, how times have changed.
This past weekend, Carte Blanche also took a look at our local property market, for those who really want to go down the wormhole:
[source:moneyweb]
