“We define a micro landlord as a landlord between one and 10 properties and that’s where the majority of the residential stock is held in South Africa. Landlords are more inclined to keep a quality tenant than push the prices up by 10 per cent escalations per annum,” Tenant Profile Network’s (TPN) managing director Michelle Dickens told CNBC Africa on Wednesday.
“We’re just not seeing an increase in rental price growth and we haven’t seen one over a number of years. What we’re seeing is the slowly improving house price increases but unfortunately, the yields are just not that strong at the moment.”
Good growth was seen from 2008 to 2011 where residential yield growth was up from 7.48 per cent to 9.18 per cent. Dickens however indicated that, since then, there’s been a decline and this has allowed rentals to slightly catch up with residential property values.
“Unfortunately we’ve started to see a decline in those yields. From late 2011 to early 2013, we’ve dropped down to 8.87 per cent and this is off the back of the growing house price index,” she said.
Dickens added that TPN, which focuses on Credit Bureau, Rentbook, Rentbay and Leasepack solutions, has also seen that cheaper rentals tend to produce higher gross yields.
“Where we look at the below 3,000 rand rentals, very challenging at the moment for those types of tenants – we’re sitting with a 16 per cent default rate in that category. Yields there are quite high because of high risk-high reward,” she explained.
“When we look at TPN’s payment profile data by our tenant’s category, our 3 to 7,000 rand rent per month and our 7 to 12,000 rand rent per month are really where the tenants perform the best. In other words it’s easier to collect rent from those types of tenants. Naturally you would expect your risk to be a little bit lower, and your yields would then be a little bit lower.”
Dickens specified that it doesn’t translate nicely for the 25,000 plus tenants, but that might be because that segment of the market is still quite a small segment.