SIMON BROWN: I’m chatting with Michelle Dickens, CEO of TPN Credit Bureau because her Market Strength Index relative to rents was released in the September quarter. Michelle, I appreciate the time today. Third Quarter Tenant Demand – The short answer is still weak. There are some improvements, we can mention them, but in general it is still difficult.
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MICHELLE DICKENS: Yes. I think the demand from tenants is still really weak with the loss of jobs in the market and the loss of income. Once again in the third quarter we have seen another huge loss of jobs and this is affecting the ability of tenants to stay in the market and indeed many could start to exit again.
We have seen our third quarter vacancy rates go down. But yesterday we looked at the vacancy rates for the fourth quarter, and those are starting to trend up again. So where we thought we’d seen the bottom of vacancies, unfortunately driven by weak demand, driven by job losses, we’re starting to see those vacancy rates start to rise again.
SIMON BROWN: If you add to the mix there, because you had noticed there was a slight increase in vacancy rates, a slight improvement, that has now deteriorated. The interest rate increase this quarter [was] just 0.25% will hurt stressed consumers. Potential lockdowns are looming, particularly in the entertainment industry. Therefore, the image does not improve quickly.
MICHELLE DICKENS: No. It will definitely get more challenging. If we look at, for example, the tourism industry, we now have a loss of international tourists coming in. That will affect short-term rentals. Short-term rental owners are going to return to the market for the long-term; that increases the offer [with] weak demand. The vacancies will rise again. That also reduces escalations. So it is still a very challenging market at the moment.
SIMON BROWN: Is there a different situation at different availability price points?
MICHELLE DICKENS: Absolutely. we have our lower end of the market. These are tenants [renting] below R3,000 per month. These are the tenants who have actually been hit the hardest by job loss and income decline. Our tenants in this particular group are really struggling; The demand is still there, but in terms of the quality of the tenant application, it just doesn’t meet the criteria for landlords right now. We see that indeed 68% of these tenants are up to date.
To give that a bit of context, nationwide 80% of tenants are up to date, tenants who are fully paid; there is nothing outstanding. So our landlords in the central market area are dealing with tenants who are particularly under pressure from a financial position.
In our middle sector, our affordable part of the market, the demand is fantastic. In this sector of the market, one in three tenants rents between R4,500 and R7,000 per month. As we know, this is an area of the market where there is a lot of demand from tenants. In addition, 80% is up to date; eight out of 10 tenants are up to date.
But the sweet spot, Simon, is tenants from R7,000 to R12,000 [range]; a whopping five [in 10] Tenants rent here, and they have gotten through this process with their income. They have maintained their level of income, so they have the best performance.
SIMON BROWN: We have seen some reduced [rental] residential buildings completed, and that number had skyrocketed. It has dropped a bit. Is this a leading census indicator, suggesting that maybe less new stock will come in over the next year, or is it a bit of a grip?
MICHELLE DICKENS: Obviously, the construction industry has been under great pressure and, in particular, in the 2020 period, when we were locked in, the buildings came to a standstill. So we are seeing around 50% of the number of properties, new builds being completed in the last two years, compared to what we saw in the 2019 period.
However, in the period of 2019, 45,000 new residential homes entered the market, but 50% of them, in fact almost 60% of them, were on the Gauteng market. This is why the Gauteng market in particular is struggling with the high level of vacancies. Gauteng is a great area because 50% of all renters in South Africa reside in Gauteng. Therefore, he expects the construction activity to offer a lot of support for the needs of the tenants in this particular area.
But in recent years, the reduced number of new construction means that less inventory is entering the market. Hopefully we will return to equilibrium with low demand, low stocks, and fresh stocks. Hopefully we return to a point of equilibrium.
But basically Simon, we need jobs, people who are employed, who earn income and can get back into the tenant or homebuyer market.
SIMON BROWN: I accept your point on that. We saw the unemployment rate on Tuesday and we are not getting those jobs. More than anything, the employed people are the ones who are really going to help here.
Michelle Dickens, CEO of TPN Credit Bureau, I appreciate today’s time.