Business News and Politics

Tenant shouldn’t pay more than 30% of their net income for rent.

Nearly two out of every five tenants in South Africa are deemed to be ‘risky’, says automated rental payment and reconciliation platform, PayProp.

On average, 14.2% of South African tenants are classified as minimum-risk according to their credit scores, while 37.2% are classified as high-risk, it said.

Citing the PayProp Rental Index from Q3 2018, head of data and analytics, Johette Smuts said this high-risk contingent of tenants spend about 33% of their net income on rent.

Smuts said that there is a widely accepted unwritten rule that a tenant shouldn’t pay more than 30% of their net income for rent.

“While PayProp data shows that the average percentage of rent paid by tenants in the third quarter of 2018 was indeed 30%, we also see a correlation between a tenant’s risk level, determined by their credit score, and the percentage of net income that they spend on their rent.”

“Tenants with higher credit scores (and therefore a lower risk rating), spend less of their income on rent than high-risk and very high-risk tenants. Lower-risk tenants spend less than 30% of their income on rent, and tenants with the lowest risk spending only 24% of their income on rent – that is 20% less than the average tenant,” said Smuts.

Smuts said that the best advice she could offer prospective tenants in 2019 is to take heed on the properties they are considering renting.

“In the current climate, it would be wise to look for a home that calls for a lower rental, thereby making budget available to allocate to settling outstanding debt.”

Added to the pressure that consumers are feeling with rent, the average national debt-to-income ratio sits at around 44% – i.e. 44% of the average person’s net income is used to repay debt each month.

“With inflationary pressures continuing into 2019, the risk profile of tenants will be under more scrutiny in an effort to protect the interests of landlords, agencies and owners alike,” said Smuts.