 Ladies and gentlemen, welcome to the Private Property Podcast. My name is Heti the Entrepreneur and I am super excited to be your guest host this evening. We've got a very, very interesting topic that we're talking about this evening and I certainly do not come alone. But before we get started, let's mark the register, shall we? Let me know your name and where you're joining from within the comment section. We've got a really fantastic show that is lined up this evening and of course right over here at Private Property, we always ensure that we come with your viewing pleasure. So this entire week, we always have a fantastic lineup for you every evening at 8 p.m. We've got the Home Shoppers show with Chad, we've got the First-Time Home Buyers show with Estie and we've also got the Farming Podcast with Mbali Nwokhu. So this is really fantastic because we have your viewing pleasure as our top priority. So very warm welcome to you all. I see we've got individuals from all over the country. We've got Cape Town, we've got Durban, we've got Pretoria. This is absolutely fantastic. I really am quite excited to be guest hosting this evening. And thank you so, so much for being part of the Private Property Community and Tribe. Our lucky giveaway is still ongoing. I wonder who's going to scoop up the 500 Rand this evening. Can you take a wild guess? Let me know within the comment section. I'd like to see if you actually have any questions. In the comment section, I'd like to see if you actually guessed correctly. I am so, so excited for our topic this evening. I am joined by Michelle Dickens, who is the founder of the TPN Credit Bureau Group. Good evening, Michelle. How are you this evening? Thanks, Hetty. Very well. So excited to be joining you this evening. Thank you so much, Michelle. For those individuals that aren't familiar with yourself or your company, can you tell me what exactly does the TPN Credit Bureau Group do? Oh, Hetty, I'd love to. So what we do is we are the Bureau that collects data on tenant's behavior around South Africa. And this allows two segments of the market to benefit. The landlord firstly, because they can place quality tenants in their property. We can provide data analytics back to the market. And secondly, we profile tenant behavior enabling tenants and the majority are quality tenants enabling quality tenants to build a positive credit profile for themselves. That will be their first foothold to get into first time home buyer with a rental profile that shows how wonderfully they've been paying their rent and therefore motivating a home loan for them. Oh, that's absolutely fantastic. And really such a valuable resource for tenants to be able to get out there. So I think that is really fantastic. Now, Michelle, I know that you recently released the TPN Vacancy Report. In terms of a high level overview, what is the report about? What is its objectives? So the report has two objectives. The first is to try and understand the market strength of the residential sector. So do we have high strong demand or is demand weak at the moment from the tenants? And in terms of supply, do we have a lot of supply in the market or is supply weak at the moment? From both of those sets of data, we can then create a market strength index to see if we've got a market that's got excess demand from the tenants or a market that has excess supply. And then we look at that across different regions, different rental values. So do we have excess supply in the top end of the market but excess demand in the affordable end of the market? And then from that, we derive a second question, which is the vacancies. So how many properties are standing vacant at the moment? These are properties where they are ready for a tenant. They're not being held back for maintenance. There's not a delinquent tenant sweating in the property. These are properties that are open and available and are welcoming a tenant but standing vacant. And so from this data over time series, this gives us an important indication from a landlord perspective leading into the next facet, which is escalations. So our rental price is going up or down. If we've got a low demand and high supply and the vacancies are high, we're going to end up with negative escalation territory. And this then feeds into whether people need to drop their rents to get a tenant and what impact that will have on their returns and ultimately the landlords because we want to make an income return out of this property. It's such a fascinating area because at some point, most individuals have found themselves on either side of the spectrum, either being a landlord or being a tenant. And I suppose I'm going to put you in the tough spot of asking the age old question. Is it a buyer or a seller's market at the moment? That's such a fabulous question. Ultimately, what's happening at the moment is we've had a very stagnant market in terms of house price increases leading into the pandemic period. And then according to FNB's home house price index, the house prices escalated during the latter half of last year and the early part of this year to 4.6% capital growth, which is fantastic because it came off a base of 1.2% and I've been very low for a long period of time. It's starting to come off the well. So house prices are starting to come back down again. So is it a buyer's market or a seller's market right now? We're seeing that of the properties that are being sold in the investment space, 18% of those properties are being sold less than what they were purchased for. So I would suggest that if you go out and have a proper look, you're going to find some property bargains out there at the moment. That's quite interesting. So I suppose that's really good news for buyers, but this must have quite an impact on landlords in terms of their perception of the marketplace. So how is the perception of the landlords currently? Are we seeing it more optimistic or more pessimistic? Yeah, so we've seen the supply rating has kind of stabilized. So there certainly appears to be an oversupply perception from the market. And in fact, landlords have a more negative perception than property managers themselves. So we look at the data coming in from a property manager or a landlord. Landlords directly perceive the market to be weaker than the property manager perceives the market to be, but the demand rating is improving. So we're definitely seeing from the perception of landlords and property managers that there's more demand for rental stock at the moment. And I think that's just because people are settling down. Job security has improved. I know we've got the worst unemployment numbers, but from the middle market segment, we certainly have a lot more job security from an income point of view. And so people are starting to move back into the rental market space. That's quite interesting. So with that influx of people now beginning to get back into the rental market space, are we finding the tenants, because of their perception of the market being in their favour, are we finding that they're negotiating more on prices and are they getting their way? Yeah, so there's a fascinating report that indicates that people who have had to cut back on their budgets, what have they been cutting back on? So have there been 39% of the respondents said we're going to shop at a cheaper grocery store? 39% of the respondents said we're going to switch DSTV or streaming to a cheaper version. 13% said that we are tenants and we're downscaling. So we're opting to cancel the lease that we currently in for more affordable lease and that's absolutely what we are seeing in our data. So we're seeing that there's a stronger demand for more affordable type properties and definitely the tenants are downscaling at the moment. Overall, we've seen that rental has been negative escalation for a period of, overall, for a period of quarter one and quarter two of this year. So quarter four and quarter one of this year and we've popped back into positive escalation. And when I say pop back into positive escalation, I'm talking about 0.23%. So a quarter of a percent overall. But that's not across all the properties, right? We still see in any property above $7,000 per month, still negative escalation. We're still seeing in the Western Cape and Haating, we're still seeing negative escalation. My Haating is fascinating because it is home to 50% of all of South African's tenants. So when you look at the entire tenant database, 50% of those tenants reside in the Haating province. So Haating is kind of an important province to understand the dynamics of. Absolutely. It is quite an interesting one. And, you know, having said that, when we look at Santon, for example, 26% vacancy rate in that area, is this predominantly now among your office parks, et cetera? And what would you say is driving this trend? Yeah, absolutely. So GrowthPoint released their data today as well. And so absolutely, Santon is one of those areas from an office perspective, high, high vacancies. If I'm correct, I think the numbers were 25 or 26%. When we look at it from a residential perspective, in the quarter to 26% of residential tenants, we had vacancies in those properties. This quarter nine, quarter three, that data is now at 10%. So what does that mean? It means that Santon landlords have reverted their prices back to prices last seen in 2017. So we have seen, right? So landlords, in order to fill that space, I mean, 26% vacancies is a quarter of the properties. And in order to improve those vacancies, we've had to increase or decrease rental quite substantially in that luxury end of the market. And those vacancies, it's driven by supply. We've seen a lot of office conversions in the Santon market as well. And that's what's been driving the supply into that market. That really is quite fascinating and an interesting indicator of the sign of the times people are working from home. They're converting their homes into businesses. We're really living in very, very interesting times where the traditional way of going about life is really, really changed. Let us know private property family within the comment section. Are you a renter or a tenant? Are you a landlord? Are you finding that you're working from home more often these days? Get in on the conversation and definitely let us know within the comment section. Now, Michelle, we speak of Santon, but then when we look at the Western Cape, we find that they have got the highest concentration of the biggest renters and the biggest spenders. Is this because of the foreign currency that's within that economy? What is driving that? Because that's quite different from Santon, isn't it? So Western Cape is fascinating and Cape Town in particular. Up until December of 2017, we had a lot of international tourists coming in. And we also had a lot of immigration down into the Western Cape. So Western Cape, compared to the rest of the country, was still operating with a house price index growth. Atlantic Seaboard was still sitting at 33% year on year house price growth in 2018, right? The rental escalation was sitting at 15%. The rest of the country was sitting at 5%. So Western Cape, up until December 2017, was having a ball. What happened in December of 2017 was we had the drought. And so we had 300,000 less tourists coming into the Western Cape at that period of time. And we also had a slowdown of immigration. So as house prices became unaffordable, less housing families were relocating down to that particular area. And so that put a damper on both the house price index growth as well as the rental escalation growth. Then you hit the pandemic and now we've got no tourists coming in as well. So you've got no international tourists coming into that area as well. So what happened was we had a lot of Airbnb properties, short-term land properties, coming off the short-term land market and into the long-term land market. Now, once you're in the long-term market, you can't just in three months' time decide, you know, and I want to move back into the short-term because you've got a 12-month lease agreement. So this has an impact on the supply side of the Western Cape and particularly the Cape time market, declining number of tenants in the demand section and an increased number of supply in terms of your short-term lease coming into the long-term market. Wow, this is absolutely fascinating. Ladies and gentlemen, if you want more information about what we are talking about this evening, then you definitely want to check out the TPN Credit Bureau Group's Vacancy Report because that really has all of the juicy information that we're talking about this evening. Now, we've reached the midpoint of our show and that means the moment that you've been excited and waiting for and contemplating about within the section has reached the point at which we are at. So let me know within the comment section if you are excited to hear about tonight's winner. Give me a ready in the comment section if you were excited to hear who the winner is tonight for our competition. Awesome. I see ready, ready, ready, ready, ready. Let us roll the random selector. I wonder who is going to grab it this evening. It's 500 grand that's up for grabs. Let's take a look. Fantastic. I see that our winner is Chanel Fouri. Chanel Fouri, you are the winner of the 500 grand this evening. Now, all you need to do is comment within the comment section and let us know that you are here to claim your prize. If you aren't here, then the amount is going to roll over. So please do announce yourself within the comment section so that you can claim your 500 grand. Not bad for a beautiful Thursday evening. Now, Michelle, going back and looking at the vacancy report for an individual that is looking to invest within the property market at the moment. What are kind of the returns that one can expect, particularly if you are looking, let's say at a full title or a sectional title. Given the information within the vacancy report, what can one expect from a return's perspective? So what TPN does is we collect data on the rental value out there and your gross yield is the easiest way to compare different property categories, full title, sectional title, number of bedrooms, regions, etc. And in order to do this, we take the annual range of the property. We divide it by the market value of the property and that gives us our gross yield. Of course, after your gross yield, you do want to deduct your expenses in order to get your net income. So from our data, we can see that sectional title moments are achieving a 10.4% gross yield. Our full title properties are achieving a 7.6% gross yield. And this is typically because you can achieve a higher rental value for a smaller, more contained unit that you can for a bigger unit compared to its market value. We're looking at two bedrooms achieving the highest yield, then our one bedrooms and then back up to our three bedrooms. And what do tenants want at the moment? Tenants want two-bedroom properties. According to our data, the most search for properties are two-bedroom units and sectional title security is such a big importance. So our tenants are telling us we price sensitivity, security issues and well maintained properties. So properties that aren't becoming a little bit dilapidated. Those are going to attract the better quality tenants. You're going to get your best price for it. And of course, that's going to determine your yield at the end of the day. By region, let's talk a little bit about the region. The Western Cape, we know, I mean, the property prices there had been growing faster than the rest of the country. So our house price index there or our average rental house market price is going to have a weakening effect on our returns. So the Western Cape only sitting at 8.6%. Compared with Khartin, which is closer to 11%. But it's not just about the yields, because the first thing you have to do in order to achieve those yields is collect the rent. And, right, so the Western Cape are our best performing tenants in terms of collections. So closer to 84% of the Western Cape tenants are in good standing, whereas Khartin is sitting at 78%. So rent collection goes hand in hand with your ability to achieve real yield. Absolutely. Absolutely. So, so fascinating and very interesting information for landlords and those that are looking to invest as well. Now, of course, we've got these wonderful individuals that sit right in the middle of the sellers and the buyers, which are the estate agents. So with the information that's contained within the vacancy report, how is the current climate voting for estate agents? So we look at the data across the entire rental market, and we try to assess how many properties are managed by the landlord themselves versus how many properties are managed by the estate agency market. And the numbers, you know, they shift around a little bit over the years. We've been doing this for two decades, for 20 years, and the numbers move around, but they stay, you know, more or less in line with a 50, 70% split. So estate agents manage 30% of the rental market and landlords manage 70% of landlords manage the property themselves. A lot of those landlords will engage with the property manager from a procurement perspective. So help me find a tenant because this is this is one of the areas that estate agents are absolutely brilliant is that having a big network of potential applicants tenants. The majority of landlords are micro landlords. So these are the majority of landlords have less than nine properties within their portfolio. And a big segment of those actually have less than five properties within their portfolio. That's still manageable, right? When you've got five to nine properties, that's still manageable. But when you get beyond that really becomes a full-time job. And that's where you need the support of your property manager to be able to manage the maintenance of all of those properties, the turn of the tenants of all of those properties. It can become a full-time job. Yeah, absolutely. And it actually really goes to show what a large number of landlords we actually have with, let's say, between five to nine properties. It's quite a big pool of individuals that fall within that bracket. So that really is quite interesting. In terms of just the environment as a whole, what would you say the general sentiment is? Do you think that we are on a road to recovery? So certainly the numbers that we're seeing are pointing towards recovery. Vacancies have improved. We were sitting at 13% for three quarters. And now we're sitting at 10.6%. That's an improvement. Escalations were negative. Overall, now we see escalations have moved back into positive territory. That's a good news story. The number of tenants in good standing had deteriorated to 73.5% in the hard lockdown. Those numbers have improved. We're back up to 80%. That's a good news story. The number of tenants who were in a squat position, in other words, tenants who are four or more months in arrears of not paying their rent at all. So they're sitting in the property and they haven't paid rent for a minimum of four months. We had seen those numbers increase to 1.8%. They declined back to more 0.9%, which is kind of where we were before the lockdown. And they've increased a little bit to 1.2% at the moment. Still not as bad as the 1.8% that we were at. For me, that's a good news story. And I'll tell you why that's a good news story. Because people say, oh, if you have a delinquent tenant, they're going to sit forever and not pay rent in your property. Whereas less than 1% generally do that. So your chances are 1 in 100 of picking up a tenant that's going to behave that way. And if you profile them properly upfront, then you're not really going to be in that risk academy. So for me, that's a good news story coming out of the data at the moment. The challenge though remains that we have incredibly high unemployment. And people's income is not increasing at the same rate as their expenses are. You just look from a tenant perspective at things like your electricity increases, your water price increases. Oh my gosh, sewage price increases. These things that people don't even have sewage costs. In some instances, for multi-let properties, sit at 600 rand. For a person renting a two bedroom unit in a block of apartments. Never mind the water on top of that and the electricity on top of that and the refuse removal on top of that. Those sort of price increases erode out affordability for everyone, tenants included. Yeah, absolutely. And it really speaks to the stark reality that tenants and landlords are having to face on the ground, the reality on the ground. Are you finding that landlords are actually having to kind of meet the tenants halfway in terms of the pricing that they've attached to the rentals and finding that they're having to actually rent out below the cost that they probably would have done a few months ago? Absolutely. So we're definitely seeing that in the negative escalations. But we're also seeing that in terms of some, particularly in the more affordable segment of the market where landlords are just not passing on those additional costs at the rate that they are receiving them. So you simply cannot pass on a 600 rand sewage cost to an affordable type unit. So the landlord is just absorbing that cost at the moment. So it's not seen only in the negative rental escalation. It's also seeing in the amount of costs, expenses that landlords are absorbing on behalf of their tenants. Oh, goodness. Wow, that is really quite interesting and such a stark reality that landlords are having to face at this particular point. Ladies and gentlemen, I see the Chanel Fauré has claimed her prize. A very, very big congratulations to you, Chanel. As you can see, it really does pay to be part of the private property community. So very, very warm congratulations to you, Chanel. Michelle, before we begin to wind things down, if a person is interested in learning a bit more about the vacancy rate, looking at the trends that TPN credit bureau group has managed to put together, how does one get their hands on the report? So there are two places to get the data from us. The first is directly off the website, tpn.co.za, and in there we have the vacancy survey, the rental monitor survey, the commercial monitor survey. All of those reports are freely available. You can just go in and download them. If any of the viewers tonight are keen on understanding suburb specific data, then they can go to our shop, which is shop.tpn.co.za. You can plot your suburb that you're looking at, and you can download a report. Those reports do come at a cost, so they're 28 grand, but they're 14 pages of so much information about the suburb that you may be interested in. Absolutely, and sounds like such a worthwhile investment as well. If you're going to invest in an area or you're looking to stay in an area, then you certainly want to have all of the relevant information to arm yourself with knowledge. So it sounds like a very good investment that a person can make. Thank you so much, Michelle. Thank you very much for joining us this evening. It's been highly informative, and we really have enjoyed having you with us tonight. Amazing so much. Thanks, Hattie. And that brings us to the end of our show, Private Property Family. I hope that you've enjoyed this evening with us. I have certainly enjoyed spending the time with you and learning a great deal. Chanel for a very, very warm congratulations to you. Now, your viewing pleasure does not end there. Please do continue to stay tuned to the farming podcast at 8 p.m. with Balinoku. On that note, my name is Hattie the entrepreneur, and I'm signing out. Thank you.