Rising Tenant Risk Amid Strong Rental Growth

• Strong rental escalations exceed inflation, but tenant payment momentum is slowing across key segments.
• Risk migration is increasing as more tenants slip into high-risk categories during occupancy.
• Provinces show uneven stability as affordability pressure grows and yields tighten in high-value markets.

Introduction: Resilience under pressure

‍The latest TPN Residential Rental Monitor (Q2 & Q3 2025) reveals a rental market performing strongly on pricing, yet showing growing signs of financial strain among households. While national rental escalations continue to outpace inflation and the majority of tenants remain in good standing, the positive momentum that defined early 2025 is slowing.

Payment trends are flattening, tenant risk is rising, and affordability pressures are becoming more visible, signalling the need for landlords and property managers to adopt deeper, data-driven risk management.

Waldo Marcus, Director of Corporate Marketing at TPN from MRI Software, emphasises the turning point:

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‍“Stable-but-slowing good standing reflects the strain in household budgets. We’re seeing resilience, but also clear warning signs in tenant behaviour.”

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1. Tenant Payment Performance: Momentum slows

Payment metrics show subtle but significant shifts:

• Tenants in good standing: Up marginally from 83.94% (Q2) to 83.95% (Q3), the slowest improvement in recent cycles.
• On-time payments: Increased from 69.8% to 69.91%, signalling that tenants who can pay are prioritising prompt settlement.
• No-payment tenants: Rose from 6.0% to 6.15%, a troubling sign ahead of the high-risk festive season.
• Partial payments: Declined slightly (10.06% to 9.9%).

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Marcus notes that enhanced tenant screening from South Africa’s FATF grey-list removal has helped: “Improved protocols have derisked new placements and strengthened collections, but rising household pressure is now visible in the data.”

2. Rental Escalations: Prices outpacing inflation

Rental escalations remain robust:

• National rental escalation: Up from 4.62% (Q2) to 4.76% (Q3).
• CPI for September 2025: 3.4% of landlords continue pricing above inflation.

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Key segments

• Low-value rentals (<R1,500): Sharpest escalations (6.33% - 7.86%).
  Driven by “rebasing” after previous suppression and rising multi-let demand.
• Mid-market (R4,500 - R12,000): Stable, broad-based escalations (majority of tenants).
• Upper market (R25,000+): Renewed momentum (4.47% to 5.05%).

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Marcus cautions: “Upward pressure on rentals limits affordability for the most vulnerable tenants.”

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3. Evolving Tenant Risk Profile: Risk migration accelerates

TPN’s 12-month tracked tenant risk data shows: Positive migration for reliable payers:

• Average-risk tenants: 18.3% at application to 5.6% during occupation
• Low-risk tenants: 58.4% to 63.5% with consistent payment strengthens credit profiles.

But rising stress in lower-risk groups:

• High-risk profile increases: 11.7% at application to higher during occupancy
• Very high risk: 11.7% to 13.6%

Consumer credit strain supports this trend:

• Credit-active South Africans dedicate 28% of income to debt servicing.
• Credit card balances and personal loan values continue climbing.

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Marcus warns: “Growing reliance on credit increases the risk of rental default later in the lease term.”

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4. Provincial Performance: Uneven stability across the map

Western Cape
Still the strongest performer nationally despite softening:

• Non-payment: 5.28% to 5.51%
• Escalations: Slight rise (4.88% to 4.9%)
• Gross yields: Full title: 8% & Sectional title: 10%

Gauteng
Steady recovery and affordability-driven growth:

• Good standing: 83.23% to 83.29%
• Rental levels: Sectional title: R8,307 & Full title: R9,995
• Escalations: 3.87% to 4.08%
• Gross yields: Sectional: 12% to 12.2% & Full title: 7.1%

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Marcus notes: “Higher property values are compressing yields and slowing escalations.”

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5. The rising cost of default

Defaults are becoming far more expensive:

• Average civil judgement for rental debt increased 182.67% over 10 years: R13,946 (2015) to R39,421 (Q3 2025)
• Total rental-related judgments (decade): R2.75 billion
• Summonses issued: 216,560
• Judgements granted: 126,902

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Marcus explains: “Fewer cases reach court, but those that do involve significantly higher values. Swift legal action and compliant leases are non-negotiable.”

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6. What this means for 2026: Managing risk in real time

The monitors reveal a market split into two:

1. A stable core of tenants continuing to support rental growth.
2. A growing high-risk segment strained by debt, rising costs, and escalating rentals.

Heading into 2026, landlords must:

• Implement real-time monthly tenant monitoring, not just application-phase scoring.
• Strengthen collections and compliance under stricter regulatory frameworks.
• Apply measured rental escalations to prevent affordability deterioration.
• Increase tenant engagement ahead of high-risk periods.

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Marcus underscores the imperative: “Relying solely on application credit scores is operating blind. Real-time data is essential to manage risk and protect returns.”

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Opportunity with caution

‍The TPN Q2 - Q3 2025 data reveals a resilient rental market, strong escalations, steady occupancy and solid payment behaviour from the majority. But underlying this resilience is a clear rise in household financial pressure and a widening gap between stable tenants and those edging into distress.

With 2026 approaching, success will depend on accurate risk visibility, responsible pricing, and data-driven tenant management. Those who monitor, adapt and act early will safeguard returns and maintain stability in a tightening economic environment.

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