Rental market hit by Eskom hikes

Cape Town - Eskom's most recent price hike of 8%, as opposed to previous 25% per annum increases, provides scant comfort to already overburdened South African consumers.

An analysis by Michelle Dickens, managing director of the Tenant Profile Network (TPN), provides some food for thought. It will hardly come as a surprise that TPN's research indicates that residential tenants are already over-exposed to the high cost of electricity.

Let's take a tenant in a two-bedroom townhouse over a five-year period as tangible evidence.

In June 2009, the average monthly cost of electricity for Joe (your average tenant) was R192.40. This number has risen year-on-year to a monthly cost of R202.14 in 2010, R351.07 in 2011, R626.33 in 2012 and R814.70 in 2013.

Joe’s case is not isolated and most consumers would relate personally with this increase pattern.

In fact, the cost of electricity has risen so disproportionately with the cost of living that Joe’s electricity cost now makes up 19% of his overall rent and electricity bill - compared to only 5% in 2009.

A broader sample of TPN’s Rentbook tenants indicates a similar trend, with some noteworthy key findings:

•  The average cost of a tenant’s electricity in 2011 was R763.39, or 17% of the rent and electricity bill.

•  In 2012 the average of electricity was R884.06, or 19% of the rent and electricity bill.

•  Further analysis showed tenants in the below R3 000 rent per month category have been most severely impacted.

In 2011 23% of their total rental account was attributed to electricity, while in 2012 this pushed up to 30% - effectively the average cost of R622.72 for electricity on an average basic rental of R2 250.42.

•  Both tenants and landlords have already suffered financial consequences, and will continue to do so.

Tenants' pockets are directly impacted, with the lower end of the retnal market suffering the most.

The extraordinarily high annual increase of electricity over the last four years has directly impacted the landlord's ability to increase rent, with overall basic rent escalation remain fairly flat.

More alarmingly, the landlord remains liable for the cost of electricity on his property; if the tenant defaults on electricity payments, the landlord will have to settle this account prior to obtaining a clearance certificate on any future sale of the property.

•  The cost of a tenant’s non-payment of electricity is now significant, especially when calculated over the average 12-month term of a lease; it is inevitable that landlords will start demanding higher deposits to cover this risk.

•  Tenants are responsible to make full and timeous payments for their rent and additional charges such as electricity. This makes it increasingly important that landlords or their agent perform full credit reports and thorough affordability assessments.