Real Estate Investor Magazine South Africa June/ July 2019 | Page 10

Q&A
Property Advice
CAN CREDIT SCORES
PREDICT FUTURE
TENANT BEHAVIOUR?
Johette Smuts, Head of Data at
PayProp answers this month’s
property question.
Question:
Dear REImag Team,
As a property owner and manager of my own rental properties. is there perhaps some type of
scoring system that can predict future tenant behaviour to ensure that my rentals are always paid?
Answer:
While a credit score can be a foolproof predictor of future account
payment behaviour, the same can’t be said for predicting future
rent payment behaviour. Credit scores are designed as a measure
of creditworthiness and credit isn’t a feature of rental contracts.
It’s increasingly clear that credit checks alone are not adequate in
fully understanding the extent of non-payment risk that a new
tenant presents.
PayProp has for some time offered a Tenant Assessment Report,
designed in collaboration with Compuscan. This report, which
has undergone a recent update, now provides a prospective
tenant’s rental payment data along with their credit payment data,
offering a superior tenant payment profiling metric that is much
better at identifying potential bad tenants than a normal credit
score. Importantly, the data used is extracted from the PayProp
system and is not editable at time of export. Insights are taken
on the same day of each month, which makes the results more
consistent and accurate.
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JUNE/JULY 2019 SA Real Estate Investor Magazine
PayProp’s own market research points to the need for extra care in
selecting tenants. The PayProp Rental Index for the first quarter
of 2018 outlined that one in every four tenants in South Africa
doesn’t fulfil their rental obligations. Nationally, we measure an
increase in the percentage of tenants in arrears from 18.5% in
April 2017 to 23.2% in March 2018. This means that only 76.8%
of tenants pay their rent in full every month – and one in four
don’t.
With tenants increasingly defaulting on their rental payments,
they too can benefit from access to their own tenant risk
information. PayProp encourages agents to share the PayProp
Rental Risk Rating, included in Tenant Assessment Reports, with
their tenants. There’s a perception that the public needs to be
excluded from their credit history information – but if consumers
are aware of their credit rating, then they can actively work at
maintaining or correcting it.