Landlords Beware: 26 per cent of Rental Applicants in South Africa Classified as High Risk in Q1 2025

The South African rental market in 2025 is facing a complex and shifting landscape marked by both opportunities and risks.

While demand for rental housing is strong, landlords are being warned of an increasingly high-risk tenant pool. Recent data shows that in the first quarter of 2025, 26 per cent of rental applicants were classified as high risk, up from the previous year.

This startling statistic has become a wake-up call for landlords, property managers, and investors who must navigate this environment carefully to protect their rental income and investment returns.

This article examines the factors behind the 26 per cent high-risk classification, the driving forces behind the trend, its impact on landlords in practical terms, and strategies for effectively managing these risks.

It also discusses the broader economic context, the nuances of tenant screening, the role of technology in the vetting process, and the best practices for landlords aiming to thrive in a challenging market.

The Alarming Statistic: One in Four Tenants Classified as High-Risk

The figure of 26 per cent of applicants being deemed high risk comes from leading tenant assessment tools that combine traditional credit checks with rental payment histories.

Unlike simple credit scoring, these systems take a more holistic approach, examining how tenants perform in the rental environment, including payment punctuality, arrears, income levels, and debt commitments.

The result paints a picture of a rental market that is increasingly polarised. On one end, there is a significant share of tenants classified as low-risk or minimum-risk.

On the other end, more than a quarter of all applicants pose a high risk of late payments or default. This polarisation challenges landlords to move beyond basic credit checks and gut instinct when selecting tenants.

High-risk tenants can seriously disrupt a landlord’s cash flow. Missed or delayed payments result in administrative headaches, increased legal costs if evictions become necessary, and more extended vacancy periods as units are prepared for new tenants.

For smaller landlords with only one or two properties, even a single high-risk tenant can be financially devastating. For larger portfolio holders, high-risk tenants can erode overall yield, hurt investor confidence, and increase operational costs.

What Defines a High-Risk Tenant

A high-risk classification is not arbitrary. It typically results from a combination of factors that suggest a greater likelihood of rent arrears or default. These factors include poor credit histories, high levels of existing debt, irregular income, and a history of late or missed rental payments.

Advanced tenant assessment systems have moved away from relying solely on credit bureau scores. They now include actual rental payment data, making them significantly better at predicting future behaviour.

For landlords, this means that the high-risk designation is not just a theoretical metric but a practical warning based on empirical evidence.

A high-risk tenant profile may include those with limited or inconsistent employment histories, lower income levels relative to rental costs, or a history of debt obligations exceeding safe thresholds.

Young tenants with short credit histories, self-employed applicants with variable income, and tenants under financial stress from broader economic conditions can all fall into this category.

The Economic Context Behind the Statistic

The 26 per cent high-risk figure does not exist in a vacuum. It is deeply tied to South Africa’s broader economic landscape in 2025. Inflation has put pressure on household budgets, while interest rate hikes have increased the cost of credit and reduced disposable income.

Many tenants are spending a larger portion of their income on essentials, such as food, transportation, and utilities, leaving them with less margin for rent.

Cost-of-living pressures are particularly severe for younger tenants. Although they make up nearly a quarter of the adult population, they have limited access to traditional credit and account for only a small fraction of outstanding consumer debt.

Their short credit histories make them appear riskier to traditional scoring systems, and they often lack the rental payment track records that more advanced systems use to confirm reliability.

The unemployment rate also plays a role, with specific regions and demographic groups facing higher barriers to stable employment.

Self-employed workers, gig economy participants, and contract workers may have variable incomes, which can complicate affordability assessments. For many, even when employment is consistent, wages have not kept pace with inflation, eroding their real purchasing power.

The Polarisation of Tenant Risk Profiles

While 26 per cent of tenants are deemed high risk, the remaining applicants are split between minimum, low, and medium risk categories. Interestingly, a significant proportion of applicants fall into the minimum-risk bracket.

This reflects a growing polarisation: some tenants are highly reliable and pose little risk, while others present substantial challenges.

Income is one of the strongest predictors of risk level. Tenants earning over R80,000 per month are far more likely to be classified as minimum risk, with nearly two-thirds falling into this category and only about one in eight being deemed high risk.

By contrast, those earning between R10,000 and R20,000 have a significantly higher likelihood of being classified as high risk, approaching 40 per cent.

However, income alone is not the sole determinant of success. Rental payment history, existing debt obligations, and behavioural patterns in managing credit also influence risk classification. A high-income tenant with a poor payment history may still be considered a high-risk tenant.

In contrast, a lower-income tenant with an excellent track record can be rated as lower risk. This nuance highlights the need for landlords to adopt more sophisticated screening practices that extend beyond pay stubs and credit scores.

Age and Risk: A Nuanced Relationship

Age is another critical factor in risk classification. Younger tenants, especially those in their twenties, are more likely to be classified as high-risk.

This is not necessarily because they are irresponsible but because they often lack the credit and rental payment histories that form the backbone of risk assessments. Their incomes may also be lower or less stable during their early careers.

On the other hand, older tenants tend to be much lower risk. Applicants over 60, for example, often have well-established payment histories, stable income from pensions or investments, and lower debt burdens. They are significantly more likely to fall into the minimum-risk category.

These trends highlight the importance of considering the broader context of an applicant’s life stage. A young tenant may represent a higher statistical risk, but could still be an excellent renter if properly vetted and supported.

Conversely, older tenants may offer stability but might have specific needs that landlords should be prepared to accommodate.

Gender Differences in Tenant Risk Profiles

Gender differences in tenant risk profiles are relatively small but still worth noting. Data suggests that male and female applicants have similar distributions across minimum and high-risk categories.

However, there are subtle differences in debt management patterns. Women, on average, spend slightly less of their income on debt repayments than men, which can improve their affordability profile.

These slight variations should not lead landlords to make assumptions based solely on gender. Instead, they illustrate the importance of examining each applicant holistically, considering income, debt, employment, and payment history in combination.

The Challenge of Affordability

Affordability remains at the heart of the risk assessment discussion. The gap between income and rent is a critical predictor of tenant reliability. As rent prices have grown in many parts of South Africa, particularly in sought-after urban areas, the strain on tenants’ budgets has intensified.

For many households, rent is the single most significant monthly expense. When wages stagnate or fail to keep pace with inflation, tenants face difficult choices about which bills to prioritise.

Missed or late rent payments can become a survival strategy for financially stressed tenants, resulting in an elevated high-risk classification.

Landlords must recognise this reality when setting rental prices and evaluating potential tenants. Charging the highest possible rent may maximise short-term income; however, it can also increase the likelihood of attracting tenants who are financially stretched, thereby raising the risk of default.

A more sustainable approach balances rental yield with tenant affordability, ensuring long-term stability and financial stability.

The Impact of High-Risk Tenants on Landlords

For landlords, the presence of a high-risk tenant can have far-reaching consequences. Missed rent payments disrupt cash flow, making it harder to cover mortgage repayments, maintenance costs, and other expenses.

Arrears can quickly accumulate, leading to costly legal proceedings if eviction becomes necessary.

Vacancy periods between tenants may also lengthen if properties require repairs or if legal disputes delay turnover. Even when new tenants are found, the costs of marketing, administration, and commission fees can eat into profits.

For landlords with multiple properties, these risks can multiply across their portfolio, reducing overall yield and increasing operational complexity.

High-risk tenants may also pose management challenges that extend beyond payment issues. Properties may be neglected or damaged, requiring more frequent and expensive maintenance.

Neighbour disputes, complaints, or legal issues can further complicate landlord-tenant relationships and tarnish the reputation of a rental business.

The Role of Advanced Tenant Screening Tools

In the face of these challenges, landlords must adapt their screening processes to manage risk effectively. Traditional credit checks, while valuable, have limitations. They often fail to account for rental payment history, which is one of the strongest predictors of future behaviour.

Advanced screening tools that incorporate rental payment data can offer a more accurate and nuanced assessment.

These systems allow landlords to differentiate between tenants with similar credit scores but different payment behaviours. For example, a tenant with a modest credit score but an impeccable rental payment record may pose less risk than someone with a higher score but a history of rent arrears.

Advanced screening tools also provide landlords with clear, actionable insights. Risk categories can guide decisions about lease terms, deposit requirements, and rent pricing. Landlords can adopt a more strategic approach, tailoring their policies to the risk profiles of individual tenants.

Best Practices for Managing Tenant Risk

Effective risk management begins with thorough tenant vetting. This includes not only checking credit scores but also verifying employment, income, and rental history. References from previous landlords can provide invaluable insights into a tenant’s reliability and behaviour.

Landlords should also carefully consider affordability ratios. Best practice suggests that rent should not exceed a certain percentage of a tenant’s net income. This ensures that tenants are not financially overextended, reducing the likelihood of payment problems.

Deposits and guarantees can be adjusted based on risk profiles. Higher-risk tenants may be asked to provide larger deposits or secure a guarantor. Flexible lease terms can also help manage risk, allowing landlords to assess tenant performance over shorter initial periods before committing to longer leases.

Ongoing monitoring is equally important. Early intervention when payment problems arise can prevent issues from escalating. Clear communication, flexible payment plans, and proactive problem-solving can help maintain positive landlord-tenant relationships and avoid costly legal action.

The Broader Policy and Regulatory Environment

South Africa’s rental market does not operate in a vacuum. Legislative and policy frameworks have a significant influence on landlord-tenant relationships, encompassing rules governing evictions, deposits, and lease agreements.

Proposed or pending changes to rental legislation can impact landlords’ rights and responsibilities, potentially making it more difficult to evict non-paying tenants or increasing compliance costs.

Landlords should stay informed about legal developments and consider joining industry associations or professional networks to access guidance and advocacy. Collective action can also help shape policy in ways that balance tenant protection with the need for fair returns on investment.

Technology and the Future of Tenant Vetting

The growing adoption of property technology is transforming the rental industry. Online application platforms, digital payment systems, and advanced data analytics allow landlords to streamline operations and make more informed decisions.

Tenant assessment tools that integrate credit and rental payment data offer a powerful way to reduce risk.

Artificial intelligence and machine learning are being applied to tenant screening, identifying patterns and risk factors that might elude human evaluators. These systems can process vast amounts of data, continuously learning and improving over time.

For landlords, embracing these technologies can provide a competitive edge. They can reduce administrative burdens, improve tenant selection, and enhance overall portfolio performance.

However, landlords must also be mindful of data privacy and ethical considerations, ensuring that screening processes are transparent and fair.

Building a Sustainable Rental Business

Managing tenant risk is not just about avoiding losses; it is also about building a sustainable, reputable rental business. A portfolio filled with reliable tenants pays dividends in the form of consistent income, lower management costs, and higher property values.

Positive landlord-tenant relationships foster longer tenancies, which in turn reduce vacancy rates and turnover expenses.

Landlords who adopt best practices in screening and management can differentiate themselves in a competitive market. They can attract tenants who value professionalism, responsiveness, and fairness. This, in turn, supports a more stable and profitable rental sector overall.

Conclusion

The warning that 26 per cent of rental applicants in South Africa are classified as high risk in Q1 2025 is not a reason for panic but for preparation. It reflects broader economic pressures, affordability challenges, and evolving tenant demographics.

For landlords, it is a call to action to strengthen vetting processes, embrace technology, and adopt risk-based management strategies.

By understanding what drives high-risk classifications and responding thoughtfully, landlords can protect their investments, support tenant stability, and contribute to a healthier rental market. Those who ignore these trends risk exposing themselves to avoidable losses and operational challenges.

Those who adapt will be better positioned to navigate the complexities of the South African rental market in 2025 and beyond.

Useful External Links

https://www.payprop.com/za
https://propertywheel.co.za
https://iol.co.za/business/property
https://businesstech.co.za/news/property

Membership with the South African Landlords Association provides access to expert advice, legal resources, and a community of like-minded professionals.

Enhance your rental management experience and protect your investments by joining today!

Our Top Read Blogs:

How to Sell a House in South Africa Fast

Complete Process of Tenant Eviction in South Africa