Guarantee Exchange South Africa (GEXsa), a recently launched company, aims to provide guarantees to long and short-term rental agents and owners should a tenant abscond or leave the property in a bad state. The company was developed to provide financial flexibility for consumers who are credit worthy but struggle to come up with a three-month rental deposit.
GEXsa is the brokerage firm appointed by SA Guarantee Specialists to take the rental Guarantee product to market.
Danie Hanekom, founder of SA Guarantee Specialists, said this type of guarantee has taken off in certain parts of the UK as well as Australia.
Financial freedom to rent
Consumers can now sign an agreement and pay a nominal fee based on their monthly rental in lieu of the deposit. Once checking the credit worthiness of the individual GEXsa is able to have a guarantee issued to the owner or agent within a matter of minutes.
“Due to changes in the macro environment, a one month security deposit has become insufficient. With the demand now for two to three months rental as a security deposit, it is difficult to conclude rental agreements,” said Cathy Foster(pictured) GEXsa CEO.
“The biggest challenge facing landlords and rental agencies for both short and long term rentals is securing a reliable tenant, who has the correct credentials, can afford an adequate security deposit and firmly commits to return the property in the same condition it was handed over to them.
The short term rental market requires much more than three months for breakages – thus the reason for guarantees of a higher value which range from
R200 000 to R700 000,” she added.
According to Prim Reddy, director of communications at GEXsa, the cost to the tenant is 22% of their first month’s rent. Because the amount is considerably less than if they would have to finance it themselves, it would enable more people to rent. The flat rate is payable over the lease period, but you do not get any deposit back.
But Reddy said that because you only pay a fraction of your three month deposit, it allows you to afford the other expenses you will need for your rented home.
Tenant details are recorded on the GEXsa website, simultaneously connecting to Tenant Profile Network (TPN), a registered credit bureau specialising in tenant behaviour across both residential and commercial markets to assess tenancy history. Paperwork is then logged online and once all documentation has been loaded and payment has been made, a guarantee is issued.
A potential alternative
Gavin Came, financial consultant at Sasfin Financial Services, said that for people who do not have a deposit at hand such a guarantee could be a good option.
“A cheaper option would work only if you get a loan where the interest rate is less than 15% and also you get 10% of your deposit back from the landlord,” said Came.
But he adds that before signing up for such a guarantee, you should first speak to your financial advisor.