More than a third of all possible tenants are high-risk

The quarterly PayProp Rental Index for the third quarter of 2018 indicates that South African rental growth continues to be slow, reaching a level of only 3.25% for the period.

The data also shows that 37.2% of all rental tenants are classified as high-risk, which PayProp head of data and analytics, Johette Smuts, says is to be expected considering the significant pressure placed on consumers due to increasing inflation – in particular, continuous petrol price increases and the resultant goods and services price hikes.

Smuts says the highest percentage of low-risk tenants and the lowest percentage of risky tenants (the ideal combination) can be found in the North West.

“In sharp contrast to this, the Northern Cape has the highest percentage of risky tenants and the lowest percentage of minimum-risk tenants – only one in 10 tenants are in this category, while nearly six out of 10 Northern Cape tenants are classified as risky.”

In the third quarter, only one province showed an increase in rental growth rate compared to the previous quarter – Mpumalanga; the only province with a definite upward trend over the past year. By comparison, the Free State and KwaZulu-Natal both saw good growth rates over the past year, but experienced a decrease in growth from the second to the third quarter.

“It’s worth noting that the 5.2% year on year growth recorded in the Western Cape in the third quarter is the province’s lowest since we started publishing the PayProp Rental Index in 2012,” says Smuts.

One positive development is that average tenant income grew faster than rent for the first time in a year, at 3.73% over the past 12 months. She notes that economists expect inflation to continue to rise for most of 2019 while economic growth is likely to stay slow, meaning consumers won’t get a break for at least the next year.

Smuts offers advice to property owners and agents to best manage the current rental economy: “Risk management should be the number one priority. Don’t compromise on tenant placement, recheck before you renew, and diligently chase arrears.”