Residential rental values improve

The PayProp Rental Index has shown that the average rental in South Africa breached the R7 000 threshold ending Q4 2016 at R7 062.91.

The quarterly PayProp Residential Rental Index is drawn from the actual payment data of 1 000 rental agencies administering 85 000 active leases.

PayProp Group chief executive, Louw Liebenberg, says the highest percentage growth for the quarter was recorded in December 2016, when average rentals were 7% higher than the same month the previous year.

“The jump to 7% is even more significant as historically the highest growth months have been October and November.”

As average rental values increase, so it is usual to see a migration from the lower to higher rental price categories. The largest jump in the final quarter was in the over R15  000 category where the proportion of all rentals grew from 4.8% to 5.9%.

The Western Cape takes the lead

The Western Cape improved on its steady +9% growth rates to breach the double digits and hit 10. 99%. On the other end of the spectrum, the Northern Cape continued to decline to just 2.11% from a high of 16.74% in 2015.

Liebenberg says that Limpopo is the most interesting province to watch as for several years the province topped the ranks with the highest average rental. This was largely due to an industrial development boom in the area which led to soaring demand for rentals fuelled by limited stock availability.

“It was like the switch was flicked towards the end of 2014 and construction stopped, mines had strikes and ancillary businesses closed causing a plummet in the growth rates,” says Liebenberg. “Surprisingly, un 2016 the province returned to steady growth – so much so that it is now the province boasting the fastest growing average rental rate.”

Owners are in the pound seats

Once rental property costs are taken into account, net yields on investment properties still show growth. A growth rate up to 5.3% from 4.8% at the beginning of 2015 bodes well for investors. Although gross yields grew by 6 basis points, net yields only grew by 5 points – indicating that the cost of owning a property has increased marginally faster than the growth of rentals.

Tenants remain cautious

While average declared income remained flat, there was a drop in the amount required by creditors for debt repayment, from R11 430 a month in January 2015 to R10 772 at the end of the year. This means that instead of spending 37% of their disposable income on debt, tenants now spend 35%.

“The patterns we are seeing in tenant behaviour mirrors what is being reported with regards to subdued tenant expenditure over the festive season by consumers. Tenants seem to have curbed spending and spent within their means, which is an extremely encouraging metric,” says Liebenberg.