SA rental growth uptick for the first time in two years

The PayProp Rental Index has revealed that nationally, rental growth slowed to 4.14% in the last quarter of 2018, compared to 5.39% over the same period in 2017. Nevertheless, it was the first quarterly uptick in the rental growth rate in two years, and also the highest quarterly year on year growth for 2018.

At R7 610, the average national rent moved into a higher rental bracket in the fourth quarter, from the R5 000 to R7 500 category to the R7 500 to R10 000 category. The R5 000 to R7 500 bracket is still the most populous in South Africa, comprising about one-third of all rentals.

“Whether the fourth quarter’s uptick in year on year growth is the start of a recovery remains to be seen,” says Johette Smuts, head of data and analytics at PayProp. “Most provinces saw lower rental growth and a deterioration in the average tenant’s financial situation from 2017 to 2018. Below-inflation income growth has also made it increasingly difficult to keep up with debt and other costs.”

Smuts says net income levels have been stagnating for some time, increasing by only 1.56% between the fourth quarter of 2017 and the same period in 2018. With rent and inflation increasing at higher rates, consumers are struggling to keep up.

“As for tenants’ debt-to-income ratios, tenants paid R13 756 on monthly debt repayments in the fourth quarter of 2017 and R15 031 in the fourth quarter of 2018,” says Smuts. “This increase in turn affects affordability ratios. And as incomes have grown more slowly than rents, the slight increase we measured in the rent-to-income ratio was to be expected.”

In Gauteng, the average rent breached R8 000 for the first time in the fourth quarter of 2018. This is 4.84% more than the year before – the third highest growth rate in the country for the quarter. While this rate was lower than the year before, it was the province’s first increase in quarterly growth in two years, which might signal the beginning of a recovering rental market in the province.

2018 yielded the lowest growth figures for the Western Cape since the launch of the rental index in 2012. At its lowest point of the year, growth in the Cape slowed to just 3.96% in the fourth quarter of 2018. Even so, the average Western Cape rent surpassed the R9 000 mark during the year, still making it the most expensive province to live in with an average price differential of nearly R1 000 compared to the second most expensive province.

“2018 was a tough economic year for South Africans, businesses and consumers alike, and it shows in the numbers,” says Smuts. “The year ahead brings new challenges, such as the general election, from which we might see fresh political uncertainty and which in turn could create continued economic uncertainty and volatility. Just how much that might affect rental prices remains to be seen.”