Landlords and Agents can expect better returns in Q2
A surprising rebound in the South African rental market in Q2 2024 offers fresh optimism for landlords and rental agents, following a period of decline in early 2024. The PayProp Rental Index reveals a significant uptick in rental growth, which hit a new post-pandemic high. April saw year-on-year rental growth climb to 4.9%, up from 3.6% in March, and despite a dip to 4.5% in May, it surged to 5.2% in June. This marks the fastest rental growth since December 2017.
Johette Smuts, Head of Data Analytics at PayProp, highlights that June 2024 marked the first instance in nearly five years where rental growth exceeded inflation. “This is excellent news for estate agents and landlords as it translates into higher real-term returns. We hope this resurgence helps agents build more resilient and profitable businesses amidst ongoing economic challenges,” Smuts notes.
With inflation continuing to decline into July, economists anticipate potential interest rate cuts as early as September. Such cuts could reduce mortgage payments and attract first-time homebuyers, potentially lowering demand for rental properties, according to Smuts.
As of the end of Q2, the national average rent in South Africa stood at R8,785—R410 more than the same period in 2023. All provinces saw positive rental growth during the quarter, reversing the year-on-year decline previously observed in KwaZulu-Natal.
Western Cape's Remarkable Turnaround
The Western Cape, known for having the highest rents in South Africa since 2016, saw a dramatic increase in rental growth. In Q2 2024, the average rent soared to R10,673, reflecting a remarkable growth rate of 9.7%. By June, year-on-year growth accelerated to 11.7%, marking the highest increase in the province since December 2017.
Conversely, KwaZulu-Natal experienced the lowest rental growth at just 1.5%, though this was an improvement from Q1's negative growth. Rents in the province reached R8,945, reflecting reduced local demand due to the semigration trend that has adversely affected the region.
Gauteng recorded its third consecutive quarter of below-average rental growth, yet Q2's 3.8% was an improvement over previous quarters. The average rent in Gauteng surpassed R9,000, reaching R9,018—making it the third highest in South Africa.
Tenant Financial Strain
In Q2 2024, South African tenants allocated 46.7% of their income to debt repayments and 30.3% to rent, leaving 23.0% for other expenses, down from 27.2% a year earlier. While the proportion of income spent on rent remained stable, the increase in debt repayments—jumping from 43% of income a year ago—has put additional financial pressure on tenants.
Notably, those earning R40,000 or less a month are significantly more burdened by debt compared to higher-income brackets. Tenants in the highest income bracket (R80,000 and up) have a surplus of 54.1% of their net income after rent and debt payments.
Smuts advises that while debt pressures have increased, tenant rent arrears have remained relatively stable, with only 18.1% in arrears in Q2 2024, slightly better than the previous year. She cautions landlords against overburdening tenants financially but acknowledges room for rental growth. “Tenants in high-demand areas often adjust their budgets to accommodate higher rents, and some agents have adopted more flexible affordability criteria.”
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