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It’s now firmly a renter’s market

Rental growth in Q4 practically non-existent, likely negative …
Affordability looks set to remain an important issue for prospective tenants this year. Image: Moneyweb

Residential rental growth has cratered, with PayProp revealing that its Rental Index showed growth of just 0.2% in the fourth quarter, from 1.6% and 1.5% in Q2 and Q3 respectively.

It notes this is the “third consecutive record quarterly low since the start of the Rental Index”.

In fact, the weighted average national rental growth rate was negative in November (-0.3%), the first time the index has been below zero since it was launched in 2012.

It is worth remembering that these numbers exclude the impact of inflation.

When factoring in inflation of around 3.2% for the quarter, real rentals declined by 3%.

PayProp, which provides an automated payment and reconciliation platform for the residential rental industry, uses average rent in South Africa to drive the point home: “Expressed in rand terms, the average rent increased from R7 844 in Q4 2019 to R7 854 in Q4 2020 – an increase of barely R10 over the year.”

However, an alternate survey from credit bureau TPN shows average rental value moving into deflation to the tune of -0.75% in the fourth quarter of 2020, “with the two large provincial rental markets, Gauteng and the Western Cape, being the drivers of the national average deflation”.

Gauteng holds up best

When looking at the three major provinces, Gauteng has held up best with rental growth of 0.7% in Q4 according to PayProp. Average rent in the Western Cape declined by 0.5%, while in KwaZulu-Natal, rentals declined by 0.9%.

Average rent in the Western Cape remains the highest in the country (at R9 253), with the averages in Gauteng at R8 421 and in KwaZulu-Natal at R8 232.

TPN says average rentals in Gauteng fell by 1.7% in the last quarter, with the Western Cape not far behind at -1.61%. According to its data, “the Western Cape market was the first major region to move into rental deflation, two quarters ago, with Gauteng following suit for the first time in the fourth quarter of 2020”.

Three contributing factors

PayProp’s annual review points to three factors which impeded growth: “First, many households suffered a loss of income during 2020, lowering affordability. Tenants simply can’t afford higher rent. With cooling demand for higher-priced properties, landlords had no choice but to curb their expectations when setting their asking price.”

Second, a number of short-term rentals have moved to long-term ones, especially in markets such as the Cape Town City Bowl, where tourist demand has all but dried up. This has created an oversupply of rental properties.

“Third, many tenants chose to take advantage of low interest rates by purchasing their own homes instead of renting. By leaving the rental market, these new homeowners contributed to the oversupply of rental properties. Meanwhile, the tenants who remained tended to be the ones with lower and less stable incomes – potentially making it harder for agents to find suitable tenants.”

Vacancies shoot up

While these factors have impacted rental prices, they have also caused vacancies to skyrocket – particularly in wealthier areas. At the end of January, TPN reported that one in five (20.65%) rentals above R25 000 per month sits vacant.

In Q1 of last year, this figure was 16%. (Vacancies in the affordable and mid-market rental segments – between R7 000 and R25 000 – are between 10% and 11%, below the national average.)

The survey showed the worst performing area being the Atlantic Seaboard, where 24.4% of properties are vacant, while (greater) Sandton had a vacancy rate of 22.4%

Read: Massacre for buy-to-let landlords

Credit metrics have been “surprisingly good” considering “all that happened in 2020”, says PayProp.

“While some worsened during the second quarter, most recovered well and even showed improvement compared to Q1.” However, it cautions that it tracks these metrics from the pool of applicants who want to rent property in each quarter, therefore this is not the same group of tenants through the year.

Average income increased by 3.9% between Q4 in 2019 and Q4 last year.

The number of prospective tenants with at least one major delinquency increased from 18.4% in Q1 to 20.2% and 19.9% in Q2 and Q3, respectively. This figure trended back to the level pre-lockdown to settle at 18.5% in Q4.


But PayProp adds that “in general, lower-income renters were hit harder by job losses and pay cuts in the early stages of the lockdown”.

“Many prospective tenants had to move in with relatives, while others opted to stay in their current properties for longer instead of applying for new ones. If a large number of tenants with lower incomes (and hence worse credit metrics) fell out of the reckoning in this way, this could have skewed the average credit metrics across the board.”

It says that “current lockdown regulations continue to restrict economic growth, which means many consumers will continue to feel financial pressure”.

“Affordability will remain an important consideration for prospective tenants in 2021, and rental growth is likely to stay muted.”


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Having said all that, the big correction in the falsely euphoric property market is still to come. It arrives later this year.

Maybe in commercial. In residential I think high end areas have already come off to the extent that 15-20 years REAL capital returns are below 0. The bottom end might see a small bump in certain areas (e.g. student areas) by the demise of Sec 12J which has diverted investment from existing properties. The middle R1.5M-R3M in residential might be a bit exposed. As the high-end rates revaluations come through rates in the rand will need to go up to recover the lost income from those high-end properties.

Please be patient up until the year is out, then we will talk again. What you can do is read and listed to insightful articles locally and internationally.

Agreed 100% AP – I work in this market. My guess is that a lot of this is kept afloat by people digging into savings, RA’s etc. Your average Saffer is downscaling heavily or emigrating. Leafy suburbs to be hammered

Absolutely. Almost a quarter of mid to higher priced properties currently sold are for reasons of emigration. This year is going to see a record number of vacant properties on the market and demand will be shockingly low. Property agents will of course continue to sing their rosy songs.

In SA, things just get ‘better’ by the day

End of comments.





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