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The real state of the residential rental market

Rental growth has halved since 2017, and is nearly one percentage point below inflation.

It is widely known, at least by readers of this site, that house prices have fallen 21% in real terms since their 2007 peak. But how is the rental market performing? Anecdotally at least, sharp rises in administered prices (particularly electricity and municipal rates) suggest that this is very much a tenant’s market.

The PayProp Rental Index annual review for 2018 shows “a continuation of the downward trend in national rental growth, trailing inflation for most of the year”. The average monthly rental growth rate practically halved from 2017, ending last year on 3.9% (6.4% year-on-year a year prior). Average consumer price inflation (CPI) was 4.7% in 2018 and 5.3% in 2017. PayProp is the largest processor of residential letting transactions in the country.

The report shows that “net income levels have stagnated, increasing by only 1.56% between Q4 2017 and Q4 2018. With rent and inflation increasing at higher rates, consumers are struggling to keep up.”

It argues that this only “partly explains” the year-on-year increase in tenants’ debt-to-income ratios: “In Q4 2017, tenants paid R13 756 on their monthly debt repayments versus R15 031 in Q4 2018. The increase in debt-to-income ratios, in turn, affects affordability ratios. And as incomes have grown more slowly than rents, the slight increase in the rent-to-income ratio was to be expected.”

The picture across the country’s three major provinces looks very different. In Gauteng, the average monthly rent breached R8 000 for the first time in the last quarter of 2018, which is 4.84% higher than the year prior (and the third-highest growth rate in the country). PayProp says “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”.

The market in KwaZulu-Natal recovered from subdued growth in 2017, with a 7.25% increase in Q4. Year-on-year rental growth was above 7% for three of the four quarters (6.47% in Q3).

PayProp says “in its current situation, it’s hard to believe that the Western Cape experienced four consecutive quarters of 10% year-on-year growth in 2017. By comparison, 2018 yielded the lowest growth figures for the province 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 Q4 2018. (The year-on-year figure for December was only 0.4%!)”

But the report notes that the average monthly rent in the province “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”.

Q4 2018



Western Cape


Average rent

R7 610

R8 064

R9 124

R8 129

Average income

R33 037

R31 962

R35 815

R33 954

Rental growth





Average credit score















Affordability ratio





Risky tenants






The affordability ratios above show just how much of their net income the average tenant spends on rent and debt obligations. This means the average Gauteng tenant, for example, has 24.1% of their net income left.

PayProp says that “a widely accepted rule of thumb holds that a tenant shouldn’t spend more than 30% of their net income on rent” (nationally, the average was 28.9% in Q4). However, it argues “the true measure of appropriate rent-to-income levels is slightly more nuanced. In addition, we see a correlation between a tenant’s risk level (determined by their credit score) and the percentage of income they spend on rent.

“Generally speaking, financially savvy tenants, who have higher credit scores (and therefore lower risk ratings), spend less of their income on rent than high-risk and very high-risk tenants. The figure for lower-risk tenants is less than 30%, with the lowest-risk ones spending just 23% of their income on rent – 20% less than the average tenant! On the other end of the spectrum, the riskiest tenants spend about 33% of their income on rent.”

What is also evident from the table above is that in Gauteng, more than four out of every 10 tenants could be categorised as ‘risky’. The figure is less than three out of every 10 in the Western Cape, possibly due to the fact that those riskier tenants are crowded (priced) out of the formal rental market.

The situation for landlords is unlikely to improve materially in the near-term.

The lone positive signal was that Q4 was the first quarter in two years to show an uptick in year-on-year growth. The reality is that “most provinces saw lower rental growth and a deterioration in the average tenant’s financial situation from 2017 to 2018. Below-inflation income growth makes it harder to keep up with debt and other costs.”

While PayProp expects growth to recover “somewhat” during this year, it says inflation is “likely to continue to outstrip rental growth if current trends continue”.

* Hilton Tarrant works at YFM. He can still be contacted at

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Landlords are trapped in the jaws of administered price increases far above inflation and flat to falling consumer incomes.

Excellent comment – “administered price increases” a euphemism if ever there was one for bending over and taking it sans lube

Landlords are trapped between the accumulated effects of ANC corruption (and diminished incomes) and local authorities shifting the recovery of utilities and rates onto the backs of those already paying rates and utilities to cover for those not paying.

Spot On article: I,m currently sitting with a Flat in a very upmarket Cape town Suburb where two months after the tenants moving out and a R2K per month rent deduction , the agents have handed the keys back and given up trying to rent it out !!! The DA led Council have just raised the rates valuation by 38% & the trustees the Levy by 22% !!!
Even if i could get a tenant , the return would be about 2%.
Looks like will have to sell , then its SARS turn to levy CGT !!!
Better in a Fixed Deposit currently .

…I think there are many similar stories from others. You have a point. But rather stick with your investment with a long-term outlook….the commission cost of selling is huge.

But look at it this way: the expected 2% real return (if hindsight can be used) has beaten the -12% JSE return in 2018, by 14% difference 😉

Plus it sounds like you’ve made at least great CGT gains on your Cape Town asset thus far, so the investment is still positive.

Had same problem in Stellenbosch. Sold it. no regrets. Property is illiquid, a massive risk and costs if tenants refuses to pay, transaction costs are much higher compared to other asset classes, rising municipal, utility costs is just a time bomb waiting to happen and eats into capital gains. Then there is the political risk. Good thing about property is you could use leverage but this feature is also available in other asset classes.

How is leverage available in other asset classes for the average individual investor? From my experience the banks will gladly hand out millions of rand for immovable property, but not a cent to buy shares (single, unit trusts or ETFs) with. If it did then I would most probably gladly have swapped my property portfolio with shares.

Personal loans do not count since its the root of all evil.

Never heard of margin trading?

Cape Town Property…..Overrated, Overpriced and Over the Hill…

Be thankful it wasn’t the R6Million Kenilworth townhouse some semigrant pillock “snapped up” during the Great Semigrant Love Affair of 2016/17 (before Cape Town ran out of water and got stuck in 24/7 traffic gridlock due to overpopulation and DA incompetence).

Expect further pain when ANC_Lite (aka DA) levy further levies and taxes (by Stealth or by daylight robbery) to fund their plush offices and above-inflation increases and “performance” bonuses…

The number of rentals standing empty for long period on the western seaboard of Cape Town is quite scary. Appears to be plenty of once rented properties for sale stuck on the current dead market.

Give me a hint of where and at what rentals as I am in the market. I currently find CoCT universally expensive as well as few in number, although my experience is limited to the N suburbs around Edgemead / Plattekloof then Claremont and Pinelands.

Sell it quickly. Only going to get worse. Sold mine and put money in no hassle fixed deposit at 8%. No regrets.

Someone needs to do an investigation into rocketing LEVIES in Johannesburg. It is not unusual to see levies and associated costs of around R3-4K per unit per month in Sandton. In many cases, a levy is charged, and then another maintenance levy. Is this not redundant? On top of that is added a security levy, sewerage and refuse removal… it just goes on and on. What are rates used for if we are paying for sewerage and refuse removal?

I’ll do it for you.

1) See what percentage of levies go for salaries at the council and support services,
2) affluent areas need to support less affluent areas,
3) Service level agreements not adhered to

The DA love helically-tapered inclined-planing their ratepayers.

Be careful what you wish for in May.

Is that a civil expression for being fcked sideways?



But you got the gist of it…

My great fear is that all this DA hate will translate into people staying at home or voting for fringe parties and hand the ANC the Western Cape. Yes there have been issues with the DA, but if you believe other provinces in SA have better government, well I fear for your sanity.

I just think it is a classic case of cutting your nose to spite your face.

Well seems my fears are well founded. Latest IRR polls have DA on 50.1% in WC down from 59% in 2014. Guys you are playing with fire here.

Problem for the DA is that out of its traditional for some Southern Suburbs/City Bowl hipsters thge DA is just not edgy enough so they want to vote ANC because Cyril is such a good guy. Then for some conservative voters the DA have now swung to far to the left so they want to vote FF+ or ACDP now and maybe most worryingly a large portion of people could just not be arsed to go and vote.

Net result, some weird coalition comes into power in the WC.

Media will keep on beating the drum on how bad the DA is, normally when a party is accused of being too liberal or too conservative it is probably just getting it right

The “maintenance ” levy is a new requirement , where in terms of a 10 year maintenance Plan (now reqd in Bodies Corporate)a Percentage based on the Annual “normal” levies has also to be set aside for the “maintenance” levy . This to avoid Surprise “special” Levies from time to time.
In practice though this “maintenance” levy is only required if existing reserves are not already sufficient.
Many Body Corporates ignore or miss this , thus effecting massive Levy increases & devaluing their Assets as buyers are put off by the Levies !!!

Please, could this article be updated with one key stat: Rental vs Estimated property value. For a property investor, it will give an indicative return per province.
Personally, I’ve been caught in a trap where I dare not increase rent charged at the risk of a good tenant moving out. Body corporates have also been forced to hike their levies for all sorts of reasons, which leaves the poor owners making losses month in and month out.

One will always come across articles that’s either pro or against residential rental property. There are the odd person I know that says “he’s not investing in an RA Fund policy, but his properties are his retirement assets”. Fair enough. Different asset classes.

As a tax consultant (for the past 15+ yrs) I can tell you “on the ground” when clients declare their rental properties (of which a sizable % gets audited by SARS), is that I found that AT LEAST two-thirds of rental activities works out in actual LOSSES (…as the bond-interest still makes up one of the biggest rental-expenses). Thus a very small % minority paying tax on actual profitable rentals.

When one realises that more taxpayers have rental losees than profits, then one tend to think “why all this marketing hype around investment property?”

A puzzle for me too Michael, particularly once you add CGT and transfer duties etc to a life cycle. But I’m a dumb farm owner so cannot preach. But I thought the idea was to never show a profit, keep buying more geared property as value increased and the mortgage amount decreased? Hopefully when you “retire”, the bonds can be paid up with some judicious selling or the pension lump sum (if any) and you can sit back and collect rentals (ha ha).

Its a cultural thing. If you have to pay in every month on a rental property then you have a “bottomless hole of Calcuta” situation. Robert Kyosaki taught us that rental properties must be self funding else its not an investment but an expense.

The idea, Paul, is to make a real return and old school tells us that a 15% return is the ideal return. But that is unachievable in today’s economical climate unless you bought a long time ago.

True, Michaelfrom Klerksdorp, and if you are a taxpayer at the top marginal rate the losses will be ringfenced after three years – double whammy.

Very valid point / correct. Section 20A ring-fencing is a problem. No matter how hard one tries to motivate to SARS that the taxpayer is expected to arrive at a “reasonable prospect” of making profit in the foreseeable future.

Another BIG GRIPE is CGT-tax upon disposal of a rental property (non-primary residence). INFLATION is the enemy, as SARS calculates the profit (at face value, ignoring “real” value) of the difference between the original purchase price/base cost and teh current sales proceeds (after allowing for acquisition & sales costs).

Example: a person buys a rental/investment property say in 2008 for say R1mil (…which is roughly worth R2m in TODAY’s terms, given inflation). You sell at say R2,2mil today….SARS will say you “created wealth” between R1,0m to R2,2m = R1,2mil taxable CGT profit (ignoring the R40K exemption & 40% inclusion, for simplicity)

But IN REALITY, an asset worth R2mil (in today’s terms) was purchased & now sold for R200K CGT profit…in “real” terms. This is the real wealth created. BUT NO…the Tax Act does not recognise it…”base cost” must be face-value purchase cost.

(It’s like the guy who argued he got more back for his vintage car…bought it for say R10K in 1980, and can sell it today for R30K *lol* …while a new similar car would cost R500K today. THAT is the REAL loss…not profit)

Folks, this is how the state steals from the taxpayer, based on hugely skewed and inflated capital gains!! The higher inflation, and longer the asset held = better for SARS’s CGT tax.

(This is where Shares/Unit Trusts/ETF’s has an edge in terms of flexibility…you can partially sell/reshuffle your share/ETF portfolio on an annual basis, and take CGT gains within the annual R40K CGT exemption, and “re-set” to a new/higher base cost on the new asset/fund purchase. With real estate, you cannot sell bits of your property off…or sell it & buy back again…unless if you want to make the estate agents orgasmically happy! 😉

Michael from Klerksdrop. Valid point. You get taxed on inflation.

My 2 cents worth is this: property (like shares) have completely morphed into a money making racket, which means that too many people get involved, creating multiple levels of participants who wants to make money. Developers, banks, bond generators, body corporates, builders, local government, property management companies and individuals got involved, making a long chain of participants, all adding to the ultimate cost. With salaries remaining stable and the economic growth outlook being what it is, something will have to give. Sometimes I wonder whether a market correction would be such a bad thing, seeing that a roof over the head (a constitutional right) should perhaps never have become an investment destination for money-hungry investors.

if you look at rentals per square meter, the picture is madness. If you own an office block in CPT you would be better off converting to residential as apartment rental per square meter is much higher than good offices.

I get that yields are low but sadly for the current owners, all that will fix this is a massive correction of prices. If we ignore waterfront and seaboard and go for Rondebosch. New developments ask R3.2m for a 49sqm apartment – call it R65k per square. What would the rental have to be on this 1 bed 1 bath 1 garage setup to deliver a yield of say 8% pretax? (after rates & taxes and insurance and levies)? Over R500/sqm/month or say R25k per month.?? Sure I hear people say that they buy for the capital growth. What – will that apartment resell for R5m in 5 years. By then the rent will need to be R40k pm for a 1bed…

Elsewhere in the world investors did see 40% and more price drops in the banking crisis, it can happen here too

People look at capital growth but forget the drivers of capital growth. That’s is declining interest rates, increased disposable income growth and lower than inflation increases in municipal rates, taxes and levies, a weaker currency to some extent. After 1998 South Africa had three drivers of capital growth. What drives capital growth today? Only the depreciating rand for foreign buyers in a niche market in Cape Town. But that boat will sail once EWC kicks in.

And then there is the problem of evicting a tenant. If you get a return of 4% and capital growth of 10% per annum it is a fair investment but that has not happened in the last few years. Rather invest in industrial property or REITS. Easier to evict non payers and less hassle to control

You didn’t mention the latest amendments (came out last month) to the Act which can result in imprisonment of landlords who do not comply to its provisions.

Interest rates in SA (and hence mortgage rates) are at record lows and probably have bottomed out.

That means the property rental to pay off mortgage trade is on it’s on last legs.

Rentals are about to become more competitive and property prices stable or down going forward.

Best to leave this space whilst you still can.

South Africans infatuated with property and to be fair a lot of people have done very well out of property. People however forgot that interest rates where 20 odd % for most of the 90s and remained double digits for the early 2000’s. Over time property cannot and should not give you returns that are higher than equity. People will also now find out that property is an illiquid asset – selling it into a weak market is not as easy as going online and selling a few Richemont shares.

Disclaimer. Biggest mistake I made was renting for too long and not buying earlier – just the enforced savings of paying into a bond is great for somebody like myself that can be a bit ill discilplined financialy.

I am however not convinced over the merits of buying a second property. You need to pay CGT on it and unless you have paid off your bond ou your primary property you cannot lever it up fully. People underestimate the impact of limited liquidity, maintenance costs and the risk of non-payment or vacancies.

People believe because property is more tangible than shares that they havce more control over it and most people believe they can find bargains more readily.

Things are definitely not right in the greater Cape Town, plenty of rental stock available and for-sale prices are dropping.
Estate agents concede that the sellers are in many cases still delusional to what their properties are worth in the market.

Also, with social problems forever increasing (we are seeing more violent/frequent crimes and a massive increase in the homeless numbers – just drive around the Foreshore to see the latter for yourself), the allure of Cape Town CBD is quickly dying.

Where once you had neigbourhoods with the kids playing outside, most families drop/collect kids from school back to a safe haven behind spikes and electric fencing.

Then add the 1-2 hour commute daily in snail pace traffic, water restrictions, public spaces that always seem overly busy (and a rugby union on its’ knees) and the once stellar Cape Town seems no longer to fulfill the dreams of many.

But, probably still the best place to live in SA.

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