Residential rental rises from the ashes, but we're not out of the woods yet

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For a tenant to lower their arrears percentage, they must pay their full rent each month, plus some money towards their outstanding balance.
For a tenant to lower their arrears percentage, they must pay their full rent each month, plus some money towards their outstanding balance.
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  • The first quarter of 2021 saw early signs of recovery in the South African residential rental sector. 
  • The increase in rent between the first quarter of 2020 and the same quarter in 2021 was just R33, to R7 819.
  • Yet, the latest PayProp Rental Index shows signs of a recovery in rental growth.
  • In Q1 2021, the average rent in Gauteng was R8 390 – the second highest after the Western Cape with R9 142. 


The first quarter of 2021 saw early signs of recovery in the South African residential rental sector - but a substantial increase any time soon remains unlikely, according to the latest PayProp Rental Index.

After five consecutive quarters of decreases, the first quarter saw an uptick in quarterly rental growth to 0.5%, measured year-on-year. Figures of 1% and 0.7% were recorded in January and February, with no year-on-year growth for March 2021.

PayProp's head of data analytics, Johette Smuts, says the quarterly average is still far below the rental growth rate of 3.2% seen in the corresponding quarter of 2020.

"The increase in rent between the first quarter of 2020 and the same quarter in 2021 was just R33, to R7 819. Since January 2020, the repo rate has been lowered by three percentage points to its lowest level in decades, prompting many tenants to buy their first homes," says Smuts.

"This exodus of more creditworthy tenants from the rental market, coupled with the ongoing financial constraints experienced by others, continued to put downward pressure on rental prices into the first quarter of 2021."

Furthermore, an uptick in residential developments added to rental accommodation supply, according to the index report.

"Looking back at year-on-year growth rates from years gone by, it seems unlikely that we'll see growth rates approaching 10% like we did in 2013 any time soon," says Smuts.

Turning arrears around 

A positive indicator in the latest index is the decreasing percentage of tenants in arrears after an initial spike. In the first quarter of 2020, 19.4% of all tenants were in arrears, and this quickly escalated to 24.9% in the second quarter when lockdown was first enforced, leading to many tenants losing their income or being forced to take a reduction in salary.

Then in June 2020, most industries reopened and tenants returned to work, leading to a steady improvement in the percentage of tenants in arrears each quarter since then. But the first quarter of 2021, 20.3% of tenants were in arrears.

"For a tenant to lower their arrears percentage, they must pay their full rent each month, plus some money towards their outstanding balance – and in the current economic climate, this is not easy to do. So while the average arrears amount relative to rent has improved to 93.2% from its peak of 104.6%, we are not at all surprised that this is still much higher than the 78.5% measured before lockdown. We expect this metric to improve further, albeit slowly," explains Smuts.

In Q1 2021, the average rent in Gauteng was R8 390 – the second highest after the Western Cape with R9 142. The Northern Cape had the third highest average rent in the country at R8 327.

Rent in Limpopo continued to decrease and averaged R6 871 in Q1 2021 – 1.3% (or R92) lower than the year before. Limpopo has now experienced negative year-on-year rental growth for 14 quarters in a row.

Investment perspective

Dr Andrew Golding, chief executive of the Pam Golding Property group, says with rental returns currently under pressure, the overall yield tends to be influenced by the capital growth of the property, which means that buying and selling at optimal times is the key. 

"Conservatively, it is wise to mortgage an investment property by no more than 40% to 50% of the purchase price unless you are prepared to subsidise the monthly repayments. While interest rates are currently at record lows, it is advisable to make allowances in your budget for increases in interest rates and levies or rates," says Golding.

"Notably, properties best suited to capital growth may sometimes cost more and offer a lower yield while properties best suited to maximising yield may cost less and offer lower capital growth prospects."

The development of mixed-use buildings as an urban living trend is growing in popularity in South Africa, according to Alexa Horne, managing director of Dogon Group Properties. Affordability is a key factor, however.

Paul Upton, who heads up new developments for Dogon Group Properties, explains that mixed-use developments blend commercial office space with retail and residential living, creating an all-in-one location that is built for convenience.  

"Mixed use developments also create investment opportunities with the option of attractive rental returns as most are situated in central urban spaces, so the demand from potential tenants is high," he says.

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