In a significant upturn, the South African rental market is experiencing its most robust growth since 2017. The Quarterly year-on-year rental growth trend has hit remarkable heights, particularly in Port Elizabeth (Gqeberha), signaling positive shifts in the market landscape. According to PayProp’s latest Rental Index, rental growth surged to an impressive 4.4% in both April and May, followed closely by 4.2% in June 2023. The nationwide average rental figure now stands at R8 375. This boost marks a notable milestone in the aftermath of the COVID-19 pandemic, with rental growth aligning closely with the pace of consumer price inflation. The recent stabilization of interest rates by the South Africa Reserve Bank further propels the rental industry towards substantial real-term gains.
National Rental Growth Resurgence
All provinces across South Africa are experiencing a resurgence of rental growth in Q2, with the majority reporting growth rates closely mirroring the national average of 4.4%. Gauteng, the country’s wealthiest province, rebounded remarkably with year-on-year rental growth at 4.5%, raising the average rent in the province to R8 691 in Q2. This comes after a relatively lackluster first quarter with only 3.1% growth.
Diverse Provinces Show Promising Gains
Venturing south, the Western Cape remains the country’s most expensive province for renting, despite a slight deceleration in growth this quarter. While average rents increased from R9 462 to R9 730, the year-on-year growth was at a modest 2.8%, the second lowest in the nation.
KwaZulu-Natal demonstrated a steady rental growth of 4.4% in the quarter, aligning perfectly with the national average. However, this indicates a slight slowdown compared to the previous quarter’s 5.0% growth rate. With an average monthly rent of R8 817, KZN continues to rank as the third most expensive province to rent in.
Moving on to rental pricing, Mpumalanga emerges as the most average province in rental expenses, with tenants paying R8 281 in this quarter. The province’s rental growth surged by an impressive 5.2%, bringing rents close to the national average of R8 375.
The Northern Cape, although experiencing a slowdown in rental growth from 10.2% in Q1 to 6.8% in Q2, still achieved significant progress. The province’s average rental increased by R590 year-on-year, elevating the figure from R8 626 to R9 216.
Affordability and Positive Prospects
Intriguingly, data from credit checks on rental applicants reveal that tenants’ incomes have outpaced rents across various income brackets, even outstripping inflation. Analysts had previously voiced concerns that affordability pressures could hinder rental growth. However, PayProp’s findings counter these fears, indicating sustained growth despite a slight increase in arrears.
The Path Forward for Landlords
With this promising backdrop of rental growth, landlords are well-positioned to capitalize on market opportunities. Ensuring the longevity and profitability of rental properties demands careful selection of tenants. RE/MAX of Southern Africa offers insights into key tenant characteristics to prioritize:
- Stable Income: Prospective tenants with a steady job or reliable income sources are more likely to consistently meet rental payment deadlines. A rule of thumb suggests that a tenant’s income should be at least three times the monthly rent, ensuring they can comfortably manage expenses.
- Positive Credit Score: A strong credit score indicates financial responsibility and the ability to manage debts and payments. Landlords should conduct credit score checks on all rental applicants.
- Favorable Rental History: Good references from previous landlords demonstrate reliability and responsibility in potential tenants.
- Consistent Payment Record: A history of prompt payments assures landlords that rent will be paid on time, mitigating cash flow disruptions.
- Respect for Property: Assessing a tenant’s pride in their living or workspace can predict their maintenance habits, adherence to lease agreement terms, and proactive reporting of issues.
- Effective Communication: Tenants who exhibit good communication skills facilitate swift issue resolution, contributing to a harmonious landlord-tenant relationship.
Conclusion
As the rental market in South Africa continues to surge, driven by both economic factors and evolving tenant dynamics, landlords stand to benefit from the wave of growth. With a keen eye on tenant selection and a thorough understanding of regional trends, landlords can navigate this landscape with confidence, paving the way for sustained and positive rental growth.
