Rental market recovers, best growth in over 5 years

Rental market recovers, best growth in over 5 years

Category Rentals

Rental market recovers, best growth in over 5 years

The latest data from PayProp shows that the rental market has not only recovered to its pre-pandemic levels, but rental rates for the first half of this year grew at the highest levels since 2017. This is a remarkable development considering that the economy and tenants are under pressure with distress among tenants expected to grow as the effects of the higher interest rate sets in.

The rental data shows that YoY growth reached a national average of 4.4% by mid-year, although there was a slight slowdown in June compared to April and May. The average national rent stands at around R8,375/month.

It is also the first time since the onset of the Covid-19 pandemic that the national rental escalation percentage exceeds national house price growth as measured by FNB. This, based on January data, shows 4.14% rental growth versus 2.3% house price growth.

While landlords are finally seeing some positive growth, the broader market trend shows there is pressure on tenants.

Provinces Rental Averages and Growth

Gauteng average rental now stands at R8,691/month, achieving 4.5% YoY rental growth. While the Gauteng sales market is under some pressure, the rental market appears to be doing better, and it remains the most affordable rental destination out of the three major metros in the country.

Western Cape average rental now stands at R9,730/month. Although growth only reached 2.8%, it still remains the most expensive province in the country to rent in. According to Seeff’s rental agents, luxury homes and apartments also still achieve some of the highest rental rates in the country.

KZN average rental now stands at R8,817/month, achieving YoY growth of 4.4% which is slower compared to the first quarter (when rentals grew at 5% on average). Nonetheless, the rental is above the national average rate.

Northern Cape average rental now stands at R9,216/month, achieving average growth of 6.8% in the second quarter this year. While growth has slowed, the rental rate has escalated dramatically over the last two-plus years, making it the second most expensive province to rent in.

Eastern Cape average rental now stands at R6,777, achieving excellent YoY rental growth of 5.1%. which is above the national average. Nonetheless, the province remains one of the more affordable in the country for tenants with a below average rental rate.

Free State average rental now stands at R6,391/month, achieving just 1% YoY growth, the lowest in the country. The province is still one of the more affordable in the country to rent in, especially in view of the fairly flat growth recorded for the second quarter.

Mpumalanga average rental now stands at R8,281/month, achieving YoY growth of an excellent 5.2% which is in fact better than the national average. While rental rates are climbing, the province still remains slightly below the national average.

Limpopo average rental now stands at R7,663/month, achieving excellent YoY rental growth of 4.3%. This is slightly slower compared to the first quarter, but still in keeping with the national average growth. Rental rates are increasing in the province but remain below the national average.

North West average rental now stands at R5,985/month, achieving the highest average YoY growth of a whopping 9.3%. That said, the province remains the most affordable to rent in and the average rental is still well below the national average.

Tenant Arrears Grows as the Impact of the Interest Rate takes Effect

According to TPN’s rental data, about 18.4% of all tenants are now in arrears. This is a slight worsening from the first quarter, but still well below the 20.8% to 24.9% range recorded in 2020 which was the main pandemic-year.

While the level of distress among tenants is still low, the effect of the interest rate will no doubt weigh on tenants as the year progresses. Seeff’s agents continue urging landlords to keep their expected rental escalations in line with the current economy and property market trends.

The risk for landlords when it comes to a rental rate which is too high for the market is that you may struggle to find a tenant or may find that the tenant may later look to move to a more affordably priced rental. Always work with an experienced and credible rental agency for the best advice and results, says Seeff.

Author: Gina Meintjes