Rental growth shows the first uptick in over a year

The national rental growth rate remained under pressure during 2021’s second quarter but it seems to have stabilised for the short-term, according to the latest PayProp Rental Index for Q2 2021.

Rental growth came in at 0.4% during the second quarter in line with the 0.5% growth during the first quarter with the average national rent increasing marginally from R7 746 during 2020’s second quarter to R7 778 during 2021’s second quarter – an increase of just R32 over twelve months.

Head of Data Analytics at PayProp, Johette Smuts, says the worst appears to be over – for now – with the index showing a return to growth of 0.7% and 0.8% in May and June 2021 (after dipping below zero in April 2021).

However, she cautions that growth remains under pressure due to lower interest rates enabling renters to purchase property, decreasing the pool of tenants, and putting downward pressure on rental growth. In addition, continued building and development in many cities has contributed to an ongoing oversupply of rental property, adding further sustained downward pressure on rental growth.

This runs counter to the inflation position, she points out.

Inflation reached a 30-month high of 5.2% in May, driven largely by transportation costs, including petrol,” says Smuts. She says this rise in costs of other goods and services has put pressure on already-stretched consumers. “The aftermath of job losses due to lockdown continues to affect many consumers’ pockets, and affordability is still a major concern.”

Improved arrears

After the initial shock of the first lockdown in 2020, arrears metrics showed consistent improvement throughout a difficult twelve-plus months.

The percentage of tenants in arrears spiked during 2020’s second quarter, when almost one in four tenants were behind in payments. This was up from around one in five during the first quarter of the same year. “The dramatic increase in arrears in April 2020 was directly as a result of the announcement of the first lockdown,” says Smuts. 

With the worst now behind us, tenants’ finances and arrears continue to improve. In 2021’s first quarter, only 20% of tenants were in arrears, a number that is far closer to the 19.4% seen in 2020’s comparative period, before the first lockdown was announced.

Provincial statistics

The country’s most expensive province for tenants, the Western Cape, saw its first positive increase after four consecutive quarters of negative rental growth. The average rent increased by 1.8% to R9 185 – up from R9 022 during 2020’s second quarter.

Gauteng experienced a drop in rent for the second consecutive quarter with tenants paying on average 0.6% less per month, from R8 344 in 2020’s second quarter to R8 292 in 2021’s second quarter.  

In KwaZulu-Natal the average rent increased by 2% from twelve months before, with an average rent of R8 200 during 2021’ second quarter. It was the second-highest growth experienced among the provinces, and KwaZulu-Natal is now the third most expensive province in which to rent – up from fourth last quarter.

In extremely positive news for Limpopo landlords and agents, the province turned the tide with an increase in rent after fourteen consecutive quarters of negative growth. The average rent in the province increased by 0.8% to R7 017 over the twelve months to 2021’s first quarter. The last time the province recorded growth figures, rent averaged R7 741.

Smuts says she believes growth will remain muted for the remainder of the year.

Although we’re seeing stability in the numbers, we don’t see rental growth rebounding above 1% this year. This is largely because the variables affecting rental growth are unlikely to change in the short term – affordability being the main issue on the demand side, and rental stock on the supply side.”

Source: Propertywheel.co.za | https://propertywheel.co.za/2021/08/rental-growth-shows-the-first-uptick-in-over-a-year/

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