Res­i­den­tial rental in­dex take a dip

North­ern Cape is now the most ex­pen­sive prov­ince in which to rent property

Weekend Argus (Saturday Edition) - - PROPERTY -

THE quar­terly PayProp res­i­den­tial rental in­dex has in­di­cated a down­ward dip in the av­er­age res­i­den­tial rental rate in South Africa, which is just above R6 500 a month.

Long- term year- on- year growth in rentals, which has climbed ten­ta­tively since Jan­uary, dropped this quar­ter from 7.56 per­cent in June to 7.28 per­cent in July, and ended on 5.18 per­cent in Septem­ber.

PayProp chief ex­ec­u­tive Louw Lieben­berg says, “Based on pre­vi­ous growth cy­cles we had been ex­pect­ing the up­turn to last un­til the end of 2015 at least, with growth rates to pick up in Jan­uary to around 10 per­cent. How­ever, as a re­sult of the ces­sa­tion in growth, this quar­ter has ef­fec­tively marked the be­gin­ning of a down­ward dip in year-on-year growth.”

The North­ern Cape is now the most ex­pen­sive prov­ince in which to rent in the coun­try, with av­er­age rentals of R7 219 a month this quar­ter.

“While the North­ern Cape is the largest and cur­rently still the fastest-grow­ing prov­ince in terms of monthly rental val­ues, we con­tinue to have con­cerns about the sus­tain­abil­ity of this growth,” says Lieben­berg.

“The first red flag is the slow­ing down of the phe­nom­e­nal year-on-year growth lev­els this prov­ince has en­joyed. Cur­rently at a quar­tered av­er­age of 10.8 per­cent, this fig­ure is at its low­est in 18 months. Over the three months of quar­ter three, growth fell from 10.9 per­cent in July to 10.5 per­cent in Au­gust, end­ing at 7.7 per­cent in Septem­ber. We pre­dict that with this tra­jec­tory, the North­ern Cape might lose its leader po­si­tion in the next quar­ter.”

Over time the PayProp Rental In­dex has pin­pointed a mi­gra­tion of rentals from lower-priced bands to higher pric­ing. But while the in­dex high­lights im­pres­sive growth in the over R10 000 a month cat­e­gories, it is im­por­tant to keep in mind that 77.4 per­cent of all rentals are be­low R7 500.

Lieben­berg says that on fur­ther ex­am­i­na­tion, in­ter­est­ing dy­nam­ics come to the fore when con­sid­er­ing growth in rentals above R15 000. “Al­though the in­dex shows a de­cline in that band, it is still an im­pres­sive num­ber – from 72 per­cent at its high­est, down to the cur­rent quar­terly av­er­age of 47 per­cent.

“Ac­cord­ing to the hy­poth­e­sis we’ve de­vel­oped over the years, a drop in this price cat­e­gory is a first in­di­ca­tion of a pos­si­ble down­ward cy­cle in a par­tic­u­lar area,” says Lieben­berg. “If we look at the move­ment in this cat­e­gory in Lim­popo for ex­am­ple, we see that the im­pend­ing down­ward trend in av­er­age rental val­ues be­gan with a re­duc­tion in the growth lev­els in high- end rentals.”

Ten­ants are be­ing pushed to the limit, and over the past three quar­ters a con­cern­ing trend has emerged of ten­ant in­come de­clin­ing while their debt re­pay­ment com­mit­ments are in­creas­ing. As a re­sult, ten­ants are cur­rently spend­ing close to 37 per­cent of their in­come on re­pay­ing debt, as op­posed to 32 per­cent at the be­gin­ning of this year.

Provin­cially, the data pro­vides an even more in­ter­est­ing per­spec­tive. Lim­popo, where there has been a de­cline in av­er­age rental in­creases, shows a cor­re­spond­ing in­crease in debt re­pay­ments rel­a­tive to in­come. The same trends are ap­par­ent in Mpumalanga.

In Gaut­eng, the debt re­pay­ment per­cent­age is of par­tic­u­lar con­cern, as high-risk ten­ants have in­creased, from 41 per­cent to 44 per­cent. The Western Cape debt-to-in­come ra­tio has been fairly stable, and in step with the in­creased per­cent­age of high-risk ten­ants in this prov­ince – from 32 per­cent to 36 per­cent over the past three quar­ters. KwaZulu- Na­tal shows a sim­i­lar trend, with a stable debt re­pay­ment ra­tio and a high- risk per­cent­age hold­ing steady at 41 per­cent over the three quar­ters.

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