Rentals are in the doldrums
BELOW INFLATION: GROWTH HAS HALVED SINCE 2017
Growth in South Africa’s rental sector has been tumbling, says an annual review.
Consumers are struggling as net income levels stagnate, increasing 1.56% between Q4 2017-2018.
Anecdotally, sharp rises in administered prices (particularly electricity and municipal rates) suggest it’s a tenant’s market. PayProp’s Rental Index 2018 annual review shows “a continuation of the downward trend in national rental growth, trailing inflation for most of the year”.
The average monthly rental growth rate practically halved from 2017 (6.4%), ending 2018 on 3.9%. Average consumer price inflation was 4.7% in 2018 and 5.3% in 2017. “Net income levels have stagnated, increasing by only 1.56% between Q4 (fourth quarter) 2017 and Q4 2018. With rent and inflation increasing at higher rates, consumers are struggling to keep up.”
It argued this only “partly explained” the year-on-year (y/y) increase in tenants’ debt-to-income ratios: “In Q4 2017, tenants paid R13 756 on their monthly debt repayments versus R15 031 in Q4 2018. The increase in debtto-income ratios affects affordability ratios. And as incomes have grown more slowly than rents, the slight increase in the rent-toincome ratio was to be expected.”
The picture across SA’s three major provinces is very different. In Gauteng, the average monthly rent breached R8 000 in 2018’s last quarter – 4.84% higher y/y. “While this rate was lower than the year before, it was the province’s first increase in quarterly growth in two years, which may signal the start of a recovering rental market in the province.”
KwaZulu-Natal’s market recovered from subdued growth in 2017, up 7.25% in the fourth quarter. Year-on-year rental growth was above 7% for three of the four quarters.
PayProp said currently it was hard to believe the Western Cape experienced four consecutive quarters of 10% y/y growth in 2017. “By comparison, 2018 yielded the lowest growth figures for the province since 2012. At its lowest point of the year, growth slowed to just 3.96% in Q4 2018.”
But the report noted the average monthly rent in the province “surpassed the R9 000 mark during the year, still making it the most expensive province to live in, with an average price differential of nearly R1 000 compared to the second most expensive province”.
The affordability ratios in the table showed how much net income the average tenant spent on rent and debt obligations. PayProp said: “A widely accepted rule of thumb holds that a tenant shouldn’t spend more than 30% of their net income on rent” (national Q4 average: 28.9%).
“Generally financially savvy tenants spend less of their income on rent than high-risk and very high-risk tenants.”
Positively, the fourth quarter was the first quarter in two years to show an uptick in year-on-year growth. PayProp said inflation was “likely to continue to outstrip rental growth if current trends continued”.
Hilton Tarrant works at YFM