According to the quarterly PayProp Rental Index, Gauteng is primed for rental growth recovery in the next two quarters. Johette Smuts, Head of Data and Analytics at PayProp, says as with economic growth, inflation rates and interest rates, rental growth rates show cyclical growth trends. “We’ve analysed data from our earliest Indices in 2012 and it’s clear that the cycles last anything from 6 to 11 quarters. In Gauteng, the cycles have been 7 quarters and 6 quarters in duration, respectively, indicating that there might be some good news for Gauteng soon.”
In contrast, Smuts says that the Western Cape doesn’t historically show any clear peaks and troughs. “The lowest points over the period (2012 – 2018) are the first and last quarters, so one could view the entire period as one long cycle.” The province has not shown any signs of a second cycle and rent levels continued to grow at around 10%, until the end of 2017. “If the other provincial cycles are anything to go by, the Western Cape is at the start of a declining cycle, and it’s likely that there will be at least two more declining quarters before we can expect an upturn,” she says.
For the first time in over a year, the Western Cape has lost its spot at the top of the provincial growth rate rankings. That place is now occupied by the Free State, with a year-on-year growth rate of over 8% (compared to 4% a year ago). KwaZulu-Natal also shows a year-on-year (YoY) growth rate of 7.75% – slightly higher than the 7.31% recorded in Q1 2018.
One can see signs of a bubble in the Western Cape, particularly Cape Town. Capital growth on property in the city has, according to property research company Lightstone, exceeded 10% for the past three years and counting (compared to growth in Johannesburg of around 3% per annum). Another factor increasing demand in Cape Town is “semigration” – the phenomenon of families moving to the Western Cape from elsewhere in the country.
Smuts says that when it comes to weighted national average rental growth, we’re a long way from the 8.3% growth rated logged in January 2017. Growth has trended even further downward from Q1 2018, with a YoY increase coming in at just 3.27% for June 2018. “A year ago, this figure was 6.76% – more than double the current rate,” says Smuts. “We also see inflation trending upward again, but to be fair, that was to be expected after the increase in the VAT rate in April.”
Smuts advises property owners and property management companies to continue to mitigate risk in order to protect income levels. “We know that consumers are continuously under more pressure – living costs are on the rise and incomes aren’t increasing at the same rate. Some tenants can be worse off now than when you first placed them, so it makes sense to recheck tenants before you re-place or renew rental contracts.”