Commercial News

Residential rental growth slows sharply in 2016

The quarterly PayProp Residential Rental Index shows that the average growth in residential rentals in South Africa was 6.12%, not much higher than where the market ended in December 2014.


In July 2015 landlords enjoyed a break from January’s meagre 5.04% growth, with the rate reaching a year-high of 7.56%. The break was short with the market falling below 6% ending the fourth quarter with average year-on-year growth of 5.85%.


PayProp CEO Louw Liebenberg Liebenberg says that compared to the 7.25% annualised average of 2014, it is clear that 2015 has not been a great year for residential landlords. Average rentals showed only a modest increase from R6,264 in January 2015 to R6,616 in December.



The index shows that the average South African tenant spends roughly a third of his pre-tax earnings on servicing debt, while still juggling up to eight store accounts and three credit facilities.


PayProp CEO Louw Liebenberg says that more concerning is that the average tenant is using an average of 69% of the credit available to them, resulting in limited means to absorb any further financial shocks that might occur.


“A credible method of assessing how South Africans are responding to the current economy is to identify a sizeable financial obligation in most people’s lives and track their performance in servicing that obligation. Rent is the obvious candidate,” says Liebenberg. “Rent is hugely instrumental to form an understanding of the average tenants’ financial profile and prospects.”


Tenant risk management specialist PayProp Capital offers insights in this regard based on its ongoing analysis of Tenant Assessment Report data. The figures reveal that the average tenant spends R1.61 on debt for every R1 on rental. “This figure is extremely sobering. Gone are the days when the rule of thumb in the industry was that tenants should not spend more than a third of their declared income on rent,” says Liebenberg.


Northern Cape tops the list


For the second quarter in a row, the Northern Cape was the most expensive province in which to rent a residential property in Q4, averaging out at R7,438 per month. Elsewhere, only R111pm separated Gauteng and the Western Cape in Q3, allowing Gauteng to edge past the Western Cape in Q4 as the second most expensive province to rent in. Previously strong contenders, Mpumalanga and Limpopo have both dropped back from the top two spots to fifth and sixth place respectively. “


“Mpumalanga was once the most expensive province to rent in, but it is now the only province to suffer four consecutive quarters of negative growth throughout the period under review,” says Liebenberg.


Looking ahead


Liebenberg says that tenant selection will be the single biggest differentiator in the rental market in 2016. “As tenants are under more pressure to service ever-increasing debt in a stagnating economy, finding and placing the right tenant in a property that they can afford will at least ensure landlords get cash flow from their properties.”


Edited by: Thabang Mokopanele