PROVINCIAL RENTALS INCREASE FOR THE FIRST TIME SINCE 2017

Rentals countrywide increased by 2.6% year-on-year during the second quarter of 2022, according to the latest quarterly PayProp Rental Index.

Average rent increased by R193 in the second quarter, to R7 971 from R7 778 in the same quarter of 2021. PayProp's Johette Smuts says the moving average trendline - which tracks a rolling three-month average - shows a very clear upward trend.

"For the first time in almost five years - since the third quarter of 2017 - all nine provinces recorded positive year-on-year rental growth in the second quarter of 2022.

"This is really good news for landlords and agents alike," she says.

Regions

The Western Cape remains the most expensive province for tenants in South Africa, with an average rent of R9 462 in the second quarter of 2022. This is R277, up from R9 185 in the same quarter of 2021. The province recorded a rental growth of 3.0%, outperforming the national average of 2.6% for a fifth consecutive quarter.

In the Northern Cape, the average rent increased by 9% year-on-year in the second quarter of 2022 - by far the highest increase of all nine provinces. Average rent in the province is now R8 626 - up R715 from the R7 910 recorded in the second quarter of 2021. The Northern Cape retains its position as the second most expensive province in which to rent.

KwaZulu-Natal rental growth has been outperforming the national average for five consecutive quarters since the second quarter of 2021. Growth has escalated over the last four quarters, and the province recorded a 3.0% year-on-year increase in average rentals during the second quarter of 2022. Average rent has increased to R8 443 from R8 200 since 2021, making KZN the third most expensive province in which to rent.

Further north, the moving average trendline in Mpumalanga shows steep upward growth over the past 12 months. This province recorded rental growth rates of over 3% in the last four quarters, far outperforming the national average. During the most recent quarter, the province achieved growth of 5.2%, the second highest rate in the country after the Northern Cape. Average rents in Mpumalanga increased to R7 870 in the second quarter of 2022 - an increase of R386 from R7 484 in the corresponding period in 2021. Smuts says that if this trend continues, Mpumalanga could exceed the national average of R7 971 by the end of next year.

Rental growth continues in Limpopo, with a year-on-year average rental increase of 4.7% in the second quarter of 2022. This is the third highest rental growth of any province this quarter, with average rent increasing by R333 from R7 017 in the same quarter of 2021 to R7 350 in 2022. According to the report, Limpopo came off 14 consecutive quarters of negative rental growth until early 2021, making the turnaround even more impressive. The rental growth in this province has outperformed the national average every quarter since the second quarter of 2021. However, the trend line shows it might now be starting to level off.

In North West, average rents increased by 3.9% during the second quarter of 2022 - a marked improvement from the 2.0% in the preceding quarter. Growth rates in this province have outperformed the national average for the last six quarters after relatively small falls in 2021. Even after a stellar performance, North West is still the cheapest option for tenants, with average rent increasing by R204 to R5 478 - from R5 274 in the second quarter of 2021.

Rental growth in the Eastern Cape has outperformed the national average in all but one of the past 10 quarters. The moving average trendline shows the downward trend from the end of 2020 ended in the third quarter of 2021, with rental growth picking up again over the three most recent quarters. In the second quarter of 2022, rental growth was 4.4%. Rent increased to R6 451 - up from R6 365 the same quarter in 2021. This makes the Eastern Cape the third cheapest province in which to rent.

In the Free State, rental growth has rebounded over the last four quarters, but overall the performance is still weak. The province experienced negative rental growth throughout 2021, and although the 1.9% of this past quarter was the region's fastest since the third quarter of 2020, it was still the second lowest in the country. The average rent during the most recent quarter rose to R6 328 - the second lowest of all provinces.

Gauteng also recently experienced four consecutive quarters of negative rental growth. However, the province may have started to recover as the moving average trendline indicate a positive trend over the last two quarters. Its most recent recorded rental growth of 0.3% is the first positive change since the first quarter of 2021 but is also the lowest out of all nine provinces. Average rent increased by just R27 to R8 319, up from R8 292 in the same quarter last year. This is still above the national average rental of R7 971.

Tenants

Regarding tenant payment risk, Smuts cautions that high levels of inflation and increasing interest rates continue to put pressure on already strained household budgets.

"The continued financial demands faced by consumers through 2022 could force many tenants to look for cheaper accommodation, and this would prevent a complete rental market recovery," says Smuts.

"On the other hand, higher interest rates and a reduced ability to save may induce some higher-income tenants to keep renting instead of buying their own properties, which will have the opposite effect."

She says that although the rental market continued its recovery in the second quarter, agents and landlords should remain mindful of the negative effects on the ability of tenants to pay their rent.

The report shows that in the lowest rental bracket - R1 000 to R2 500 a month - average tenant income decreased by 15% to R11 726. In addition, unemployment in South Africa is at near-record highs - according to Statistics South Africa's Quarterly Labour Force Survey, 34.5% are out of work, which affects more young people. People in this bracket are also more severely affected by high inflation as they have little to no disposable income to absorb the rising cost of living.

"Over the next few months, it will be important for rental agents to monitor their portfolios for signs of growing arrears. They should use the tools available to them to recover late payments where necessary and carefully vet all applicants," says Smuts.