Positive residential rental market growth continues

Positive residential rental market growth continues

The latest PayProp Rental Index showed continued growth in the residential rental market into the third quarter of 2022. The index is a quarterly guide outlining trends in the South African residential rental market.

During this quarter, rents increased by 2.9% year-on-year - the strongest performance since the first quarter of 2020. The average national rent increased from R7 800 in the third quarter of 2021 to R8 023 in the third quarter of 2022 - the first quarter in which average rent exceeded R8 000.

Johette Smuts, PayProp's head of data analytics, says that although rental growth has certainly recovered from the lows of 2020 through 2021, it still lags behind the increases seen in 2019 and earlier.

Provinces
The Northern Cape tops this quarter's table with rental growth of 8.1% between the third quarters of 2021 and 2022 - the highest of all the provinces by far. As a result, rent increased by R652 to R8 721, making the Northern Cape the second-most expensive province in which to rent.

North West experienced the second-highest rental growth rate in the country in the third quarter, although it still has the lowest average rent. Average rent in the province during this quarter was R5 509 - up 4.8% or R252 from the same quarter in 2021. Smuts says it's worth noting that a large proportion of properties managed through PayProp in this province are student housing, possibly explaining the low average rents.

Limpopo was third in terms of growth this past quarter, where average rent increased by 4.7%. The average went up by R330 to R7 354 - almost R700 below the national average.

Gauteng, previously the second most expensive province in which to rent, was overtaken this quarter by Northern Cape and KwaZulu-Natal. Rent in the province increased by just R147 year on year, from R8 235 in the third quarter of 2021 to R8 382 in 2022.

The Western Cape held onto the position of being the most expensive province for tenants, with an average rent of R9 533 - more than R1 500 above the national average.

Recovery
In the third quarter of 2022, the average year-on-year increase in national rent was 3.0% in July, 3.1% in August and 2.6% in September. This is compared to 3.7%, 3.5% and 4.2% for the same months in 2019.

"It's quite difficult to predict how far this rental market recovery will go," says Smuts. "Higher interest rates and bond repayments are almost certainly incentives for tenants to rent for longer. This increases the demand for rental properties, which in turn pushes prices up."

Smuts says tenant arrears improved steadily nationally in the third quarter, with the average arrears percentage dipping below pre-pandemic levels for the first time.

"However, we aren't completely out of the woods yet," she says. "Rising interest rates may increase the demand for rentals, but they also slow down economic growth. This puts further pressure on tenants' finances and ultimately has a negative impact on their ability to afford higher rental increases."