Rental growth marks the fastest pace since 2017

South Africa's residential landlords enjoyed year-on-year earnings growth of 4.6% in the latest quarterly analysis, the fastest since Q4 2017 when the figure peaked at 5.3%. The PayProp Rental Index reports that the average rent now stands at R8 451. This is R368 more than in Q3 2022, and R76 more than Q2 this year.

Monthly year-on-year rent rises were 4.7% in July, 4.4% in August and 4.9% in September. Unlike previous quarters in 2023, the growth was framed by a more stable inflationary backdrop. The consumer price index stayed within the 3%-6% target set by the South African Reserve Bank (SARB) for Q3 but remained above rental growth in all months except July.

Johette Smuts, head of data analytics at PayProp says that it remains to be seen if the September inflation uptick to 5.4% is cause for concern in the rental market. "If inflation remains a risk, that will limit SARB's scope for rate cuts, keeping consumer credit expensive while also putting continued pressure on tenants' finances," says Smuts. "On the other hand, high interest rates also deter homebuyers, increasing demand for rental properties and providing more scope for rental increases. And while this would add further pressure on tenants, landlords would benefit. The SARB Monetary Policy Committee has warned that core inflation appears sticky, so significant rate cuts are unlikely in the near future."

The provincial outlook

For the second quarter in a row, all provinces experienced positive year-on-year rental growth. All but two - KwaZulu-Natal and the Northern Cape - also experienced faster growth than the previous quarter.

The North West province moved from posting the second fastest provincial growth figure in Q2, to the fastest in Q3, leading the pack with 9.3%. Rents in the province, while still the lowest in South Africa, reached R6 021 from R5 985 last quarter, passing R6 000 for the first time.

Mpumalanga recorded the second fastest growth of any province in the past quarter - 6.3% - to reach R8 396. Whilst still below the national average, the gap is narrowing and currently stands at R55.

However, a slowdown in growth in KwaZulu-Natal has led to the province falling out of the country's top three, price-wise. Rents grew by 2.5% in Q3, less than last quarter and - crucially - less than the 4.7% recorded in Gauteng, which is now South Africa's third most expensive province for renters at an average R8 777 per month.

Good news on arrears

Despite the ongoing rent increases, the percentage of tenants in arrears fell in Q3 2023 after two successive quarters of rises. Nationally, just 17.5% of tenants were behind on their rent in Q3 2023, compared to 18.4% in Q2. This is the lowest figure seen since PayProp started tracking arrears data in 2020.

The percentage of rent owed on average by tenants in arrears also fell at the national level, from 77.1% in Q2 2023 to 74% in Q3. This is the lowest level recorded since 2020

"It's encouraging to see the improvement in arrears despite many tenants still experiencing a substantial squeeze on their finances from the rising cost of debt repayments," says Smuts. However, she says that property professionals should pay close attention to managing arrears during the upcoming festive season, as tenants may prioritise seasonal spending over rental repayments.

"As we enter the holiday season, it's uplifting to review positive data in the Rental Index. Landlords and agents will welcome the fact that growth has accelerated every quarter for two years, and each province has individually seen growth for the second consecutive quarter. In addition, arrears have fallen to their lowest level since before the pandemic, showing that tenants' position has improved and closing the quarter off on a positive note."