Could the worst be over?

The latest PayProp Rental Index shows that the national average property rental rose to R7610 in the fourth quarter of 2018, compared to R7308 a year previously. 

The index also shows, however, that this year-on-year growth rate of 3,9% was way down on the 6,4% growth achieved in 2017. On a quarterly basis, the 4,14% achieved in Q4 of last year was also down on the 5,39% achieved in Q4 of the previous year.

There was glimmer of good news because the downward trend in rental growth actually reversed in December for the first time in two years, and landlords are really hoping that this could be the start of a recovery, as there is certainly increasing demand for rental properties.

But Johette Smuts, head of data and analytics at PayProp, cautions that below-inflation income growth is making it difficult for consumers to keep up with debt and rising living costs, and that the average tenant's financial situation has deteriorated over the past year.

Indeed, the index shows that the average affordability ratio has risen from 70,2% a year ago to 74,4% - leaving the average tenant only 25,6% of their net monthly income after they have paid rent and made their monthly debt repayments. The rent component currently accounts for an average 28,9% of net income.

On a regional basis, the PayProp stats reveal that rentals are still highest in the Western Cape (average R9124) even though rental growth slowed to 3,96% in Q4. Rental growth of 4,84% in Gauteng brought the average rental to R8064 during this period, while growth of 7,25% brought the average rental in KZN to R8129.

The highest growth rate in Q4 (8,25%) was achieved by the Free State, where the average rental is R5942, while the cheapest place to rent, currently, is the North West, where the average monthly rental is R4986.

Smuts says 2018 was a tough economic year for all South Africans and that 2019 will bring additional challenges, such as greater political uncertainty and increased economic volatility before and after the general election.

Consequently, it will become even more important to target the lowest risk tenants - who are not always those with the highest credit scores or the lowest affordability ratios. To learn more, the PayProp report can be downloaded at https://za.payprop.com/about/rental-index