Average rentals to touch R6,500/month by year end
The average rental in South Africa ranges between R5,913 per month to R6,441 per month, with the Northern Cape showing the highest growth. This is according to TPN Credit Bureau and PayProp’s second quarter assessment which show double-digit rental growth in the province: PayProp reported a second quarter average of 11.7%, while TPN cites escalations of 29.33% (Q1) and 26.46% (Q2). This outstrips the national average of 7.26% found by PayProp, and TPN’s finding of 6% to 8% average escalations.
The Northern Cape’s average rental price sits on R7,839, owed to increasing mining activity and limited rental stock.
The Square Kilometre Array project is viewed as another contributor to rental demand, but PayProp CEO Louw Liebenberg also points to the opening of a number of mines in Kuruman and Kathu.
“We are not expecting the gains from mining to last long as the drop in commodity prices has forced some of the mines into retrenchment, thereby causing a drop in rental demand,” Liebenberg says.
PayProp ranks Gauteng as having the highest rentals, for the second quarter in a row.
Gauteng’s average rental is R7,026 per month according to Payprop, while TPN ranks the province as having the third highest average rent (R6,130) after the Northern Cape and Western Cape at R7,839 and R6,397, respectively. It adds that escalations were also quite different in Q2: in Gauteng at 4.17% and the Western Cape at 7.32%.
Both companies agree, to use TPN’s words, that the heat has come off rentals in Limpopo and Mpumalanga.
PayProp expects the national average rental to touch R6,500 by year end, considering the current national average rental in South Africa is R6,441/month – the 15th month average rentals have remained above the R6,000/month level. Since January 2015, it reports year-on-year rental growth strengthening from 5% to 7.26%.
“While the upturn is good news, the slowing performance of the South African economy does not give us much confidence that this trend will gain dramatic momentum or even sustain itself for an extended period of time,” Liebenberg says.
TPN has also issued a caution. While demand for rental property will remain strong and landlords should be able to find and place quality tenants without losing rent due to vacancies, the search, however, for a quality tenant is a lengthy process given the high rejection rate due to credit record impairment.
“On the surface, an ongoing scarcity of rental stock can cause the business landscape to be viewed as a landlord’s market,” says the company’s Michelle Dickens. “However, TPN continues to caution that quality tenants are equally rare.”
Both companies have similar estimations of the size of the rental market.
PayProp says 75.4% of rentals are priced below the R7,500 bracket; TPN says 82% of tenants rent for below R7,000/month, with 59% renting for between R3,000/month and R7,000/month.
Good news for tenants is the cyclical movement of rental markets. PayProp’s quarter one report states that since June 2010 the market has fluctuated between fairly long (6 to 12 month) cycles of increasing and decreasing growth. In each cycle, rental growth rates reached an 8% to 10% ceiling, dropping back to 4% and 5% before turning upwards again.
“In essence, the cyclical swings appear to be a case of the market trying to find a balance between what tenants can pay and what landlords are demanding,” Liebenberg says. “As the adage goes, tenants will pay as much as they can afford and landlords will ask for as much as they can get. But this balance is both elusive and dynamic. The long-term trend-line is not as attractive as one might have hoped. The overall tendency is one of rental increases steadily decreasing over time.”