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Rental increases in 2016 to remain in the 6% to 7% band – PayProp

Average rental growth for 2015 was just 6.2%, not much higher than where the market ended in 2014, at 6.05%. This is the latest finding of PayProp in its PayProp Rental Index 2015. In absolute terms, provincially weighted average rentals showed only a modest increase, from R6,264/month in January to R6,612/month in December.

For the second quarter in a row, the Northern Cape was the most expensive province in which to rent a residential home in Q4, averaging R7,438/month.

Only R111 separated Gauteng (R7061/month) and the Western Cape (R7161/month) rentals in Q3, allowing the latter to edge past the former in Q4 as the most expensive province in which to rent (Q4 rentals reflected in brackets). This comes on the back of continued stronger growth in the Western Cape, compared to a slight last quarter dip for Gauteng.

In descending order for Q4 2015, KwaZulu-Natal was up next at R6,967/month, followed by Mpumalanga (R6,582/month), Limpopo (R6,496/month), Eastern Cape (R5,164/month), Free State (R5,024/month) and North West Province last (R4,703/month).

PayProp CEO, Louw Liebenberg, who authored the report, found rentals in Mpumalanga were the only ones to suffer four consecutive quarters of negative growth. “That’s right,” he quips, “actually falling.”

Both the Western Cape and Gauteng experienced lower rent increases over the last quarter, but they still offer growth well above the norm and have done so over a sustained period and from a position of strength, at or near the top of the rankings.

In terms of price category shifts, PayProp found the biggest gain was in the R10,000 to R15,000/month category (moving from 7.4% of total rentals to 9.1% over the term). The third-highest range (R7,500 to R10,000/month) also showed a promising growth gain of 1.3%.

Sluggish house price growth drives income yields higher

For investors, the average yield of South African properties in Q4 2015 was 7.11%, a slight recovery from the 7.06% of the previous quarter. Driving them up was sluggish growth in property values – even lower than rental income. One look at the Absa price index corroborates this: house price growth has dropped back from 8% to 9% in 2014 to a mere 5% to 6% in 2015. Net yields – which measure profit (rather than income) in relation to asset value – ended the year at 5.03%, marginally more than the level at which it started, indicating a flattening of growth and some relief for owners.

PayProp found the damage deposit-to-rent ratio (the value of the average damage deposit relative to the average rental) on the up again. It means, in short, that landlords are able to extract larger deposits relative to rental values than previously in the year.

Expectations for 2016

In 2016, PayProp expects rental increases to hover in the 6% to 7% band, and net yields to remain at 5% to 5.5%. This is against the backdrop of tenants under pressure to service ever-increasing debt in a stagnating economy, and the expectation that tenant payment profiles will worsen.

With this in mind, PayProp also expects investors with cash to spare are more likely to find lower cost bargains than last year as investors who are under strain may be tempted to put their properties back in the market.


Alison Goldberg is the former property editor of Business Day (1985) and the Financial Mail (1991-99). In 1995 she won the Sanlam Financial Journalist of the Year Award. She has edited such titles as National Constructor and The Miner in Australia and has freelanced for The Star, The South African Jewish Report and The Jerusalem Post.

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