Rental growth slows but exceeds inflation

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BR To let 7108 Independent Newspapers Residential property to let in Braamfontein, Johannesburg. PayProp says economic circumstances are expected to remain tight, with landlords and tenants caught between cover and available capital. Photo: Simphiwe Mbokazi

Johannesburg - National average rental increases for residential property peaked at a high of 10.8 percent in October last year then started to settle in the 8 percent to 10 percent range as tenants found it increasingly difficult to pay the rising rentals.

The PayProp rental index, which is based on the analysis of about 2.5 million transactions in South Africa, showed the weighted average national rental at the end of the first quarter of this year had increased to R5 934 from R5 867 in the fourth quarter.

Louw Liebenberg, the chief executive of PayProp, a leading processor of rental payments for the residential letting industry, said that in line with international trends, economic circumstances were expected to remain tight, with landlords and tenants caught between cover and available capital.

But based on current growth rates, the national rental average could be expected to exceed R6 000 by the end of the current quarter, he said.

Liebenberg predicted that tenant payment profiles would deteriorate slightly this year.

He said damage deposit ratios would continue growing despite plummeting affordability as owners sought protection against tenants ending contracts prematurely.

Tenant Profile Network (TPN) credit bureau reported a worsening tenant payment performance for residential rentals in the fourth quarter of last year, with the percentage of tenants in good standing dropping to 85 percent in the last two quarters from 86 percent.

TPN said 72 percent of tenants remained in the “paid on time” category but the deterioration in payment behaviour was reflected in the decline in the percentage of tenants who “paid late” to 15 percent in the fourth quarter from 17 percent in the previous quarter.

Liebenberg said this trend resulted from overindebtedness and PayProp did not expect it to improve because rental growth rates were still above inflation and occurring in an economy characterised by increases in essential costs coupled with low growth rates.

“While the rental market is growing at healthy levels, our caution to the market remains that tenants are under increasing pressure, which calls for more in-depth screening prior to the signing of leases in 2014.”

The index also revealed that more private property investors were starting to acquire additional investment properties over time. He said the average investor had a portfolio of 1.4 properties, up from 1.3 two years ago. “While the shift does not at first seem significant, it is important to view it in the context of the volume of properties that PayProp deals with.

“The difference between 1.3 average properties an owner and 1.4 means 3 300 fewer owners are required to achieve the same volume of properties.” - Business Report


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