A South African woman turned her social grant money into a business that pays her R18,000 a month tax-free
A woman in Khayelitsha turned her monthly social grant into a property business that makes her R18,000 a month in rental income, and she pays zero tax.
Her story was shared by informal economy expert GG Alcock, who used it as an example of how South Africa’s largely overlooked backroom rental market operates.
“I wrote in my book, Kasinomics, about a lady who rents out these backrooms after a decade of saving,” Alcock said.
“She took her social grant, every month for ten years, and she laid by building materials for six rental units.”
The woman used roughly half of her grant each month to put building materials on lay-by. Over time, she accumulated enough materials to construct six rooms, which she now rents out for R3,000 each.
That gives her gross rental income of R18,000 a month. Alcock said the story illustrated how people operating outside the formal economy can use small and consistent amounts of money to build assets and businesses over many years.
He said social grants can also effectively become a source of financing for informal entrepreneurs, many of whom are not formally employed and therefore qualify for state assistance.
“They then use that money to save or invest steadily to build a home, a business, and often both in the informal economy,” he said.
The Khayelitsha landlord is part of a much larger informal economy that includes spaza shop owners, bakers, goat breeders, mattress makers, coffee sellers and vetkoek traders.
Alcock estimated that the backroom rental economy alone is worth about R30 billion a year.
However, he added that it receives little attention from the government and formal businesses because there is limited information about how the market operates.
Unlike the formal property market, where rental businesses are generally easy to identify and finance, backroom rentals are often cash-based and operate at the household level.
Alcock said formal businesses have been more successful at understanding other parts of the informal economy.
Government is catching on
Companies such as Tiger Brands, Premier Foods, and Unilever can serve informal traders through wholesalers and distributors because the informal retail market resembles its formal counterpart.
The same is harder to do with backroom rentals, which are often viewed individually as someone simply renting out a spare room.
The scale of informal economic activity also complicates the way South Africa measures employment and income.
Alcock said Capitec’s data showed that the average social grant recipient earned five times their grant amount through other income, including side businesses and other work.
Stats SA data cited in research shows that only 23% of social grant recipients regard the grant as their only or main source of income, while 77% regard it as a secondary income stream.
Former Capitec CEO Gerrie Fourie previously said this creates difficulties when measuring unemployment because grant recipients who earn money informally may still describe themselves as unemployed.
“If you ask someone who gets a social grant if they are employed or unemployed, they will never say employed,” Fourie said.
The wider informal economy is estimated at about R900 billion and accounts for roughly 12.3% of gross national product and 19.5% of total employment, based on Stats SA data cited in research.
Standard Bank research has also found that almost 80% of township businesses surveyed were unregistered, with annual turnovers ranging from R100,000 to R50 million.
However, because of this, the government is increasingly looking at the sector as a potential source of tax revenue.
Finance Minister Enoch Godongwana said SARS is developing an Informal Economy Response Strategy to help unregistered businesses formalise, understand their tax obligations and submit returns.
Since the 2024/25 financial year, SARS data triggers have resulted in 21,890 previously unregistered informal-economy taxpayers being registered, generating R314 million in additional revenue.
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