PayProp has published its rental index for Q2 2020, showing that the Covid-19 pandemic and lockdown has had a significant impact on rental growth across South Africa.
Data from the property group shows that year-on-year (YoY) rental growth rates for April, May and June were 2.3%, 1.1% and 1.6% respectively. This was below the rate of inflation – even as the latter figure dipped to its lowest level in years.
Rental growth is affected by multiple factors, but affordability has been an important driving force behind low year-on-year increases during the pandemic, PayProp said.
“Many tenants suffered a loss of income and might not be able to afford higher rents, while others may have been forced to downscale,” it said. Another factor has been the return of properties that had been let over the short term through platforms like Airbnb.
“Given the travel restrictions, owners have been flooding the long-term rental market with these properties, suppressing prices,” PayProp said. Both these factors – pandemic-related affordability and supply – will influence rental growth rates for some time to come, it said.
The cost of rent
PayProp’s data shows that the average national rent came in at R7,746 for Q2, up R115 from R7,631 the year before.
Provincially, the year-on-year rental growth rate declined from Q1 to Q2 in all but two provinces: In the North West rental growth measured 3.9% in Q2, compared to 3.8% in Q1, it said.
- The Western Cape is still the most expensive province in which to rent, with an average rent of R9,022 (down from R9,025 a year ago). It is also still the only province where the average rent is more than R9,000 per month;
- KwaZulu-Natal, the second most expensive province a year ago, moved to fourth position after experiencing negative growth of 1.6% over the year. Gauteng is now the second most expensive province, followed by the Northern Cape;
- The Eastern Cape crossed the R6,000 mark in Q4 2019, leaving the North West as the only province with an average rent below R6,000;
- The North West’s rent figures are heavily influenced by student accommodation with low-rent apartments and dorm rooms;
- Limpopo rent levels crossed the R7,000 mark, albeit in the wrong direction. Rent levels decreased from R7,227 in Q2 2019 to R6,962 in Q2 2020 – a 3.7% decrease;
- The Free State had the highest growth rate of all the provinces at 4.7%, which saw the average rent increase from R6,166 a year ago to R6,455 this past quarter;
- Mpumalanga, the province with rent levels closest to the national average, saw rent levels increase from R7,381 in Q2 2019 to R7,463 in Q2 2020.
Covid-19 and non-payment
Lockdown has meant that many South Africans have experienced a decrease, or in some cases even a total loss of income. Naturally, this has affected their ability to pay rent, said PayProp.
“Looking at the percentage of tenants in arrears, there was a clear increase from March to April, and again from April to May.
“It is encouraging to see a slight subsequent decrease (May to June), signalling that this figure is likely to improve or at least remain stable for the next few months.”
When considering the relative size of arrears, PayProp said it saw an increase from March to April, followed by two much larger increases from April to May and May to June.
This indicates that many tenants in arrears in May were further in arrears in June – and one could argue that tenants who had a low level of arrears paid up, it said.
“Hopefully, this metric will stabilise and decrease in months to come as people pay off their debts once they start earning a normal income again.”