PayProp, the largest processor of rental payments in South Africa, has released its latest Rental Index, detailing the state of the residential rental market in South Africa.
Following a re-weighting of its averages for the latest report, PayProp found that provinces with a higher contribution to the country’s GDP have a more discernible impact on average national rent growth.
This means that higher than normal year-on-year growth in Gauteng rentals from December to March was largely responsible for a spike over his period, along with double-digit growth rates in the Western Cape.
According to Johette Smuts, head of data and analytics at PayProp, a few more months’ worth of data is needed to know for sure whether this a temporary spike or a more robust growth trend.
“But Gauteng’s rental growth recovery path will play a big role in a market revival. If the spike is temporary, growth should again normalise to move with inflation,” she said.
However, Smuts said that the data shows a clear positive correlation between the two, and has was evident throughout 2016.
“If this relationship resumes and continues as before, rental growth should track above the 6% per annum mark later in the year, in line with inflation expectations for 2017,” Smuts said.
Rent increases across SA
On average, national rents grew 6.25% year on year between Q1 2015 and Q1 2016, and 7.62% year on year between Q1 2016 and Q1 2017, according to PayProp.
“While average national growth increased over the period in question, six out of nine provinces performed below the national average,” the report said.
Of those, the fastest growing province managed an increase of just 3.84% – around half the national average. Moreover, only three provinces saw an increase in growth in the last year: Mpumalanga, Gauteng and Limpopo.
The average increased as much as it did because, together, the three provinces contribute almost 50% of GDP, Smuts said.
Rental Price Brackets
“The most obvious observation one can make concerning the first quarter of 2017 is that the percentage of properties in the lower bands tend to decrease annually, while increasing in the higher bands,” said Smuts.
“The speed at which it increases tells us something about demand.”
The band with the highest percentage growth since Q1 2016 is for rentals over R15,000 – these now make up 6.2% of all rentals – an increase of 25% from last year’s 4.95%.
The Western Cape still leads the high-rental market, with 9.3% of all rentals falling within this band.
Other provinces that have shown noteworthy growth in this bracket are Gauteng, with almost 6% of rentals over R15,000, up from 4.5% a year ago, and Limpopo, with 8.2% of rentals now in this band, up from 2.5% a year ago – a remarkable increase of over 200%.
The average national rent currently lies in the R5,000 – R7,500 band, and this bracket is also the most stable in terms of proportional representation, Smuts said. However, there is a difference between current and future demand trends.
In the Eastern Cape, for instance, 39% of properties fall within the R2,500 – R5,000 band, but the province has seen a 12.6% increase in the proportion of properties in the R7,500 – R10,000 band.
In the Free State, on the other hand, the biggest concentration of properties is in the R2,500 – R5,000 band, but the band below it shows the highest growth over the past year, indicating that there is in fact a demand for cheaper housing in the province, Smuts said.
Current demand: Most populous rental bands per province