The second quarter of 2024 brought a pleasant surprise for South African rental agents and landlords as rental growth surged following a decline in the first quarter. According to the PayProp Rental Index, year-on-year rental growth rebounded to 4.9% in April from 3.6% in March, then fell to 4.5% in May before rising to 5.2% in June. This marks a new post-pandemic high and the fastest year-on-year rental growth in any month since December 2017.
Johette Smuts, head of data analytics at PayProp, expressed optimism about the rebound in rental growth, stating that June 2024 was the first time in almost five years that rental growth outpaced inflation. This is good news for estate agents and landlords as it signals higher real-terms returns, potentially leading to more profitable and resilient businesses in a challenging economic environment.
With inflation decreasing further in July, economists predict that interest rate cuts could begin as early as September. Smuts mentioned that rate cuts would lower bond payments, attracting more first-time home buyers to the market and potentially reducing demand for rental properties.
At the end of the quarter, the average national rent in South Africa stood at R8,785, which is R410 more than in Q2 2023. Encouragingly, all provinces experienced positive rental growth in Q2 after a year-on-year decrease in KwaZulu-Natal’s average rent in the previous quarter.
The Western Cape, known for having the highest rents in South Africa since 2016, stood out in Q2 2024 with an average rent of R10,673. Despite experiencing average or below-average rental growth in recent years, the province saw a surprising growth rate of 9.7% in Q2, reaching 11.7% in June – the fastest recorded in the Western Cape since December 2017.
On the other hand, KwaZulu-Natal recorded the lowest rental growth of any province at 1.5%, an improvement from negative growth in the previous quarter. Gauteng, on the other hand, had a third consecutive quarter of below-average rental growth but saw an improvement to 3.8% in Q2 2024, with an average rent surpassing R9,000.
In Q2 2024, the average tenant in South Africa spent 46.7% of their income on debt repayments and 30.3% on rent, leaving them with 23.0% of their income for other expenses, compared to 27.2% in Q2 2023. Smuts highlighted that rising average incomes have been outpaced by expenses due to high interest rates, with debt repayments increasing significantly year-on-year.
Despite the financial pressures, tenants have continued to prioritize rent payments, with only 18.1% in rent arrears in Q2 2024 compared to 18.4% a year earlier. Smuts advised agents and landlords to be mindful of tenants‘ financial burdens but also noted that there is still room for rental growth, especially in hot rental markets where tenants are accustomed to higher rent prices.
In conclusion, the sudden surge in rental growth during Q2 2024 brings positive news for South African rental agents and landlords, signaling potential for increased returns and more resilient businesses in the future. As the market continues to evolve, it will be essential for stakeholders to adapt to changing economic conditions and tenant needs to ensure sustainable growth and profitability in the rental sector.
