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If you are looking to rent a house in South Africa and considering location and affordability, the latest PayProp Rental Index may point you in the right direction.
The Index, released this week, offers insights into key data on the residential rental sector in South Africa including rental pricing, market growth, arrears, and affordability.
Johette Smuts, Head of Data Analytics and author of PayProp Rental Index says the second quarter index also looks at how the market has affected tenants across different income levels.
Of nine of South Africa’s provinces, the North West was noted as the cheapest province for house rentals with an average rent of R6,362, according to the index.
The Index show that North West was growing at a fast pace in the last two quarters, with rents increasing by around 10%. But in the second quarter, the province’s growth has fallen to 6.3%, which cements the province as the place with the lowest rents in the country.
Sitting at number eight is Free State, which has experienced what Smuts describes as a ‘sudden drop’. She says the Free State would normally have the fourth-highest rental growth in the country.
The sudden drop comes after the province experienced extremely rapid rental growth in the past two quarters, this is after a sluggish performance.
To rent a house in the Free State would cost you an average of R6,765 at a standing point, this is down by R167 compared to the first quarter. “If that holds, we are likely to see a further drop in year-on-year rental growth this year.”
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As expected, Western Cape is the most expensive place to rent a house at an average of R10,673. The Index notes the Western Cape has had the highest rents in the country since 2016. This puts the rent in the Western Cape more than R1,450 ahead of its runner-up.
“Against this background, the province’s Q2 growth rate of 9.7% comes as a real surprise. The average rent is now almost R1 000 more than in Q2 2023.”
After the Western Cape, comes the Northern Cape as the second most expensive province for tenants at R9,412. However, the province’s rental growth is the second lowest in the country at 2.1%. However, PayProp sees this as an improvement on the previous quarter.
“The year’s troubles have come in contrast to previous years. The Northern Cape enjoyed above-average growth throughout 2022 and 2023, reaching double figures in Q1 2023. But it then declined throughout that year before collapsing completely in Q1 2024, and its recovery is no sure thing.”
The country’s economic hub, Gauteng sits in third place with an average rent of R9,018.
“Last quarter, we predicted that the average rent in the province could pass R9 000 very soon, and they have now done just that, reaching R9 018 from R8 691 a year previously,” adds Smuts.
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In the first quarter, PayProp saw rental growth falling for three consecutive months, and forecast that the country’s post-COVID rental recovery was over.
“Year-on-year rental growth bounced back to 4.9% in April, from 3.6% in March. Followed by a small dip in May, it then climbed to 5.2% in June.”
Smuts adds that the growth is not only a new post-pandemic high, it is also the fastest monthly rental growth measured in the Rental Index since December 2017. They believe it has been driven by growth in some surprising provinces.
Coming to June 2024, it was the first time that rental growth has outpaced inflation since September 2019. Inflation fell to 5.1% in June and has been trending downwards in South Africa and worldwide.
“Economists are hopeful that on-target inflation figures mean that interest rate cuts can start as early as September, although it remains to be seen whether the South African Reserve Bank will agree.”
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She says that almost a quarter of applicants earn between R20,000 to R30,000 in a month, which makes this the biggest bracket for the previous two years. But they have also noticed a shift towards the upper-income brackets since 2022.
“The share of tenants earning between R10,000 and R40,000 has decreased from 66.4% in the second quarter of 2022 to 60.3% in the second quarter of 2024. In fact, all brackets earning above R30,000 have seen an increase in their share of applicants.”
Smuts notes that South Africans are not earning much more on average than they were in 2022. However, high interest rates are deterring first-time buyers, meaning more high-earning tenants are staying in the rental market for longer.
The Index show that in the second quarter, 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 to cover all of their other expenses.
“But these spending metrics vary greatly between the lowest and highest-income tenants. Tenants earning between R10,000 and R20,000 have almost the entirety of their income taken up by rent and debt repayments (especially the latter), with just 6.2% left over.”
Smuts says though South Africans spend more than half of their salary on debt, those earning R80 000 or more had a much more comfortable 54.1% disposable income in the second quarter of 2024.
“The stats further reveal a clear salary breakpoint. That number is R40 000 per month. Once tenants start earning over R40 000, they enjoy significantly more breathing room.”
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