Rental Market Review (The Bugle)

The state of the South African Rental Market was the subject of a recent seminar I was fortunate enough to attend. Interestingly the overall number of residential properties, in the formal market, rented today is approximately 700,000. The key insights that emerged from this session related to the rate at which current rentals are increasing, the level of delinquent tenants across various rental price brackets and the buy-to-let hot spots around the country. The days of escalating annual rentals by the standard 10% are over. Actual CPI rental inflation according to Stats SA is 4,47% on average. Townhouse rental inflation was slightly higher at 5,2% than freehold house inflation of 4,34%. 

Payprop, SA’s largest processor of rental transactions, at approximately 50,000 per month, were on hand at the seminar to provide some insightful analysis of their valuable data set. Their figures indicated rental inflation at 4,9% in May 2012, down from 7% in the fourth quarter of 2011. As a landlord negotiating an escalation clause in a lease agreement, using 6% as an acceptable increase in the rental after the initial period, would be advisable. Overall CPI Inflation is currently at 5,7% and Producer Price Inflation is sharply down to 6,6% in May 2012 from 10,6% in October 2011. This indicates that the short-term direction for inflation is downward. Increases in municipal rates have impacted on the costs incurred by Landlords, while the substantial increases in municipal utilities, such as electricity, has impacted mostly on tenants who typically pay for these services over an above the rental. 

Tenant Profile Network (TPN), South Africa’s leading Credit Bureau servicing the property rental market, indicated that the best performing tenants, in terms of paying their rental on time and in full, are across the middle rental price bracket. For the R3,000 – R7,000 p.m. bracket, 84% of tenants paid on time, and for the R7,000 – R12,000 p.m. bracket 83% paid on time. The lower rental bracket, below R3,000 p.m. showed the worst performance, with only 72% paying their rental on time. Furthermore, 19% of all tenants renting below R3,000 p.m. did not pay any rent in the second quarter of 2012, up from 14% a year earlier. For buy-to-let investors this is a red flag, indicating which price bracket to be more cautious of. For those renting above R12,000 p.m., 75% paid on time, well below the 81% overall average. Current rental hot spots around the country include smaller towns in Mpumalanga and Limpopo centered around mining or power station investment activity. Our greater Ballito area is sizzling across the R7,000 to R15,000 per month rental range as more and more families migrate to the Dolphin Coast.