In order for a tenant to lower their arrears percentage, they must pay all of their rent each month, plus a portion of their outstanding balance.
- The first quarter of 2021 saw the first signs of a recovery in South Africa’s residential rental industry.
- The rent increase between the first quarter of 2020 and the same quarter of 2021 was only Rand 33, to Rand 7,819.
- Yet the latest PayProp rental index shows signs of resuming rental growth.
- In the first quarter of 2021, the average rent in Gauteng was R8,390 – the second highest after the Western Cape at R9,142.
The first quarter of 2021 saw the first signs of a recovery in South Africa’s residential rental industry – but a substantial increase anytime soon remains unlikely, according to the latest PayProp rental index.
After five consecutive quarters of declines, the first quarter saw quarterly rental growth rise to 0.5%, measured year over year. Figures of 1% and 0.7% were recorded in January and February, with no year-over-year growth for March 2021.
PayProp’s data analyst, Johette Smuts, says the quarterly average is still well below the 3.2% rental growth rate seen in the corresponding quarter of 2020.
âThe rent increase between the first quarter of 2020 and the same quarter of 2021 was only Rand 33, to Rand 7,819. Since January 2020, the pension rate has been lowered by three percentage points to its lowest level in decades, prompting many tenants to buy their first homes, âsays Smuts.
“This exodus of more creditworthy tenants from the rental market, combined with the persistent financial constraints of others, continued to exert downward pressure on rental prices in the first quarter of 2021.”
In addition, a rise in residential developments has added to the supply of rental housing, according to the index report.
âLooking at the year-over-year growth rates of past years, it seems unlikely that we will soon see growth rates approaching 10% like we did in 2013,â says Smuts.
A positive indicator of the latter index is the declining percentage of tenants in arrears after an initial peak. In the first quarter of 2020, 19.4% of all tenants were in arrears, which quickly rose to 24.9% in the second quarter when the foreclosure was first applied, leading many tenants to lose their income or be forced to take a pay cut.
Then in June 2020, most industries reopened and tenants returned to work, resulting in a steady improvement in the percentage of overdue tenants every quarter since then. But in the first quarter of 2021, 20.3% of tenants were in arrears.
“In order for a tenant to reduce their arrears percentage, they have to pay their rent in full each month, plus some money for the outstanding balance – and in today’s economic climate, that’s not easy. So while the average rent arrears have improved to 93.2% from their peak of 104.6%, we are not at all surprised that it is still much higher. higher than the 78.5% measured before the lockdown. We expect this metric to improve further, albeit slowly, “says Smuts.
In the first quarter of 2021, the average rent in Gauteng was R8,390 – the second highest after the Western Cape at R9,142. The North Cape had the third highest average rent in the country at R8,327.
Rent in Limpopo continued to fall and averaged R6,871 in Q1 2021 – 1.3% (or R92) lower than the previous year. Limpopo has now experienced negative year-over-year rental growth for 14 consecutive quarters.
According to Dr Andrew Golding, Managing Director of the Pam Golding Property Group, with rental yields currently under pressure, the overall return tends to be influenced by the capital growth of the property, which means that buying and selling at optimal times are the key.
âCautiously, it is wise to mortgage an investment property for 40 to 50% or less of the purchase price, unless you are prepared to subsidize the monthly repayments. While interest rates are currently at from historically low levels, it’s your budget for interest rate increases and levies or rates, âsays Golding.
âNotably, properties best suited to capital growth can sometimes cost more and provide lower returns, while properties best suited to maximize returns may cost less and offer lower prospects for capital growth.
The development of mixed-use buildings as a trend in city living is gaining popularity in South Africa, according to Alexa Horne, Managing Director of Dogon Group Properties. Affordability is a key factor, however.
Paul Upton, who leads new developments for Dogon Group Properties, explains that mixed-use developments combine commercial office space with retail and residential space, creating an all-in-one location designed for convenience. .
âMixed-use developments also create investment opportunities with the option of attractive rental yields as most are located in central urban spaces, so demand from potential tenants is high,â he says.