Michelle Dickens
PayProp
General Manager
The residential rental market has entered 2025 with strong momentum and an air of optimism, providing clues as to how the rest of the year may pan out, according to rental payment experts PayProp.
With key rental metrics showing positive trends, the big question is whether the market will sustain this upward trajectory in the months ahead, says Michelle Dickens, General Manager at PayProp. Dickens singles out three influential trends for the year ahead:
Real-terms rental growth looks likely to continue in 2025
Dickens says that not only is residential rental management looking like good business for estate agencies, but investing in buy-to-let properties is also getting its shine back among landlords. The 2025 rental market has become the most industry-friendly since before the COVID-19 pandemic.
“Rental growth has remained in the 4.5 to 5% range last year and began to outpace inflation in the second half. The SA Reserve Bank expects inflation to remain below 4% for at least the first half of 2025, allowing rental agents and landlords to make further advances in real-terms returns on rental units,” says Dickens.
She says that that is further underpinned by good news on tenant incomes. Real-term take-home income rose by 2.5% in 2024, according to the BankservAfrica Take-home Pay Index. Wage increases continued in 2024 due to falling inflation, and the bank’s economists expect healthy real-terms pay growth in 2025 as well. This should, in turn, allow landlords to continue raising rents sustainably in 2025.
In more good news, Q3 2024 PayProp Rental Index data revealed that tenant spending on debt repayments and rent fell as a percentage of income towards the end of 2024. The average rental applicant spent 44.6% of their income on debt repayments in Q3 2024 and 29.6% on rent. That left them with 25.4% of their income, up from 23.0% the previous quarter, giving them more financial breathing room and reducing the chance of falling into rent arrears.
“Agents should bear affordability in mind as they also seek to stay attuned to local market trends, Dickens continues.
The latest PayProp Rental Index revealed that rental performance has varied significantly across provinces in 2024, a pattern that may persist into 2025,” says Dickens. “The Western Cape and Limpopo have shown strong growth and are expected to maintain this momentum, while landlords in Mpumalanga and the Northern Cape will look for a rebound after a sluggish 2024.”
A watershed moment for tech-enabled rental agencies
With property sales still slow due to high interest rates, more agencies will prioritise their managed rental offering to create sustainable regular income instead of relying on one-off sales commissions.
Dickens says there’s just one caveat: if your agency is planning to build up its managed rental book, technology-enabled growth, efficiencies, and functional advancement should be a big part of your business planning and strategy for 2025.
“Property technology isn’t longer optional in residential rentals, and it’s a market reality and priority. Landlords expect – and assume – that you are using the best and most secure technology solution when working with their money,” says Dickens. “When adopting the right technology platforms, the industry’s ability to vet, test affordability and mitigate tenant payment risk stands to benefit too – and placing good tenants will earn you more referrals from landlords.”
Adding managed rentals to their client offering doesn’t just offer agencies more earning opportunities; it should also offer investors an extra resource to rely on for advice, arrears management, pricing and escalation advice, and more comfort to invest in real estate.
“We believe that rental agents will take on a greater leadership role in the residential rental sector in 2025, to the benefit of landlords and tenants,” says Dickens.
Interest rate cuts probably won’t dampen rental demand
Dickens says that the Reserve Bank has forecasted that interest rates will fall to 10.5% in 2025 but hasn’t committed to a specific timeline.
For now, interest rates are still high, which has helped to keep prospective first-time buyers in the rental market. “If rates fall further, more people could become – and stay – homeowners, cooling rental demand,” says Dickens. “It would also be good news for tenants’ finances. But the expected cuts to interest rates should be quite modest and probably won’t make much of a difference to people’s repayments.”
Another measure to keep an eye on is the number of approved building plans. Housing construction slowed in 2024. Figures from Stats SA showed that fewer than 16 000 plans for houses, townhouses and flats were passed in the first half of last year, compared to almost 20 000 in the same period in 2023. Completions in the first half of the year were around a third of what they were during the 2006-8 property boom.
“Unless delivery can be increased a lot this year, undersupply will continue to drive rents upwards.”
“All things considered, if the positive trends in the economy continue, the rental industry will likely thrive in 2025. Rental agents will still need to optimise their processes and use of technology if they are to make the most of the market upswing,” says Dickens.