Michelle Dickens, General Manager for Group Sales, PayProp
Construction shortfalls are pushing residential rents to record highs, according to the rental payment experts at PayProp.
Data from the platform, which processed more than R1.4 billion in rent in June 2024, shows that the average rent in the country rose by 4.9% year over year in Q2 2024—the fastest growth since 2017.
Michelle Dickens, PayProp’s General Manager for Group Sales, points to new private sector residential construction numbers released by Statistics SA for the first half of 2024 as the main reason. The data shows that just 15 871 plans for houses, townhouses and flats were passed in H1 compared to 19 746 in the same period last year.
In addition, confidence in the construction sector is low, and many housing projects are stalling before completion. Reported house-building completions have dropped to just a third of what they were during the 2006-8 property boom and are now ominously in line with the depths of the coronavirus lockdown. In the first half of 2024, just 9,623 houses, townhouses, and flats were completed, compared to 12,623 in H1 2023.
Demand outrunning supply
Residential rental supply is growing slowly, especially as many new homes will go to owner–occupants while rental demand continues to grow unabated.
At the other end of the equation, the SA population is growing at a healthy clip, driving up rental demand, says Dickens. According to Stats SA, more than 19 million households in South Africa, and almost a quarter – 23.9% – live in rented accommodation.
In addition, persistent interest rates have caused prospective first-time buyers to delay their home purchases and keep renting longer. Data from the PayProp Rental Index shows that more high earners are renting than in previous years: 9.3% of applicants earned R80 000 or more monthly, compared to 6.8% in Q2 2022, when interest rates had just risen.
Dickens explains that having a larger pool of higher-income applicants to choose from makes it easier to find a financially stable tenant who is less likely to incur rent arrears.
But that hasn’t helped other renters. These factors have all contributed to rising rental growth, which has reached the highest level since 2017.
Note of caution
While residential rental property remains a popular investment for hundreds of thousands of landlords and supports property practitioner jobs across the country, the sector needs the support of a robust construction industry to deliver an affordable supply of housing to a growing population. Currently, 16% of South African households live in informal housing, and if construction can’t keep up with growing demand, they will not have a route into secure, high-quality homes.
Lower-income tenants could also be priced out of the residential rental sector. According to the latest PayProp Rental Index, those earning R10 000 – R20 000 spend 40% of their income on rent on average and have just 6.2% left over after rent and debt repayments.
With rental growth only just ahead of inflation, investors and rental agents can’t take returns for granted either. They will need to have solid processes in place to collect rents reliably and secure their profit margins. PayProp safeguards the flow of rental payments by ring-fencing every payment and allowing agents to pay out to landlords on the same day the rent comes in. The platform also helps with the tenant vetting process: the unique Tenant Assessment Report combines traditional credit scoring with the tenant’s rental payment history, assisting agents in picking the very best from their pool of options.