. Rental market begins to stabilise
The national rental growth rate remains stable for now, despite being under pressure through the first quarter of 2021.
This is according to the latest PayProp Q2 2021 rental index, which recorded year-on-year rental of 0.4% in Q2 of 2021.
“The Q2 growth figure was slightly lower than the 0.5% measured in the previous quarter,” said Johette Smuts, head of data analytics at PayProp South Africa.
“And while indications are that growth has nonetheless stabilised, we don’t expect any significant market recovery soon as the country’s economic recovery continues to be muted,” she elaborated.
This is a view shared by our rentals manager Karen Grobler. She believes it will take between two and three years for the rental market to recover from the Covid-19 pandemic.
“I believe that we have seen the worst effects on the rental market at this stage. I have seen stability return to the market however I have not seen much of a notable improvement in rental prices at this stage,” Grobler said.
National rental income
The report also recorded the national monthly rent at R7 778, a marginal R32 increase from the R7 746 in Q2 2020.
For Grobler, this marginal increase was not surprising given the effects Covid-19 has had on the rental market. She highlighted that rental increases should be made with careful consideration during the pandemic.
However, she stated that the rental market should start seeing, albeit gradual, increases at the end of 2022.
“At this stage when dealing with rental increases you need to look at what the market is doing and adjust accordingly,” Grobler said.
Employment, interest rates and the rental market
In addition, there are two factors which have put national rent under pressure. These are rising unemployment and record low interest rates according to the report.
“As a result [of these factors], year-on-year rental growth dipped below zero in April before recovering to 0.7% and 0.8% in May and June,” said Smuts.
Quarterly rental growth took a dive last year when the national lockdown was announced. In 2021 it has stabalised in the short term. SOURCE: PayProp South Africa.
Sean Johnston, general manager of portfolio and planning, explained that these factors could both relieve some pressure on rental growth for the short-term.
“As the economy recovers from the global pandemic, the unemployment percentage should start to decline. More businesses are now able to fully operate and import and export,” he explained.
Resultantly, lower unemployment figures will lead to higher rental growth as more people earn an income to pay their rent.
“In regards to the interest rate, the prime lending rate was reduced to prevent the South African economy from going into further recession,” he started.
“The interest rate, however, will not stay the same forever. As the economy recovers and the South Africa Reserve Bank (SARB) will eventually increase the repo rate.”
“This will mean tenants will not be able to afford to purchase a primary residence. In addition, the costs of levies and rates also need to be factored in over and above the higher interest. The quality of the tenants will not be a factor over the medium to long term.”
Tenants in arrears
In Q2 2021, the report estimates that one in five tenants in South Africa are behind in their monthly rent. In contrast, one in four tenants in Q2 2020 were estimated to be in arrears.
Smuts was not surprised by this statistic. She explained that many tenants should be better placed to recover from the financial impact of the lockdown.
The number of tenants in arrears is now beginning to drop back to pre-pandemic levels. SOURCE: PayProp South Africa.
Moreover, Grobler argued that in order for the number of tenants in arrears to drop further, landlords should create a more affordable marketplace.
“People are still being tripped up by no salary increases, job losses, and reduced working hours. This leads to reduced pay, large medical bills and so on. If we keep the rentals at affordable rates we will have fewer defaults,” she explained.
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