Rental Index Shows Consecutive Second Quarter Growth

The residential property rental market is on the up, according to Louw Liebenberg, CEO of PayProp, SA’s largest processor of rental payments for the residential letting industry. According to Liebenberg, the market demonstrated its second consecutive period of growth in the second quarter of 2013, which saw the national weighted rental move from R5, 473 at the end of March 2013 to a new high of R5, 641 at the end of June.

Louw Liebenberg

Louw Liebenberg, CEO of PayProp

Speaking at the PayProp ‘State of the Rental Industry’ session, Liebenberg said that the rate at which rentals are growing is steadily picking up pace. “The year-on-year growth rate has, for the first time in over 18 months, exceeded the 7% level, to a current high of 7.82%,” says Liebenberg. “The highest growth rate recorded was 13.7% in July 2010, during the soccer World Cup”.

In a presentation at the session, FNB Economist John Loos said that the rental market had entered a slightly better period in January 2013, with many letting agents reporting stock constraints. “While the year-on-year numbers don’t indicate a massive surge, signs indicate that the rental market is headed towards a slightly better performance,” he says.

The trend from previous indices continues, with national growth driven by Limpopo, Mpumalanga and KwaZulu Natal with Limpopo overtaking Mpumalanga as the province with the highest average rental. Growth rates in the Northern Cape remain high, with the area recording year-on-year growth of above 10% for the past 8 months.

Liebenberg says that the town with the highest average rental in the country is Umhlanga Rocks, which narrowly overtook Lephalale and Musina for the top spot.

Other quarter two trends include:

Middle class rentals growing fast

The steady gains in the R5 000 – R7 500 price category continue, with these gains taken mainly from the lower price bands. Despite the growth in this price band, the dominant rental range remains between R2 500 and R5 000, which currently accounts for 60% of all active rental contracts on PayProp.

Yield recovery for investors

Gross yields have shown only a slight increase to 6.3% from the previous high of 6.2%, while net yields are also fairly stable at 5.1%. Liebenberg says that the spread between the two yield figures has also remained constant, indicating that whatever gains one may have expected the landlord to reap as a result of increased rentals, have been negated by an increase in the costs associated with owning and maintaining a rental property.

“The current levels of rental increases are likely to be sustained by rental stock constraints, but landlords are unlikely to feel the benefit thereof in the short term, as net yields are under pressure due to rising costs,” says Liebenberg.

The quarterly PayProp Rental Index is seen as a leading source of rental information using the actual transactional data of 55 000 active rental properties.

Leave a Comment