With the growing shortage of rental properties across South Africa, tenants are under mounting pressure to produce large upfront deposits and maintain high monthly rental payments. Louw Liebenberg, CEO of SA’s largest rental transactions processor, PayProp, says that the risk is that tenants agree to higher rentals, that they can’t afford in order to secure a property, and with the growing cost of living, they ultimately start to default on monthly payments.”
Liebenberg says that landlords are not necessarily in a better position in 2014. “We analyse both gross and net yield, which is what property owners actually receive relative to the cost of acquiring and maintaining the property. Gross yields have grown by 2.90%, but net yields have only increased by 2.60%, which means that landlords cost of ownership has grown faster than their ability to demand rental increases.”
The PayProp Rental Index uses the actual transactional data of 60 000 active rental properties managed by PayProp. During the course of the past year positive growth data has resulted in average rentals slowly climbing from R5,473 in Quarter 1 2013 to the current R5 867 in Quarter 4. Liebenberg says that at the projected growth rate he expects to see the weighted national rental average exceed R6,000 per month in 2014.
Rentals per price category
“Interestingly, as the weighted national average moves closer to R6,000 per month, so we see a drop in the rentals priced between R2,500 and R5,000 and increases in the R5,000 – R7,000 and R10,000 – R15,000 categories. These increases exceed the drop-off in the lower categories indicating that tenants with lower-value leases are not just moving to more expensive leases, but new tenants are entering the market at higher rental values.”
Liebenberg says that Mpumalanga has topped the list when it comes to the most expensive province to rent in. “When industrial development meets limited rental stock, rental values shoot up dramatically. This has been a recurrent theme in the cases of Limpopo and the Northern Cape.” Lephalale in Limpopo holds the title of most expensive town to rent in in South Africa.
Damage deposits on the rise
As was reported in the Quarter 3 report, there has been a marked increase in the national damage deposit ratio from 123% in January 2013 to 134% in December 2013. Landlords are now able to extract higher deposit levels than before due to the demand for rental properties outstripping national demand.
“In the Western Cape an average tenant would have to have R9,387 available for an upfront deposit in addition to the first month’s rental of R5,867 – a total amount of R15,254.20,” says Liebenberg.
“Fourth quarter Index results show a slightly lower annual increase but this number held constant for each month of the quarter”, says Liebenberg.