Advice and Opinion

Western Cape landlords under pressure as rental growth dips

The residential rental growth rate in the Western Cape has been trending downward for the past six quarters. The moving average trend line for this eighteen-month period is not showing any sign of a turnaround, but rather a slight flattening out. 

In addition, the PayProp Rental Index for Q2 2019 notes that the year-on-year growth rate in the Western Cape has trailed below the national average for the past three quarters. But PayProp’s Johette Smuts says if the national rental trend is anything to go by, we might see the downward trend in the Western Cape stabilising over the next few quarters.

The national rental market has had its ups and downs over the last few years, but in recent months, it has been quite uneventful when considering average national rental growth,” says Smuts.

And while we have seen six consecutive quarters of diminishing growth rates, at least the direction has changed from downward to flat since the last quarter of 2018,” she adds.

Smuts points out that national trends don’t always apply to all provinces.

The reason for this is that different provinces (and even cities and towns) experience different economic forces that drive the supply and demand for rental properties.”

Smuts quotes the example of the Western Cape having enjoyed much higher levels of rental growth for most of the past three years (and even beyond). As a result, landlords in the province have become used to yearly 10% increases, which is substantially higher than inflation and the average growth in tenant income.

But this run of growth is, at least for now, a thing of the past.

Sub-inflation income growth coupled with higher-than-inflation rental growth puts consumers under increasing financial pressure, to the point that affordability becomes an issue,” says Smuts.

That, together with increasing development and additional supply of rental units in the province, puts rental growth under pressure. Landlords can’t demand high rent increases anymore because tenants will simply move to more affordable housing. With a constant stream of new rental homes being added to the market, Western Cape tenants in 2019 have more options.