Research

PayProp highlights worsening rental arrears stats

Rental

PayProp has released its first 2020 Rental Index with unsettling statistics.

During March, just over 20% of tenants were in arrears, increasing to almost 24% in April. Head of Data and Analytics, Johette Smuts says that the average size of arrears jumped from 78% of monthly rent in March to a massive 84% in April:

While we have already seen an increase in both the percentage of tenants in arrears and arrears as a percentage of rent in April, we expect May and June to be even worse. This position and the debt recovery process will be influenced by the pandemic, the lockdown levels and their duration.”

In addition to the PayProp rental statistics, the company included the results of its first ‘State of the Rental Industry’ survey, conducted at the end of 2019. Smuts says it is now clear that current financial trends already surfaced in the qualitative survey. For example, almost 70% of survey participants reported that arrears were a bigger problem at the end of 2019 than the previous year – and 51% had at least one tenant evicted during 2019.

“Tenants are battling with low income growth and a high level of unemployment, which has ultimately led to affordability challenges. This is made worse by high increases in living costs, such as petrol and medical care.”

Rental growth – 2019’s outlook

From the previous PayProp Rental Index, it was speculated that there may be a rebound in rental growth later in 2020. The more likely scenario post-lockdown is that rental growth will be under continued pressure as millions of South Africans are expected to lose their jobs and to earn a lower income. However, if consumers put off buying property due to increased uncertainty and a still weaker economy, increased demand for rental properties might cushion the blow.

Q1’s rental growth

Smuts says the approach was to look at the first quarter’s monthly national rental growth rates (measured year-on-year) and compared to the same metric in the previous year. A drop was evident in each of the three months of the first quarter of 2020, effectively trending downward from December 2019. Rental growth for March measured at 2.9%, the lowest for the first quarter. Inflation measured 4.5%, 4.6% and 4.1% respectively, causing the differential between the inflation rate and rental growth rate to increase. This figure peaked at 1.4% in February.

 Provincial performance

The Western Cape’s rental properties (again) commanded the highest rents at an average of R9 171.00 but the province experienced the second-lowest year-on-year growth at just 1.56% (after Limpopo’s negative growth of 2.15%). The Free State returned the highest provincial rental growth at 5.95% year-on-year, down from 8.05% the quarter before. In the North West, tenants are still able to find the cheapest homes to rent at an average of R5 222.00 and the quarterly growth rate of 3.8% is a long way off the double digits (10.2%) measured just two quarters ago.

On the other hand, the Eastern Cape saw rents increase by 5.58% in Q1 – up from 5.23% in Q4 2019. Other provinces with higher growth rates (versus Q4 2019) were Gauteng (4.11%, up from 3.66%), KwaZulu-Natal (3.33% up from 2.14%) and the Northern Cape (3.63%, up from 1.57%).

 “There is no doubt that COVID-19 has influenced our lives, livelihoods and the industry in a way that few of us could have imagined just a few months ago. The South African rental market has been hit hard and will most likely experience subdued growth for longer than previously expected,” concludes Smuts.

Read the full report here: