2021’s first quarter saw early signs of recovery in the local residential rental sector according to PayProp’s most recent Rental Index.
After five consecutive quarters of steady decreases, the first quarter saw an uptick in quarterly rental growth to 0.5%, measured year-on-year (y/y).
This number is still far below the rental growth rate of 3.2% seen in 2020’s corresponding quarter says PayProp’s Head of Data Analytics, Johette Smuts. “The increase in rent between the first quarter of 2020 and the same quarter in 2021 was just R33, to R7 819.”
Rental growth has been under pressure since 2018, long before Covid-19, with slow economic growth applying pressure on tenants’ financials and an uptick in residential developments adding to rental accommodation supply.
“Looking back at year-on-year growth rates from years gone by, it seems unlikely that we will see growth rates approaching 10% like we did in 2013 anytime soon,” she says.
Another positive indicator in the first quarter’s Index is the decreasing percentage of tenants in arrears after an initial spike.
In 2020’s first quarter, 19.4% of all tenants were in arrears, and this quickly escalated to 24.9% in the second quarter – an increase of close to 30%. Seen in context, this was when the national lockdown was first enforced, leading to many tenants losing their income, or being forced to take a reduction in salary.
Most industries reopened in June 2020, with tenants returning to work, which led to a steady improvement in the percentage of tenants in arrears each quarter since then. Encouragingly, only 20.3% of tenants were in arrears by 2021’s first quarter.
“It is clear to us that South Africans are still in recovery from the financial implications of the pandemic and the national lockdown. Tenants that defaulted in 2020 are having to pay their full rent each month as well an additional sum towards their outstanding balance – no easy feat in the current economic climate,” says Smuts.
“However, while the average arrears amount relative to rent has improved to 93.2% from its peak of 104.6%, it is not surprising that this is still much higher than the 78.5% measured before lockdown.”