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Annual residential rental growth rebounds to pre-pandemic levels

Average national residential rent increased by 3.4% year-on-year between Q4 2021 and Q4 2022, amounting to an increase of R268, to R8 175 over this period, according to PayProp’s Annual Market Report for 2022.

Johette Smuts, head of data analytics at PayProp says that rental growth rebounded impressively over the past five quarters since Q3 2021, when year-on-year growth was just 0.2%. “We have reached a positive milestone in that rental growth has now recovered to pre-pandemic levels. It is now higher than the 3.2% recorded in Q1 2020,” she says.

An improvement in national arrears

During Q4 2022, only 18.1% of tenants were in arrears which is significantly lower than the Q2 2020 peak of just 24.9% – just after lockdown was first announced. Although the average size of tenant arrears as a percentage of one month’s rent also declined during the year, there was a slight increase again towards the end of the year from 77.4% in Q3 to 78.2% in the last quarter – this was still lower than the pre-lockdown figure of 78.7% recorded in Q1 2020.

No reprieve for tenants under pressure

Nationally, 28.5% of tenants presented a high risk during the final quarter of 2022, an increase of 4% from 24.5% the prior year. In the same quarter, 18% of tenants had a major delinquency against their name, up 1.2% from Q4 2021. The average credit score also worsened slightly over the past year.

During the last quarter of the year, tenants across the country spent an average of 46.6% of their net income on debt repayments, including subscriptions such as cellular phones. Another 29.1% was spent on rent, leaving tenants with only 24.2% of their income to pay for important elements like food and school fees,” says Smuts. 

Prior to Covid-19, tenants’ debt-to-income ratio hovered between 42% and 48%. The low interest rate cycle of 2020 and 2021 helped bring this ratio down giving tenants the chance to save on interest-related repayments but as inflation started to rise in mid-2021 and interest rates did the same in November 2021, so too did this ratio, which breached 48% by the beginning of 2022. 

Smuts says that while 2022 brought a lot of good news for the rental industry as well as an ongoing recovery in the market, it’s prudent to note that affordability challenges could curb a continued recovery in 2023.

Slow economic growth due partly to unreliable electricity supply, and interest rate increases are just two of the factors stretching tenants financially – the effects of which we’ll continue to see throughout the year.”