Whatshot
Bugle Sales Talk Editorial
Bugle Sales Talk Editorial
Date: 2015-11-20
Payprop track rental data harvested from financial transactions relating to 75,000+ active rental properties, making it by far the largest processor of residential letting transactions in South Africa.
The average residential rental in South Africa is currently R6,508. The overall growth in rentals has been stagnant over the past two quarters. Average growth rate in rentals has declined to 5,18% in September from a recent peak in June of 7,56%. This slowdown in rental growth does indicate a slowdown in macroeconomic conditions. In terms of a provincial breakdown, the Northern Cape is now officially the most expensive province in which to rent in the country with an average rental of R7,219 p.m. Gauteng follows with an average rental of R7,090 ; then the Western Cape with R6,979 and in fourth position KZN with an average rental of R6,789 p.m. Two provinces that previously displayed rapid growth in rental rates, Limpopo and Mpumalanga, have both seen a significant retreat in the growth of rentals and are now the laggards in the overall provincial comparison. The economic powerhouses of KZN, the Western Cape and Gauteng have maintained stable growth in rental growth rates of R8,2%; 9,5% and 8,6% respectively. This is a lesson to learn for rental property investors. Stick to the large metros with strong demand from a growing pool of prospective tenants. Herein lies sustainability. The higher than average growth rates that have been experienced by the outlying, more rural centers, driven in many instances by mining related demand, can be riskier and prone to reversal.
As at the end of the third quarter of 2015 the national breakdown in rental pricing was as follows: Rentals over R15,000 p.m. make up 4,7% of all rentals, rentals between R10,000 and R15,000 p.m. a further 9% and rentals between R7,500 and R10,000 p.m. , 13,8%. This means that in South Africa 72,5% of all rentals are below R7,500 p.m. The growth in the number of rentals over R15,000 p.m. is, according to Payprop, a good indicator of continued rental demand growth overall within a province. KZN has demonstrated consistent and strong growth of this category over the past five quarters, while Limpopo, as an example, has seen a collapse in the growth of this category. Although the Northern Cape is currently leading the rentals growth rate, the over R15,000 p.m. category has been slowing down dramatically, and this would indicate that the Northern Cape's future as leading the provincial rental demand race is unlikely.
Another interesting national perspective is the level of damage deposits that Landlords typically require. The size of damage deposits relative to the monthly rental is currently 1,38. This has declined a bit from a recent peak of 1,42 in the fourth quarter of 2014. New insurance products that provide 2,5 months of damage deposit cover with the premium paid upfront for the year by the tenant, are becoming more and more popular as it provides a solution to Landlords who require additional security from tenants, and at the same time relieves the tenant of having to secure large amounts upfront in damage deposits. Responsible tenants are rewarded with a 40% premium refund at the end of the lease in the event that no claims are made on the deposit insurance by the Landlord.
For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.
Andreas Wassenaar
Principal - Seeff Dolphin Coast
Cell: 082 837 9094