Whatshot
Property Talk
Property Talk
Date: 2017-11-09
Make smart investment decisions.
The state of the rental market has been articulated in the recently published Rental Index Report by Payprop and provides an interesting insight into those factors currently impacting on the rental market. If you are an investor in rental producing property then this report is essential reading and exceptionally helpful in gaining insider information to make smart investment decisions.
The headline is that consumers are under pressure with disposable income levels under pressure, low job creation figures and possible tax increases. These macro-economic conditions have a direct impact on the rental market and the rental growth rates are showing this. In January of 2017 the national year-on-year rental growth rate was recorded as 8,3%, significantly above the year-on-year inflation rate at the time of 6,5%. Since then the rental rate growth has declined steadily to its current recorded level of 4,94% in September 2017, which is now below the inflation rate of 5,1%.
If we consider the rental growth rates across the provinces we notice that five out of the nine provinces saw a reduction in the rental growth rate when comparing the second quarter with the third quarter. The Western Cape, Northern Cape and Gauteng remain the strong growth generators.
The Payprop report provides and interesting hypothetical example to illustrate the cumulative growth in rentals across the various provinces by considering a rental of R1,000 for all provinces at the same starting point and then considers performance over one year, two years and three years. The number one slot is taken by the Western Cape across all three periods with the R1,000 in rental income growing to R1,335 in year three.
The second and third best performers were the Northern Cape with its year 3 rental income at R1,253 and Gauteng at R1,226. KZN takes the 5th position with its third year rental at R1,183. The provincial growth rates for the third quarter on a year-on-year basis for the best performing province - Western Cape, were 10,6%; 9,6% and 10,2% for the last three years.
In Ballito, the migration of families from Pretoria and Johannesburg into our area as part of a major semi-gration phenomena, which we are currently witnessing first hand, is a major driver for rental demand. Large national developers have recognized this trend and have started to invest heavily within the area with new developments servicing the rental market that will be priced between R6,000 to R15,000 p.m.
Regarding the average deposits held by Landlords across the various Provinces we see that the Western Cape is the highest with a ratio of 1,66 months of deposit held on average. The lowest deposit ratio is in the Northern Cape at 1,03 months on average. KZN has an average deposit held of 1,23 months. Landlords have realized that it takes approximately 2 months to evict a delinquent tenant and the industry will move more and more towards two months rental being held as a damage deposit by Landlords.