Whatshot
Property Talk
Property Talk
To rent or not to rent
For those Landlords and Tenants in the market, the Quarterly PayProp Rental Index Report is an excellent guide to the state of the rental market and the trends of rental growth.
Our greater Ballito market is characterized by a buoyant rental market which is opposite in some ways to the sales market. It is generally the case that when financially stressed times are experienced more people make decisions to rent rather than buy, thereby increasing the number of tenants in the overall market chasing the same or a similar number of rental opportunities and fewer buyers available for sellers to try and sell their homes to.
The first nine months of 2019 have seen the average monthly rental year-on-year growth rates nationally fluctuating between 3,1% and 4,2%, with the highest rate being recorded in September 2019 leading the analysts to suggest that the first shoots of recovery appear to be evident.
Over this same period, the rental growth rate has remained below the average inflation rate. The average monthly rental in South Africa is currently R7,727 p.m. If you consider the quarterly growth rates the rental growth trend becomes very evident showing a significant decline from the 7,39% recorded in Q1 2017 to the 3,99% in Q3 2019.
The ability for tenants to move rather than accept an increase in rentals when it comes time to renew a lease ensures ongoing downward pressure on rental growth rates. The picture is different across the various 9 provinces with two provinces, Limpopo and the Northern Cape experiencing negative rental growth rates of -1,34% and -1,37% respectively.
That always hurts a Landlord because the cost-squeeze pressure from increasing Municipal Rates and Body Corporate Levies remain a reality. Electricity charges continue to grow at rates well beyond inflation, and while this cost is typically borne by the Tenant, those Landlords who include utilities as part of the rental would need to carefully reconsider that strategy.
The Western Cape and Mpumalanga had below-average rental growth rates of 3,23% and 1,56% respectively. The Western Cape does, however, remain the most expensive province in which to rent with an average rental of R9,080 p.m. Rents in Gauteng, KZN and the Northern Cape are also higher than the national average of R7,684 p.m.
Landlords in KZN will be happy to know that the average rental in the province is R8,197 p.m. which is slightly ahead of Gauteng's average rental rate of R8,169 and is the second-highest in the country behind the Western Cape. KZN Rentals showed a respectable 5,05% growth rate.
The cheapest province in which to rent remains the North West with an average rental rate of R5,160 p.m., however, this province leads in growth rates in rentals that averaged 7,43%, 8% and 10,17% over the last three quarters. If this trend continues it could overtake the Free State and Eastern Cape next year. In each province, opportunities exist for excellent rental returns depending on the relative cost of purchase.
For those Landlords with cash and ready to take advantage of a depressed sales market, gross rental yields of 8-9% are achievable in some instances. If you can achieve an initial gross yield on a residential property investment of close to 9% this would be considered excellent.