• The average rental in in the fourth quarter of 2019 increased by only R10 in the fourth quarter of 2020, the latest PayProp Rental Index annual review shows.
• Affordability remains an important consideration among tenants.
• There is an increase in tenants sharing houses and flats.

The average residential rent in South Africa increased by barely R10 over a the space of a year, the latest PayProp Rental Index annual review shows.

This reflects the devastating impact of the coronavirus pandemic and related lockdowns on the rental market in the country, according to the index report.

The average rental of R7 844 a month in in the fourth quarter of 2019 increased to only R7 854 in the fourth quarter of 2020.

The index shows that in November 2020, for the first time since the index was launched in 2012, rental growth was negative, because the average rent was 0.3% lower than in November 2019. Average rental growth dropped from 3.2% in the first quarter of 2020 to 1.6% in the second quarter, 1.5% in in the third quarter, and just 0.2% in the fourth quarter.

"Affordability remains an important consideration for consumers in general, but specifically among tenants. As a result, we expect rental growth to remain muted for some time. From a quarterly perspective, average rental growth was already under pressure coming into the year, slowing even before the pandemic took hold," Johette Smuts, PayProp head of data analytics, said in a statement on Monday.

"Four years ago at the start of 2017, rental growth rates were above 7%. Since then, growth trended downward and then sideways - neither speeding up nor slowing down - between 3% and 4% for most of 2018 and 2019. Rental growth in the first quarter of 2020 still followed that trend, clocking in at 3.2%." Smuts said a few factors impeded growth over the year. The first of these is the loss of income due to the lockdown. As a result, tenants simply couldn't afford an increase in their rent.

Landlords left with little choice

"Added to that, there was dramatically less demand for higher-priced properties and landlords were left with little choice but to curb their expectations when setting their asking price," she said.

"Secondly, many short-term and leisure rental properties moved onto the long-term rental market in 2020, after a sharp decline in tourism, both locally and from international visitors. This led to an oversupply of housing - particularly in tourism hotspots like KwaZulu-Natal and the Western Cape, putting further downward pressure on rental prices."

Furthermore, many tenants chose to take advantage of lower interest rates by moving onto the property ladder. This exit of tenants from the rental market meant an additional oversupply of rental properties to the already overstocked pool, further pressuring the rental price," concluded Smuts.

According to data from credit bureau TPN, residential rentals were -0.75% cheaper on average for the last quarter of 2020. A recent TPN Tenant Survey conducted at the beginning of 2021 found that 53% of tenants rent because they cannot afford to buy. This figure was 46% in the same period in 2020. A further 5% of tenants say they are renting because it is cheaper than owning property.

"Tenants are feeling financially vulnerable," said Michelle Dickens, CEO of TPN Credit Bureau. She said 75% of tenants surveyed reported a loss of income during the lockdown. Nearly one in ten tenants confirmed a permanent loss of income, while 12% of tenants received no income for a limited period but are now back to earning their full salary, and 50% of tenants received only partial pay for a temporary period. Only 25% of tenants confirmed their income was unaffected during lockdown. At the same time, the TPN Vacancy Survey shows that vacancy rates are trending upwards to 12.9% as tenants decide to move in with family and friends to recover financially.

"Although debt became cheaper as the prime interest rate plummeted to seven percent, with millions of jobs lost and the reality of temporary or permanent loss of income for millions, consumers are poorer overall," said Dickens.

Increase in sharing housing

According to Craig Watchurst, a rentals agent for Seeff in Cape Town's CBD and City Bowl, the Covid-19 pandemic has necessitated a number of key shifts in the needs of tenants according to feedback from various Seeff branches.

He said there is an increase in tenants sharing houses and flats. Prior to lockdown, tenants were renting one-bedroomed apartments for around R12 000 per month. With the drop in prices, tenants can now share a two-bedroomed apartment for roughly the same price, effectively reducing their rental costs by 50%, he adds.

In Cape Town's southern suburbs. free-standing family homes with a garden and swimming pool with rental in the R20 000 to R35 000 range are in demand. Cape Town's northern suburbs have the lowest vacancy rate of just 5.1%, according to the latest TPN Vacancy Survey.

Along the Atlantic Seaboard rental rates are expected to remain under pressure as a result of the pandemic and economy. In the view of Seeff's agents in the area, most in demand are properties in the R20 000 to R30 000 per month range. They describe the market below R20 000 as "exceptionally busy" but there is low stock.

According to the latest TPN Tenant Vacancy Survey, the Atlantic Seaboard has a 24% vacancy rate followed by the CBD at 17%. Much of this is attributable to the significant pressure on the tourism and events and exhibitions market. The consequence of little to no business in this sector means that most of the short-stay and Airbnb stock is still largely in the long-term market while landlords wait for tourism to recover.

Marinda Uys - rentals manager for Seeff across the Boland, Winelands and West Coast areas - confirm that rental accommodation is in high demand in the area. Seeff Pretoria East area is seeing a similar trend in terms of high demand for homes in secure lifestyle estates as well as boomed off areas.

Effect of job losses, salary cuts and instability

Grant Smee, managing director of Only Realty, says tenants are facing job losses, salary cuts and instability. A lack of creditworthy, stable tenants has many landlords in a crunch. Some are selling their investments while others are renting out based on less attractive terms such as rental reductions, lowered deposit amounts, and flexible lease terms.

"We are also seeing more and more tenants being rejected due to poor credit scores during the pandemic," he adds.

According to a recent TPN report, lower-income earners (R3 000 per month) have been most affected while the rental bracket of R7 000 to R12 000 remains the "sweet spot".

"When looking to data around tenants good standing, smaller provinces such as Northern Cape and Mpumalanga are the top performers, followed by Western Cape and Eastern Cape. Gauteng remains the worst affected province," says Smee.

Source: News24