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State Of SA Rental Industry Report By Payprop


State Of SA Rental Industry Report By Payprop

1.     Introduction

More than a year since the world went into lockdown, the effects of COVID-19 can still be seen and felt in the rental market. 

According to Payprop, rent prices have been under pressure from tenant troubles and market an exodus since January 2020, when the repo rate has been lowered by 3 percentage points to its lowest level in decades, prompting many tenants to buy their first homes. This exodus of more creditworthy tenants from the rental market, coupled with the ongoing financial constraints experienced by others, continued to put downward pressure on rental prices into the first quarter of 2021.

While the monthly rental growth rate (measured year on year) continued to track below inflation for the first quarter, it measured slightly higher than in Q4 2020. Figures of 1% and 0.7% were recorded in January and February, with no year-on-year (YoY) growth for March 2021.

After five consecutive quarters of slowing increases, it's encouraging to note an uptick of quarterly rental growth to 0.5% in Q1 (measured year on year).

However, this is still far removed from the rental growth rate seen in the corresponding quarter of 2020 (3.2%). The growth between Q1 2020 and Q1 2021 amounted to just R33 over the year, from R7 786 to R7 819.

According to Payprop, many economic variables are cyclical, and judging from the past 8 years they can see this is true for YoY quarterly rental growth as well. Since 2018, rent levels have been increasing at a much lower pace than in previous years - and it seems unlikely that we'll see year-on-year growth rates approaching 10% like we did in 2013 anytime soon. To be fair, a protracted global pandemic is by no means a regular occurrence.

That said, rental growth has been under pressure even before COVID-19, as a result of both slow economic growth putting pressure on tenants' financials and an uptick in residential developments in many urban areas, increasing rental accommodation supply.

The rental market has certainly changed - more businesses are moving online, offering tenants flexibility in where and how they work, and hence potentially stifling rental market activity. All things considered, we might not see a repeat of past patterns in the years to come.

2.     Rent Arrears

12 Months of lockdown affected rent arrears in South Africa as many tenants suffered job losses or pay cuts and are still recovering financially.

From Payprop's arrears analysis over the last year, they concluded that some tenants stopped paying their rent in full when lockdown was first announced at the end of Q1 2020. Reasons included that they weren't earning any income, were forced to take a reduction in salary, or were uncertain about their future cash flow. The percentage of tenants in arrears increased from 19.4% in Q1 to 24.9% in Q2 - an increase of close to 30%.

In June 2020, most industries reopened and tenants returned to work, leading to a steady improvement in the percentage of tenants in arrears each quarter since then. Encouragingly, only 20.3% of tenants were in arrears by Q1 2021 - not quite one percent more than before lockdown.

The average arrears percentage followed a slightly different pattern, likewise increasing between Q1 2020 and Q2 2020, but only peaking in Q3. Spare a thought: For a tenant to lower their arrears percentage, they must pay their full rent each month, plus some money towards their outstanding balance - and in the current economic climate, this is not easy to do.

So while the average arrears amount relative to rent has improved to 93.2% from its peak of 104.6%, Payprop are not at all surprised that this is still much higher than the 78.5% measured before lockdown. Payprop expects this metric to improve further, albeit slowly.

3.     Rent, growth, and damage deposits - PROVINCIAL STATISTICS 

In Payprop's provincial analysis, they examined the various regions' rental growth over the quarter (measured year on year over the corresponding quarter the previous year).

National statistics

Rent and rental growth 

We've already seen that average rent increased by 0.5% in the first quarter, from R7 786 in Q1 2020 to R7 819 in Q1 2021.

Damage deposit ratio

The average damage deposit ratio across the country was according to Payprop 1.26 - slightly higher than the 1.24 recorded the year before. In rand terms it translates to an average damage deposit of R9 835.

(The damage deposit ratio expresses the size of the average damage deposit held relative to the average rent. A damage deposit ratio of 1.26 means the average damage deposit held is 1.26 times the value of the average monthly rent.)

We include in this article only the Western Cape and Northern Cape provinces.

Western Cape

Rent and rental growth

The Western Cape experienced negative year-on-year rental growth for the fourth quarter in a row. Average rent for the quarter was R9 142, a decrease of 0.3% or R29 from the year before. Even so, the province remains the most expensive part of the country in which to rent. 

Damage deposit ratio

The Western Cape also had the highest damage deposit ratio at 1.63 times the average rent. In rand terms, this is an average damage deposit of R14 940 - more than R5 000 higher than the national average

Northern Cape

Rent and rental growth

The Northern Cape had the third highest average rent in the country after Gauteng and the Western Cape, at R8 327. This was 2.8% higher than in Q1 2020 - the third highest increase out of all the provinces. 

Damage deposit ratio

At 1.13 times the average monthly rent, the province's damage deposit ratio was the third lowest in the country. This equated to R9 432 - R403 lower than the national average of R9 835.

4.       Credit Metrics - Know your tenant risk to vet them properly 

According to PayProp's second State of the Rental Industry report, more than half of the participants said finding good tenants was their biggest challenge in the current market. Knowing what to look out for when vetting tenants can go a long way in helping agents provide a good service to landlords.

The Payprop credit metric report categorized tenants according to:

                                 Minimum-risk                   Low-risk                     Medium-risk                   High-risk                            

% of tenants              38.9%                                22.4%                        14.6%                            24.1%

Net monthly income  R41 956                             R34 034                     R30 720                      R26 424 

CPA accounts            8.73                                   8.68                            7.20                               6.37 

NLR accounts            0.48                                   1.57                             2.28                              4.09 

Major delinquency      0.8%                                 14.5%                          25.8%                           41.2%

Debt-to-income ratio   35.3%                               39.1%                          45.2%                           47.4%

Credit score                 690                                   644                               619                               592

Major delinquencies 

Unsurprisingly, high-risk tenants had more major delinquencies against them than other groups, at 41% compared to 25% of medium-risk tenants. Less than 1% of minimum-risk tenants had a major delinquency against their name. 

A 'major delinquency' can include various types of negative entries on an applicant's credit record, such as judgements, notices, adverse accounts, high levels of indebtedness, etc.


Riskier tenants tend to have a higher debt-to-income ratio than lower-risk ones, meaning they spend a higher percentage of their monthly income on debt repayments each month. Note that the type of credit and timely payments affect a tenant's credit rating as well. High-risk tenants may have a higher debt-to-income ratio (on average 47% in Q1), but they spend smaller amounts on their debt repayments. The average high-risk tenant spent just over R12 500 a month on debt and other financial obligations, compared to minimum-risk tenants, who spent almost R15 000 a month (or 35% of their income). 

Credit score

Since tenants are placed into risk categories based on their credit score, minimum-risk tenants have higher average credit scores than higher-risk ones. The difference between the two is almost 100 points (690 vs 592). When vetting tenants, it is vital to not only consider the credit score or risk category, but other factors as well. Payprop recommends taking a look at bank statements and salary slips where possible and contacting references before making a final decision. 


On a longer-run basis, growth rates have been in decline since a peak at the start of 2017 (and before that 2013). According to PayProp it seems unlikely that we'll see year-on-year growth rates approaching 10% like we did in 2013 anytime soon.

However, rental growth has been under pressure even before Covid-19, as a result of both slow economic growth putting pressure on tenants' financials, and an uptick in residential developments in many urban areas increasing rental accommodation supply.

The rental market has certainly changed - more businesses are moving online, offering tenants flexibility in where and how they work, and hence potentially stifling rental market activity.

We may, however, see a gradual tightening of rental supply. In its April Property Barometer, FNB says that "as pressure in the rental market intensifies, we expect more stock to be released into the market for sale. The combination of these factors is expected have a dampening effect on activity and, eventually, price growth in the coming months.

Author PayProp
Published 24 May 2021 / Views -
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