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FOR RENT – The Q4 PayProp Rental Index

PayProp recently released their Rental Index for the fourth quarter (Q4) of 2022. Overall the main trends they predict for 2023 is that one, landlords will be affected by the mismatch between rent escalation and inflation, and two, that the rising interest rates will worsen tentants’ debt-to-income ratio, driving down rental escalation.

The Rental Index delves deeper on a provincial level, so where are landlords getting the most rent, and which provinces as tenants who are most at risk of defaulting?

Rent and Rental Growth – A Provincial Overview

The results might surprise you in that neither Gauteng nor the Western Cape lead in terms of rental growth.  We’ve listed the provinces from highest to lowest growth.

The Northern Cape

Rental growth Arrears Income Spend on rent-to-income High risk of default
8.1% increase 1.6% increase 0.9% increase 31.9% 38.5%

The Northern Cape beats them all, even though tenants’ average income is the second lowest across the provinces (Limpopo being the lowest with a dismal increase of 0.5%, or less than R200 from the same quarter the year before):

The Northern Cape had the highest YoY rental growth out of all the provinces in Q4, at 8.1%. The province returned strong rental growth figures last year, leading the rest of the pack over the last three quarters. Average rent measured R8 962 in the last quarter, up R675 from R8 287 in Q4 2021.

What are tenants earning?

Interestingly Northern Cape tenants’ average income, at R29 241 in Q4 2022, was the lowest in the country – almost R7 000 less than the national average income recorded. What’s more, the increase in income from Q4 2021 was only 0.9% – the second lowest increase seen across the nine provinces.

What are they spending on?

Tenants spent an average of 44% of their monthly income on debt repayments, lower than the national average of 46.6%, and also lower than the 49.8% recorded in the province in Q4 2021. Another 31% was spent on rent, leaving tenants with 24.1% of their income to cover monthly expenses – in line with the 24.2% observed nationally.

North-West

Rental growth Arrears Income Spend on rent-to-income High risk of default
7% increase 9.6% decrease 6.1% increase 21.8% 20.5%

Rental growth rates increased throughout the year in the North-West province, ending the year with an impressive quarterly growth rate of 7% YoY – more than double the national average but still only the second highest rate in the country after the Northern Cape. Average rent increased by R377 YoY to R5 760 in Q4. Despite the high rental growth, the province remains the cheapest in which to rent.

What are tenants earning?

In the North-West province, the average income in Q4 was R38 225, up 6.1% from the same quarter the year before. Both the income level and increase were above the national average – the province enjoyed the second highest average income and third highest income growth in the country in Q4 2022.

It is important to note that multiple properties managed through PayProp in the North-West are student housing. Students’ parents often pay the rent in these properties, and accordingly credit checks are often done on the parent, not the student. For this reason, the data from these tenancies may contradict trends in “normal” tenancies – for example, rents tend to be low while incomes are high and tenant risk is low.

What are they spending on?

Tenants in the province spent more than their peers elsewhere on debt repayments, at 53.7% of their take-home pay during Q4 2022. Still, this was an improvement from Q4 2021, when the figure was 59.7%. With the lowest average rents in the country, North-West tenants spent only 21.8% of their income on rent – the lowest in the country. That left them with 24.5% of their income to cover monthly expenses.

Limpopo

Rental growth Arrears Income Spend on rent-to-income High risk of default
5.1% increase 3.3% increase 0.5% increase 34.5% 39.4%

Limpopo has seen an incredible rental market rebound over the past few years. Rents continued to increase well above the average national growth rate during 2022, with rental growth of 5.1% recorded in Q4 – the third highest growth rate seen during the quarter.

What are tenants earning?

Tenants earned an average net monthly income of R31 747 during the last quarter of 2022 – a dismal 0.5% increase, or less than R200, from the same quarter the year before. It was the lowest income growth rate seen across the provinces, and far from the national growth rate of 4.2% recorded during Q4 2022.

What are they spending on?

Limpopo tenants spend 46.6% of their take-home pay on debt repayments – up from 44.1% in Q4 2021 and in line with the national average – and another 34.5% on rent, the highest percentage observed across the provinces. That leaves Limpopo tenants with only 18.9% of their net income left to buy monthly necessities, down from 22.4% the year before.

Gauteng

Rental growth Arrears Income Spend on rent-to-income High risk of default
3.6% increase 0.5% increase 2.4% increase 29.5% 29.7%

Gauteng experienced rental growth of 3.6% during Q4 – the highest YoY growth rate observed during the year, and slightly above the average national growth rate of 3.4%. Rent increased by R301 to R8 554 in Q4 2022 from R8 253 in the same quarter the year before.

What are tenants earning?

Gauteng tenants’ average income increased by 2.4% YoY from Q4 2021 to Q4 2022 and amounted to R36 338 in the most recent quarter. This was slightly above the average income measured nationally, R36 288, and the fourth highest out of the provinces.

What are they spending on?

During Q4, tenants spent 49% of their net monthly income on debt repayments – the second highest percentage out of all the provinces (behind North-West), up from 47.4% in the same quarter the year before. Another 29.5% was spent on rent (Q4 2021: 28.6%), leaving Gauteng tenants with 21.5% of their net income to spend on food, fuel and other necessities. This was below the 24% of net income available in 2021.

Western Cape

Rental growth Arrears Income Spend on rent-to-income High risk of default
3.4% increase 0.3% decrease 8.9% increase 29.4% 17%

Rental performance in the Western Cape remains lacklustre with year-on-year rental growth ranging from 2.8% in Q1 to 3.4% in Q4, which was in line with the national average. The Western Cape remains the most expensive province in which to rent, with average rent increasing by R323 year on year to R9 737 in Q4 2022.

Tenants in the Western Cape enjoyed the highest income levels observed nationally – in Q4 2022, average income in the province was R43 263, after an increase of about R3 500, or 8.9%, from Q4 2021 – the highest growth rate of all provinces and more than double the national average of 4.2%.

What are tenants earning?

Tenants in the Western Cape enjoyed the highest income levels observed nationally – in Q4 2022, average income in the province was R43 263, after an increase of about R3 500, or 8.9%, from Q4 2021 – the highest growth rate of all provinces and more than double the national average of 4.2%.

What are they spending on?

Western Cape tenants spent only 38% of their income on debt repayments – the lowest in the country, albeit an increase from 36.1% in the same quarter the year before. After spending 29.4% on rent, tenants were left with 32.6% of their take-home pay to cover their monthly expenses. This was the highest share of income left after debt and rent payments in the country.

KZN

Rental growth Arrears Income Spend on rent-to-income High risk of default
2.9% increase 1.0% decrease 3% increase 29.1% 30.3%

While property sales are still recovering, KwaZulu-Natal’s rental growth rate followed an upward trajectory during the first three quarters of the year before dipping to 2.9% YoY in Q4 – below the national average of 3.4%. Rent increased by R246 to R8 632 over the same period, the third highest out of the nine provinces.

What are tenants earning?

The average net income for KwaZulu-Natal tenants in Q4 was R35 903, up 3% from the same quarter the year before. This lagged the national growth rate of 4.2% and income of R36 288.

What are they spending on?

Tenants in the province spent a smaller percentage of their income on debt in the last quarter than the year before, with 46.9% spent on repayments in Q4 2022 compared to 48.1% in Q4 2021. After spending a further 29.1% of their income on rent, tenants were left with disposable income of 24% of their take-home pay to cover monthly expenses – more than the 21.8% they had available the year before.

Eastern Cape

Rental growth Arrears Income Spend on rent-to-income High risk of default
2.1% increase 0.4% decrease 5.8% increase 29.3% 32.8%

In the fourth quarter, average rent in the Eastern Cape increased by 2.1% YoY, from R6 407 in Q4 2021 to R6 543 in Q4 2022. This was the lowest growth rate observed in the province throughout the year. Rental growth in Q4 was below the national average of 3.4%.

What are tenants earning?

Average income in the Eastern Cape increased by 5.8% year on year to R31 702, up from R29 954 the year before. This was higher than the average national increase of 4.2%. Income in the Eastern Cape was the third lowest out of the provinces, and income growth was below the inflation rate recorded during the period.

What are they spending on?

In Q4 2022, Eastern Cape tenants spent 43.2% of their net income on debt repayments, lower than the 45.4% in the same quarter the year before and lower than the national average of 46.6%. Another 29.3% was spent on rent, leaving tenants with 27.5% as disposable income.

Mpumalanga

Rental growth Arrears Income Spend on rent-to-income High risk of default
1.9% increase 1.4% increase 8.5% increase 26.9% 27.2%

Mpumalanga had a year of two halves. Rental growth rates (YoY) went above 5% in the first two quarters of the year before slipping to 1.9% in Q4 – below the national average of 3.4%. This equated to an increase of R145 year on year, with the average rent in the province measuring R7 936 in Q4.

What are tenants earning?

Average income in the province during the fourth quarter of 2022 was recorded as R37 837, the third highest income out of all the provinces. Income increased by 8.5% from Q4 2021 – the second highest increase measured after the Western Cape.

What are they spending on?

Mpumalanga tenants’ share of income spent on debt increased as well – they spent an average of 47.3% servicing debt in Q4 2022, up from a low 35.9% during the same quarter the year before. However, they spent only 26.9% of their income on rent, below the national average of 29.1%, leaving an average of 25.8% disposable income to cover other monthly expenses. While this is substantially lower than the 36.2% disposable income tenants had available in Q4 2021, it was still the second highest in the country during the quarter.

Free State

Rental growth Arrears Income Spend on rent-to-income High risk of default
0.3% decrease 5.1% decrease 1.2% increase 29.6% 30.7%

2022 rental growth in the Free State peaked at 1.9% in Q2 and declined from there. The fall of 1.6% in Q4 resulted in the lowest growth rate out of all the provinces for the quarter. Average rent decreased by R105 YoY, from R6 512 in Q4 2021 to R6 407 in Q4 2022. Average rent in the province was the second lowest out of all the provinces.

What are tenants earning?

In the Free State, average income increased by 1.2% YoY in Q4 2022, the third lowest out of all the provinces. An average net monthly income of R29 636 was recorded, the second lowest in the country. Average national net monthly income was R36 288 during the same period.

What are they spending?

Tenants spent on average 48.6% of their net salary on debt repayments, higher than the year before (42%) and also more than the national average (46.6%). They also spent 29.6% of their income on rent, leaving only 21.8% as disposable income, compared to 28.8% in the same quarter in 2021.

Download the full report here.

 

 

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