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Rental growth has rebounded to its highest level since 2017, according to data from the newly released PayProp Rental Index for Q2 2024.
In Q1, national rental growth dropped to 3.8% year on year in its first fall since 2021. But in Q2, it rose again to a new seven-year high of 4.9%.
The rental market rally also brought the first real-terms monthly growth since 2019 – great news for landlords and agents who have seen their earnings eroded by inflation in recent years. Rents grew 5.2% year on year in June 2024, beating inflation which was measured at 5.1% that month.
Why is rental growth accelerating again?
The rise in rental growth is one of several signs of improving economic performance. Inflation has remained on target for over a year, and Statistics SA’s GDP growth figures for Q2 look positive so far.
South Africa’s recent general election and the subsequent formation of a government of national unity have also helped reduce uncertainty in the real estate market.
However, there could also be some less positive reasons why rental growth is rising. High interest rates may put off first-time buyers, who may opt to keep renting instead. PayProp data on rental applications shows average income has risen significantly, suggesting that higher earners are staying in the rental market for longer.
Housing supply is also an issue. New building statistics from Stats SA show that housing completions are less than half of what they were in 2019. With more prospective tenants chasing an insufficient number of homes, prices can only go up.
Surprises at the provincial level
This quarter saw provincial rental growth converge on the national average. For the top-performing provinces in Q1, this has meant a drop in rental growth. In the Free State, rental growth fell from 9.1% in Q1 to 5.8% in Q2, while rents in the North West grew 6.3% in Q2 compared to 9.8% the previous quarter.
At the other end of the table, Q1’s worst-performing provinces all saw increases in rental growth. KwaZulu-Natal, Mpumalanga, and the Northern Cape still experienced sluggish growth at 1.5%, 2.4%, and 2.1%, respectively, but all three are better off than last quarter. KZN’s improvement was particularly impressive compared to the 0.4% growth it registered in Q1.
But the big success story for Q2 was the Western Cape. The region has had the highest rents in South Africa since 2016, but growth there has been consistently below average in recent years. This quarter, though, rents shot up by an incredible 9.7% year on year, taking the average rent in the province to R10 673 – more than R1 400 ahead of the next most expensive province.
The PayProp Rental Index uses data drawn from real rental transactions to produce the most accurate picture of the South African residential rental market, including national and provincial rents, tenant arrears, credit and spending metrics, and more. To get the latest issue, visit https://www.payprop.com/za/rental-index.
