MAIN IMAGE: Waldo Marcus – director at TPN Credit Bureau, Paul Stevens – CEO of Just Property, Andrew Schaeffer – managing director at Trafalgar
Kerry Dimmer
PayProp’s Rental Index for Q4 2025 closed the year on a mixed note. Rental growth eased to 4.5% year on year, down from 4.9% in Q3, as higher living costs, rising municipal charges and modest salary growth continued to squeeze household budgets. The average rent nationally reached R9 462, up R411 on the same period a year earlier. Arrears held firm, with the share of tenants in arrears sitting just 0.1 percentage points above the all-time low.
At the national level, yields in the sectional title segment strengthened through 2025. Waldo Marcus, director at TPN Credit Bureau (part of MRI Software), noted that investors were achieving an average gross yield of 11,35% by year-end, underpinned by improved rental growth. Capital growth remained relatively flat across both sectional and full title segments, with the Western Cape, parts of KwaZulu-Natal, and the Eastern Cape as the main outliers.
Full title gross yields nationally came in at 9,4%, a marginal improvement on prior years as rental demand and escalations edged ahead of capital growth.
The Western Cape told a different story. Aggressive property value growth combined with decelerating rental escalations pushed sectional title yields below 10% towards year-end. Gauteng, by contrast, maintained a gross sectional title return of just over 12%, while full title rental yields held at 7,1% throughout 2025. The Eastern Cape and Western Cape recorded full title yields of 6,8% and 7,8% respectively, both on a downward trajectory in the latter part of the year.
The national residential rental escalation rate closed 2025 at 4,7%. The Western Cape led at 7,2%, followed by KwaZulu-Natal at 4,6%. The City of Cape Town recorded growth of 7,3%, Tshwane reached 4,6%, while Johannesburg came in at 3,2%. Nelson Mandela Bay was the one notable underperformer, with escalations slowing due to higher supply and constrained consumer budgets. Gauteng closed at 3,82%.
Where things stand now
Now, midway through 2026, the picture is broadly in line with what analysts anticipated at the start of the year. Marcus had forecast that rental growth would slow across most major metros, with Gauteng as the exception, and that dynamic appears to be playing out. Gauteng’s escalation rate was widely expected to approach 4% in 2026 as it catches up with the growth seen in other provinces over the past two years.
The interest rate environment has also shaped the first half of the year. “Improved property demand will drive higher property prices, which will affect investor returns, and with the lack of further interest rate cuts, the cost of borrowing will not free up additional cash flow for investors to expand as expected previously,” Marcus said at the start of the year.
His view on portfolio positioning remains relevant: rental books weighted towards diverse income profiles in the sectional title segment, supplemented by higher-value full title income, are better placed to absorb volatility. “Tenant behaviour will be reactive to affordability,” he noted, and that tension between rental growth and what tenants can actually pay has remained the defining dynamic of the market through the first half of 2026.
The tenant quality challenge
Beyond the yield and escalation figures, Paul Stevens, CEO of Just Property, says one of the biggest challenges facing rental professionals this year is not necessarily finding tenants, but finding the right ones.
“Demand for rental accommodation remains healthy across many parts of South Africa, but the pool of financially qualified, long-term tenants has become increasingly competitive. Rising living costs and affordability pressures mean that tenant placement has become one of the most important drivers of rental portfolio performance,” says Stevens.
He argues that while growth, yields and arrears remain relevant indicators, rental professionals should place greater emphasis on overall portfolio quality.
“A healthy rental book is characterised by low vacancies, strong tenant retention, consistent cash flow and effective arrears management. Rental escalations are important, but they are often the outcome of a well-managed portfolio rather than the primary measure of success.”
Stevens says the industry’s focus is shifting from filling vacancies to retaining quality tenants. “The strongest rental portfolios are not necessarily those achieving the highest annual escalations. They are the portfolios that consistently place quality tenants, maintain occupancy and minimise turnover. In many cases, reducing vacancy periods by a few weeks can have a greater impact on investor returns than securing a slightly higher rental increase.”
He adds that professional tenant screening is becoming an increasingly important competitive advantage. “A single poor placement can result in months of lost income, legal costs and unnecessary vacancies. Conversely, a quality tenant can provide years of stable income and predictable returns for landlords. The ability to source, assess and retain quality tenants has become the secret sauce of successful rental portfolio management.”
Stevens also points to the growing strategic importance of rental books within estate agencies. “Recurring rental income provides stability and resilience for property businesses, particularly during periods when sales activity may fluctuate. As a result, we are seeing many agencies place greater focus on growing and protecting their rental portfolios through better systems, stronger processes and more specialised rental teams.”
What a healthy rental book looks like
Andrew Schaeffer, managing director at Trafalgar, echoes the emphasis on quality overgrowth, saying a healthy rental book in the current environment “should prioritise stability and risk management over aggressive growth.” Tenant quality and consistent cash flow, he says, take precedence over maximising escalations.
On tenant profiling, Schaeffer recommends targeting placements where rental does not exceed 30 to 35% of a tenant’s income, and building a portfolio diversified across price brackets and tenant types. Rental yields remain strongest in high-demand urban areas where units are more affordable, and tenant demand is more consistent.
In terms of geography, Pretoria and Johannesburg continue to lead in yield performance, driven by lower capital values, particularly in sectional title developments near business nodes and transport routes. The Western Cape remains strong on capital growth, though yields are more compressed as a result.
Arrears remain a point of differentiation. Schaeffer points to “noticeable pressure” from rising costs on tenant affordability, particularly in the lower to middle-income bracket, and advocates for proactive screening, early intervention, and structured collection strategies.
The message from both Schaeffer and Stevens is consistent: the fundamentals of the rental market remain sound, but the margin for error on tenant selection has narrowed. For property professionals managing portfolios in the second half of 2026, the priorities are clear — retain good tenants, protect occupancy, and keep a close eye on the balance between income performance and return on investment.
