A sudden surge in rental growth during Q2 2024 brings a welcome surprise for South African rental agents and landlords following a decline in the first quarter.
READ: Is your lease agreement legal?
According to the PayProp Rental Index, year-on-year rental growth rebounded to 4.9% in April from 3.6% in March, then fell to 4.5% in May before rising to 5.2% in June. This marks a new post-pandemic high and the fastest year-on-year rental growth in any month since December 2017.
Johette Smuts, Head of Data Analytics at PayProp, says that June 2024 was also the first time that rental growth has outpaced inflation in almost five years. “This is good news for estate agents and landlords as it signals higher real-terms returns. We’re hopeful that a continued rebound will assist agents in building more profitable and resilient businesses in an otherwise challenging economic environment,” says Smuts.
With inflation falling further still in July, economists foresee that interest rate cuts could start as early as September. “Rate cuts would lower bond payments and draw more first-time home buyers back to the market, reducing demand for rental properties,” says Smuts.
At the end of the quarter, the average national rent in South Africa stood at R8 785 – R410 more than in Q2 2023. Encouragingly, all provinces experienced positive rental growth in Q2 after a year-on-year decrease in KwaZulu-Natal's average rent in the previous quarter.
A surprise provincial leader
The Western Cape has had the highest rents in South Africa since 2016, and in Q2 2024 the average rent there stood out at R10 673. Perhaps not surprisingly in a hot rental market, the province experienced average or below-average rental growth in recent years. Against this backdrop, its Q2 growth rate of 9.7% comes as a real surprise. In fact, year-on-year growth now appears to be accelerating, reaching 11.7% in June - the fastest recorded in the Western Cape since December 2017.
At the other end of the spectrum, KwaZulu-Natal managed just 1.5% in rental growth. This was the lowest of any province, but still an improvement on the negative growth recorded in Q1. Rents grew by R128 year-on-year to reach R8 945. KwaZulu Natal has been one of the net losers from South Africa’s semigration trend, which has reduced local demand for rental homes.
Gauteng recorded a third consecutive quarter of below-average rental growth, but the 3.8% measured in Q2 2024 was an improvement on the previous two quarters. The average rent in Gauteng has now surpassed the R9 000 mark to reach R9 018 - South Africa’s third highest rent..
READ: Safeguard your deposit, leave your rental in a clean state
Tenants worse off, but not because of rent inflation
In Q2 2024, the average tenant in South Africa spent 46.7% of their income on debt repayments and 30.3% on rent, leaving them with 23.0% of their income to cover their other expenses compared to 27.2% in Q2 2023. Smuts says that rising average incomes have been outpaced by expenses due to high interest rates. “Rent as a percentage of income didn’t move much year-on-year, but unfortunately, debt repayments did, jumping up from 43% of income a year earlier.”
But behind the averages, there are some big differences between income brackets. Those earning R40 000 a month or less are much more burdened by debt than those on higher incomes.
According to the Rental Index data, tenants spend more than half their net income on debt repayments on average. But in income brackets above R40 000, debt spending falls sharply in proportion to income, and disposable income rises to match. Those earning R80 000 and up have 54.1% of their net income left over after rent and debt expenses.
Smuts says that whilst the pressure of debt repayments has increased year on year, it hasn’t stopped people from paying their rent. “Just 18.1% of tenants were in rent arrears in Q2 2024 compared to 18.4% a year earlier, and they also owed slightly less on average.”
She cautions agents and landlords with putting tenants under too heavy a financial burden, but also says that there is still room for rental growth. “A common rule of thumb for rental affordability is that tenants shouldn’t spend more than 30% of their income on rent. However, with smart budgeting, rental share of wallet higher than this can be sustainable. Tenants in hot rental markets are often used to paying more, and some estate agents have already set more generous affordability ceilings when vetting applicants for their rental properties.”
READ: Rental market trends: Insights for landlords and agents
Additional information:
According to the Department of Human Settlements, a Rental Housing Tribunal has the authority to deal with disputes, complaints or problems between tenants and landlords in the rental housing dwellings:
- Non-payment of rentals
- Failure to refund the deposit
- Invasion of tenant’s privacy, including family members and visitors
- Unlawful seizure of tenant’s goods
- Discrimination by landlord against prospective tenants
- The changing of locks
- Lack of maintenance and repairs
- Illegal evictions
- Illegal lockout or illegal disconnection of services
- Damage to property
- Demolition and conversion
- Forced entry
- House rules
- Intimidation
- Issuing of receipts
- Municipal services
- Nuisance
- Overcrowding and health matters
In terms of section 13(13) of the Rental Housing Act 50 of 1999, a ruling of the Tribunal is deemed to be an order of a Magistrate's Court in terms of the Magistrate's Court Act, 1994.
READ: Rights and responsibilities in rental housing – know where you stand
In a previous article Abrahams & Gross’s Litigation and Dispute Resolution attorney, Henno Bothma discussed the important of a lease agreement and shared, for a landlord, renting out their property can be an excellent source of income, but it also comes with a degree of risk. To mitigate this risk, it is crucial to have a proper lease agreement in place to protect yourself and your property.
Bothma shares a few tips:
What is a lease agreement?
A lease agreement is a legally binding contract between a landlord and a tenant that outlines the terms and conditions of the rental arrangement. A well-drafted lease agreement should cover all aspects of the tenancy, including rent, security deposit, maintenance responsibilities, and tenant obligations. It should also provide a framework for resolving disputes and terminating the tenancy.
Why does a landlord need a watertight lease agreement?
Having a proper lease agreement is essential for landlords for several reasons. Firstly, it helps to establish a clear understanding between the landlord and the tenant about their respective rights and obligations. This can help to prevent misunderstandings or disputes that may arise during the tenancy.
Secondly, a lease agreement can protect the landlord’s property by setting out guidelines for maintenance and repairs. This can help to ensure that the property is maintained in good condition and that any damages caused by the tenant are addressed promptly.
Thirdly, a lease agreement can provide a framework for resolving disputes that may arise during the tenancy. This can help to minimise the risk of costly and time-consuming legal proceedings.
Fourthly, a lease agreement can help to protect the landlord’s financial interests by specifying the terms of rent payments, late fees, and security deposits. This can help to ensure that the landlord receives the rent on time and is adequately compensated for any damages or unpaid rent.
A sound lease agreement is essential
In summary, a well-drafted lease agreement is essential for landlords to protect themselves and their property. It provides a clear understanding of the terms and conditions of the arrangement, establishes guidelines for maintenance and repairs, provides a framework for resolving disputes, and protects the landlord’s financial interests.
Speak to a legal expert
As a landlord, it is important to seek the advice of a legal professional to ensure that your lease agreement complies with all relevant laws and regulations, and is tailored to your specific circumstances.
Our attorneys have considerable legal experience with all matters related to tenants, landlords, lease agreements and dispute resolution. Please contact our Conveyancing and Property Law or Litigation and Dispute Resolution team to assist with your issue.
* Disclaimer: The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.
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