2 days ago
South Africa's rental market sees it's strongest growth since 2017
South Africa's rental market kicks off 2025 with impressive growth
Image: Freepik
South Africa's residential rental market has entered 2025 on a high note, exhibiting its most robust performance in years, according to the latest findings from the PayProp Rental Index.
In the first quarter of 2025, average national rental growth climbed to an impressive 5.6%, marking the strongest quarterly increase since the third quarter of 2017.
This surge pushed the average rent to R9,132, with growth reaching its pinnacle in February, when a year-on-year increase of 6% was recorded—the highest monthly growth since August 2017.
This remarkable rental growth coincides with a favorable inflation landscape, as CPI inflation dipped from 3.2% in January and February to 2.7% in March.
This falling inflation has created a notable gap of 2.8% between rental growth and inflation during February and March, representing the most significant real-terms rental gain witnessed in the current growth cycle.
The momentum has been largely attributed to strong tenant demand coupled with provincial growth, allowing landlords to recuperate losses suffered during recent slowdowns. Stable arrears figures offer cautious optimism
Unlike previous years, the first quarter of 2025 did not experience a seasonal spike in rental arrears, with the percentage of tenants in arrears decreasing slightly to 17.0%.
This figure matches a record low first recorded by PayProp in the last quarter of 2023.
André van Rooyen, Head of Sales at PayProp, said after last year's first-quarter arrears spike, this stable start to 2025 is encouraging.
However, he added that with rents rising at a brisk pace, he emphasised the importance for rental agents to reassess tenant affordability during lease renewals.
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While inflation has remained subdued so far this year, rising electricity tariffs and escalating fuel costs pose potential challenges, threatening to influence official inflation figures and, consequently, tenant affordability in the months ahead.
The PayProp State of the Rental Industry report revealed that approximately 80% of rental agents report tenant movement driven by affordability concerns. Presently, the average rent-to-income ratio stands at a manageable 28.8%—below the recommended maximum of 30%.
However, landlords renting higher-end properties may need to adopt cautious pricing strategies, preventing the limitation of their prospective tenant pool.
Provincial performance shows varying levels of growth
The growth in South Africa's rental market is not uniform across provinces. In Q1, Limpopo emerged as one of the fastest-growing markets, achieving a remarkable rental increase of 10.9%, just shy of its stellar performance in Q4 2024 and bringing its average rent to R8,899.
The Free State showed resilience, more than doubling its Q4 2024 growth rate to 7.6%, pushing its average rent to R7,453 and surpassing the Eastern Cape.
Conversely, Gauteng experienced a slowdown in rental growth, dipping to 2.9%, its weakest performance in over a year, and raising questions about its ability to maintain the third position for average rent at R9,201.
Mpumalanga also faced challenges, recording the lowest rental growth in the nation at just 1.1%, with rents only rising by R91 year on year.
Meanwhile, the Western Cape continues to command the highest average rent in South Africa at R11,285, although rental growth has decreased slightly to a robust 9.6%.
KwaZulu-Natal maintained a steady but below-average growth rate of 4.5%, sitting just R31 shy of Gauteng's average rent, suggesting a potential shake-up in future rankings.
The Northern Cape has finally shown signs of improvement, with rents rising by 3.3% after a slow performance last year. In contrast, the Eastern Cape's modest bounce back to 4.4% was insufficient to maintain its ranking, landing it the second-lowest average rent in the country.
As the market progresses into the next quarter, van Rooyen observes a landscape filled with potential but also challenges, asserting, 'While landlords and agents are benefiting from stronger demand and healthier returns, it's critical that we remain focused on tenant affordability and long-term sustainability.'
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