25/09/2024
Construction shortfalls across South Africa are pushing up residential rents to record highs, meaning that more house building across the country is needed to meet rising rental demand.
This is the view presented by rental payment experts at property management software and rental payment platform, PayProp.
Data from the platform, which processed more than R1.4 billion in rent in June 2024, shows that the average rent in the country rose by 4.9% year on year in quarter 2 (Q2) 2024 – the fastest growth since 2017.
Michelle Dickens, PayProp’s General Manager for Group Sales, said that new private sector residential construction numbers released by Statistics SA for the first half of 2024 as the main reason.
The data shows that just 15,871 plans for houses, townhouses and flats were passed in H1 compared to 19 746 in the same period last year.
“To add to the issue, confidence in the construction sector is low and many housing projects are stalling before completion,” said Dickens.
“Reported house-building completions have dropped to just a third of what they were during the 2006-8 property boom – and are now ominously in line with the depths of the coronavirus lockdown.”
“In the first half of 2024, just 9,623 houses, townhouses and flats were completed against 12,623 in H1 2023,” she added.
Demand outrunning supply
According to PayProp, residential rental supply is growing slowly – especially as many of those new homes will go to owner–occupiers – while rental demand continues to grow unabated.
At the other end of the equation, the “South African population as a whole is growing at a healthy clip, driving up rental demand,” said Dickens.
According to Stats SA, there are now more than ~ 19 million households in South Africa, and almost a quarter – 23.9% – live in rented accommodation.
In addition, “persistently high interest rates have caused prospective first-time buyers to delay their home purchases and keep renting for longer,” said the PayProp general manager.
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South Africa can’t keep up with rental demand: experts
Seth Thorne
·14 Sep 2024
Construction shortfalls across South Africa are pushing up residential rents to record highs, meaning that more house building across the country is needed to meet rising rental demand.
This is the view presented by rental payment experts at property management software and rental payment platform, PayProp.
Data from the platform, which processed more than R1.4 billion in rent in June 2024, shows that the average rent in the country rose by 4.9% year on year in quarter 2 (Q2) 2024 – the fastest growth since 2017.
Michelle Dickens, PayProp’s General Manager for Group Sales, said that new private sector residential construction numbers released by Statistics SA for the first half of 2024 as the main reason.
The data shows that just 15,871 plans for houses, townhouses and flats were passed in H1 compared to 19 746 in the same period last year.
“To add to the issue, confidence in the construction sector is low and many housing projects are stalling before completion,” said Dickens.
“Reported house-building completions have dropped to just a third of what they were during the 2006-8 property boom – and are now ominously in line with the depths of the coronavirus lockdown.”
“In the first half of 2024, just 9,623 houses, townhouses and flats were completed against 12,623 in H1 2023,” she added.
Demand outrunning supply
According to PayProp, residential rental supply is growing slowly – especially as many of those new homes will go to owner–occupiers – while rental demand continues to grow unabated.
At the other end of the equation, the “South African population as a whole is growing at a healthy clip, driving up rental demand,” said Dickens.
According to Stats SA, there are now more than ~ 19 million households in South Africa, and almost a quarter – 23.9% – live in rented accommodation.
In addition, “persistently high interest rates have caused prospective first-time buyers to delay their home purchases and keep renting for longer,” said the PayProp general manager.
Data from the PayProp Rental Index shows that more high earners are renting than in previous years: 9.3% of applicants earned R80 000 or more a month, compared to 6.8% in Q2 2022, when interest rates had just started to rise.
Dickens notes that a larger pool of higher-income applicants simplifies finding financially stable tenants with lower risk of rent arrears.
However, this has not benefitted other renters, as rising rental growth has reached its highest level since 2017 this year.
“While residential rental property remains a popular investment for hundreds of thousands of landlords, and supports property practitioner jobs across the country, the residential rental sector needs the support of a robust construction industry to deliver an affordable supply of housing to a growing population,” said PayProp.
Currently, 16% of South African households live in informal housing, and “if construction can’t keep up with growing demand, they will not have a route into secure, high-quality homes,” added Dickens.
She said that lower-income tenants could also be priced out of the residential rental sector as according to the latest PayProp Rental Index, those earning R10 000 – R20 000 spend 40% of their income on rent on average and have just 6.2% of their income left over after rent and debt repayments.
Although the rental increases have generally been below inflation, the average proportion of salaries dedicated to paying rent has increased quite significantly during the same period.
For example, a recent survey conducted by short-term lender Wonga found that South Africans are cutting back on food and groceries to keep paying for other essentials like rent, highlighting an increasing cost of living crisis.
