Johette Smuts, head of data analytics at PayProp, says rental growth has rebounded impressively over the last five quarters since Q3 2021, when year-on-year growth was just 0.2%. “We have reached a very positive milestone in that rental growth has now recovered to pre-pandemic levels. It is now higher than the 3.2% recorded in Q1 2020.”
In Q4 2022, only 18.1% of tenants were in arrears, which is significantly lower than the Q2 2020 peak of 24.9% – just after lockdown was first announced. Although the average size of tenant arrears as a percentage of one month’s rent also declined during the year, there was a slight increase again towards the end of the year from 77.4% in Q3 to 78.2% in the last quarter. This was still lower than the pre-lockdown figure of 78.7% recorded in Q1 2020.
Nationally, 28.5% of tenants presented a high risk during the final quarter of 2022. That was an increase of 4% from 24.5% the year prior. In the same quarter, 18% of tenants had a major delinquency against their name, up 1.2% from Q4 2021. The average credit score also worsened slightly over the past year.
“During the last quarter of the year, tenants across the country spent an average of 46.6% of their net income on debt repayments, including subscriptions such as cellular phones. Another 29.1% was spent on rent, leaving tenants with only 24.2% of their income to pay for important elements like food and school fees,” says Smuts.
Prior to the Covid-19 pandemic, SA tenants’ debt-to-income ratio hovered between 42% and 48%. The low interest rate cycle of 2020 and 2021 helped bring this ratio down, giving tenants the chance to save on interest-related repayments. But as inflation started to rise in mid-2021 and interest rates did the same in November 2021, so too did this ratio, which breached 48% by the beginning of 2022.
Smuts says that while 2022 brought a lot of good news for the rental industry as well as an ongoing recovery in the market, it’s prudent to note that affordability challenges could curb a continued recovery in 2023.
“Slow economic growth due partly to unreliable electricity supply and interest rate increases are just two of the factors stretching tenants financially – the effects of which we’ll continue to see throughout the year.”
Download the full PayProp Annual Market Report here.
