The national rental growth rate remained under pressure through the second quarter of 2021, but seems to have stabilised for the short-term, according to the latest PayProp Rental Index for Q2 2021.

• Rental growth came in at 0.4% in Q2 – in line with the 0.5% growth recorded in Q1 2021.
• The average national rent increased marginally from R7 746 in Q2 2020 to R7 778 in Q2 2021 – an increase of just R32 over the 12 months.

Johette Smuts, Head of Data Analytics at PayProp, says the worst appears to be over for now, with the Index showing a return to growth of 0.7% and 0.8% in May and June (after dipping below zero in April 2021).

Smuts says growth remains under pressure due to lower interest rates enabling renters to purchase properties, thereby decreasing the pool of available tenants and putting downward pressure on rent growth. In addition, continued building and development in many cities has contributed to an ongoing oversupply of rental properties, adding further sustained downward pressure on rental growth.

This runs counter to the inflation position, she points out.

“Inflation reached a 30-month high of 5.2% in May, driven largely by transportation costs, including petrol,” says Smuts. She says this rise in costs of other goods and services has put pressure on already-stretched consumers. “The aftermath of job losses due to lockdown continues to affect many consumers’ pockets, and affordability is still a major concern.”

Improved arrears

After the initial shock of the first lockdown in 2020, arrears metrics showed consistent improvement throughout a difficult 12-plus months.

The percentage of tenants in arrears spiked in Q2 2020, when almost one in four tenants were behind in payments. This was up from around one in five in Q1 of the same year. “The dramatic increase in arrears in April 2020 was directly as a result of the announcement of the first lockdown,” says Smuts.

“Realistically, an increase of that magnitude over the next two years in SA is highly unlikely, and the waste would occur because the additional amount you would be paying every month would not help you at all to shorten the term of your home loan and thus save on the total cost of your home over time.”

However, he notes, if you could afford the additional R934, and you were to use it instead to reduce the capital portion of your R1m bond while staying on a variable interest rate, amortisation tables show that you would stand to lower the total balance outstanding from R1m to R965 000 within a year, and to R928 000 within two years (compared to R952 000 without the extra payment).

“This means that if and when interest rates do start to rise again, your minimum monthly bond repayment will be calculated on a much lower capital balance, and that even at 8,75%, your minimum monthly bond repayment will still be considerably less than you have been used to paying.”

In addition, says Everitt, you will have shortened the term of your R1m bond by at least a year – and cut some R69 000 worth of interest off the total cost of your home.

“Thirdly, staying on a variable rate now means that you will also benefit from any further cuts the Reserve Bank might make in future to try to stimulate the economy – and gain a further opportunity to shorten the term of your bond.

“And finally, if you have an access-type bond, you will always be able to withdraw any additional amounts you have paid into your bond account should you need them in an emergency. This is not something you will be able to do if you fix your rate now.”

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