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Great news is on the horizon: inflation is on a downward trend! As per the latest statistics, headline consumer inflation receded to 6.3% in May from the previous month's 6.8%, hitting its lowest level in over a year. This promising forecast from the South African Reserve Bank anticipates inflation returning within its 3-6% target range by the third quarter.
This development is undoubtedly a sigh of relief for consumers feeling the financial pinch. Moreover, it signals a light at the end of the tunnel for landlords who have been grappling with negative real-term rental returns since 2019. In the period spanning January 2021 to March 2023, rental growth on average trailed 4% behind inflation.
However, the tide is turning for the residential rental sector as falling inflation dovetails with rising rents. Insights gleaned from the recent PayProp Rental Index highlight that national rental growth attained 4.2% in the first quarter of 2023. This achievement marks six consecutive quarters of escalating growth. Additionally, preliminary data gathered by PayProp from tangible rental transactions countrywide indicate rental growth of 4.6% in both April and May. This trajectory sets South Africa on a path toward an incremental rental growth spike in Q2, inching ever closer to the significant milestone of the inflation rate.
Why this surge in rental growth?
The escalation of interest rates has rendered property acquisition less affordable for potential homeowners, prompting them to persist with renting. This dynamic has invigorated demand within the residential rental sector, thereby enabling landlords to raise rents.
Simultaneously, elevated interest rates have augmented landlords' expenses, pressuring them to impose larger increases. As inflation persists above the target range, this pattern is unlikely to dissipate in the immediate future. The South African Reserve Bank is expected to maintain the prime rate at its current high level and may potentially enhance it further at its forthcoming interest rate decision on July 20th.
However, strained affordability among tenants may soon impose a ceiling on potential rental hikes. Renters continue to grapple with higher essential costs and steeper debt repayments. Yet, the Q1 data from the PayProp Rental Index does not denote a significant surge in arrears, despite the decline in disposable incomes.
In this fluid economic landscape, rental agents and property investors find themselves in a wait-and-see situation. The optimal way to stay informed is through subscribing to the PayProp Rental Index - a comprehensive dissection of South Africa's residential rental market. The Rental Index is based on bona fide rental transactions processed via the PayProp platform, encompassing hundreds of thousands of properties.
For landlords pondering a transition to a new rental service provider, Peter Noctor the MD of House of Realtors‘s Rental Prop Division is available to guide you through the process. Reach out to Peter at 072 989 0998 or peter@houseofrealtors.co.za, and leverage his expertise in capitalizing on this positive trend in the rental market.
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