Rental Index: rental increases flatten out after 8 quarters of accelerating growth

Average rents in South Africa grew by 4.6% year on year in Q4 2023, according to the PayProp Rental Index Annual Market Report released at the end of February.

In Rand terms, that took the average to R8 598, R368 more than a year earlier.

The 4.6% growth rate was unchanged from Q3, the first time that rental growth hasn’t accelerated since Q3 2021. Growth was also very stable within the quarter – rents grew by 4.6% year on year across October, November and December.

The question now is what will happen this year. High interest rates have put off first-time buyers, increasing demand for rentals and therefore rental prices – and since inflation ticked upwards in January, it’s unlikely that the Reserve Bank will cut rates significantly any time soon.

But while it now looks unlikely that rental growth will return to the 6-8% seen in the mid-2010s, the current steady growth rate will support investment in residential rentals without putting unsustainable pressure on tenant affordability. As the Annual Market Report shows, tenant arrears have fallen, while rental investment is holding up well and PayProp’s upcoming State of the Rental Industry report shows that property practitioners’ confidence is high.

Big differences at the provincial level

There were some clear winners and losers at the provincial level. In the Free State, rents grew by 8.8% in Q4. That was the second highest anywhere in SA, and a huge turnaround considering that rents actually shrank year on year in Q1.

The North West was Q4’s fastest growing province, with rental growth hitting double digits at 10.1%. It’s still the province with the lowest rents at R6 344 on average. Meanwhile, the Western Cape recorded below-average rental growth of 3.9%, but this was still enough to take rents in the province over R10 000 for the first time. The average rent now sits at 10 118, SA’s most expensive and more than R700 ahead of the runner-up.

On the other hand, KwaZulu-Natal marked a third successive quarter of declining rental growth, and is now the slowest growing province in SA. Rents grew by just 1.4% year on year in Q4 2023, having increased by just R123 over a year earlier.

Rental growth in the Northern Cape has also fallen off since the 10.1% recorded in Q1 2023. The province’s Q4 growth was still above average at 5.0%, but has also now fallen for three quarters.

97.5% of rental agents say that the PayProp Rental Index helps them make better business decisions. For more data and analysis on average rents, arrears, tenant spending metrics and more, download the Annual Market Report below.