Rent income a reasonable return

Posted On Monday, 12 December 2011 02:00 Published by eProp Commercial Property News
Rate this item
(0 votes)

Rental income in SA has increased over the last 12 months by 6.6%, just slightly more than inflation.


Mike SchusslerThis is according to economist Mike Schussler who launched the new PayProp Rental Index on Friday in Johannesburg.

"Compare this to bank savings rates of 5.5% and the growth in rental income currently looks like a reasonable return in current economic conditions," Schussler said.

He added that according to data collected by Payprop, South African rentals in the formal sector were not excessive and seemed to take note of prevailing economic factors including inflation and pay increases.

"Rents in holiday towns have shown resilience," he said.

Property owners appeared to have increased rent with the expectation of high earnings during the Fifa Soccer World Cup last year.

Yet some areas, notably the southern Cape had shown a decrease in rent of almost 9% as rent normalised to a regional average.

Schussler said the average number of active properties rented out on the PayProp database over the last three months amounted to 44,117.

Using national mortgage data from the National Credit Regulator and the General Household Survey from Statistics SA, it could be assumed that there were around 660,000 households renting in the formal housing sector.

Schussler explained that there were 1.6 million households who rented for less than R500 per month and they rented government subsided RDP-type houses or informal backyard dwellings.

"These would by their nature not form part of the PayProp Rental Index."

In total, 2.26 million households rented property.

"This reflects around 17% of South African households in 2010 according to the general Household Survey carried out by Statistics SA."

Around 70% of South African households owned their property and this was one of the highest figures in the world.

"The rest either stay on traditional land, or their properties have not yet been transferred from the government register," Schussler noted.

Using PayProp's data, it could be assumed that the national average rent in SA, as at the end of November 2011 was R5,116 per month. This was an increase from R4,797 per month in November 2010.

"This represents the formal rental market in SA and excludes water and lights but includes property taxes that owners must pay."

The average formal sector salary in November 2011 was seen at R13,194 per month, compared with R12,272 in November 2010.

"Rent as a percentage of total monthly salary stays close to 39% of overall individual earnings," Schussler said.

Rental price inflation touched a low of 4.1% over the last year in June 2011 when compared to a year ago, but the speed of rental increases had been rising since then making rentals currently 6.6% higher than a year ago.

"We believe that the high base for the middle of 2010 was due to Soccer World Cup rentals - either actual rentals or expectations of higher income around the time of the sporting event.

"Locals seemed to have believed that their own income would rise quicker and therefore permitted themselves to sign higher rental agreements at that time."

Last modified on Monday, 10 March 2014 17:31

Most Popular

Sectional Title Trustees and Homeowners Association directors face COVID-19 liability

May 22, 2020
The Covid-19 pandemic and South Africa’s lockdown regulations are impacting all aspects…

Deeds office reopen their doors to the public

May 09, 2020
Carlize Knoesen
The Department Agriculture, Land Reform and Rural Development has announced the reopening…

2020 Commercial Property Outlook –Why Property Price/Valuations Indices don’t tell the full story of market weakness during a deep recession

May 09, 2020
John LoosFNB
In a downturn, Property Market Values can deviate dramatically from the market…

Dipula drops vacancies by almost 30% and concludes R370m new leases for 29 Feb 2020 interim results

May 18, 2020
South-African focused JSE-listed diversified REIT, Dipula Income Fund, today announced…

Development to bring residents closer to economic activities

May 19, 2020
Lindiwe Sisulu
Human Settlements, Water and Sanitation Minister, Lindiwe Sisulu, has declared 136…

Please publish modules in offcanvas position.