With most rental market metrics moving in the right direction, the outlook for next year is good. We read the signs to see which way the market is moving – and are now also inviting your input!
Healthy tenant finances should mean further rental growth
Real-terms take-home income (i.e., after tax and inflation) rose by 2.5% in 2025, according to the latest BankservAfrica Take-home Pay Index. Wage increases have gone further this year due to falling inflation, and the bank’s economists expect healthy real-terms pay growth in 2025 as well.
The SA Reserve Bank bases this on its expectation that inflation will remain below 4% for at least the first half of 2025, and that economic growth will pick up all the way to 2027.
Stable income growth for tenants should in turn allow landlords to continue raising rents sustainably. Over the past year, rental growth has remained in the 4.5 to 5% range, according to the PayProp Rental Index. Meanwhile, tenant finances have improved and arrears have remained under control.
Interest rate cuts to have mixed effect on rental market
Last month, the Reserve Bank’s Monetary Policy Committee (MPC) cut interest rates for the second time since September, taking the prime rate to 11.25%. The Bank forecasts a further drop to 10.5%, but hasn’t committed to a specific timeline. Private sector economists mostly agree that the MPC will proceed cautiously. Its next decision will come on 30 January.
Cutting interest rates would be good news for tenants’ finances. The average rental applicant spent 44.6% of their income on debt repayments in Q3 2024, according to the PayProp Rental Index. Lower borrowing rates would reduce that percentage and leave more leeway to afford rent.
But interest rates are still high, which has also helped to keep prospective first-time buyers in the rental market. At the same time, a growing number of mortgaged homeowners have been falling behind on their payments and selling up. If rates fall further, more people could become – and stay – homeowners, cooling rental demand.
On the other hand, the rate cuts being projected wouldn’t make all that much difference to housing affordability. According to ooba’s repayment calculator, the monthly payment on a 20-year bond of R1 million is R10 493. If rates are cut to the projected 10.5%, you would pay R9 984 a month instead, a saving of just under 5%.
Housing supply to remain constrained
On the supply side, housing construction slowed this year. Figures from Stats SA showed that fewer than 16 000 plans for houses, townhouses and flats were passed in the first half of 2024, compared to almost 20 000 in the same period last year. Completions in the first half of the year were around a third of what they were during the 2006-8 property boom.
Earlier this year, the Center for Affordable Housing Finance in Africa estimated that SA is undersupplied by around 3.7 million units. This month, housing experts recommended steps that SA can take to increase housebuilding, including greater state funding for affordable housing and more support for micro-developers. But unless they can dramatically increase delivery, undersupply will continue to drive house prices and rents upwards.
Have your say
As an expert rental agent with your finger on the pulse of the market, what do you expect to happen in 2025, and what are your plans for your business? Let us know in this year’s PayProp State of the Rental Industry survey by 13 December.
Taking part will get you early access to the full report next year. You could also win one of three R1 000 Takealot vouchers!
Click below to answer and stand a chance to win.
