New data from the PayProp Rental Index (PRI) shows that rental applicants are better off – but also not.
Credit check data for Q2 2024 found that tenants earning R80 000 a month or more made up 9.2% of all applicants, up from 8.5% in Q2 2023. Moreover, every income bracket from R30 000 upwards has grown, while the percentage of tenants earning below that has fallen from 49.3% two years ago to 42.9% in Q2 2024.
Income growth goes some way towards explaining this. According to Statistics South Africa’s quarterly employment statistics for Q1 2024, the average employed person earned R26 793 a month, up from R25 602 in Q1 2023. But this is less than that of the average rental applicant, who earned more than R30 000 in Q2.
In reality, tenant income growth may not be down to them being better off, but to the most well-off tenants continuing to rent rather than buy, as one would expect. Persistent high interest rates have discouraged potential first-time buyers – and existing homeowners aren’t immune to the pressure either. The FNB Property Barometer for June 2024 found that 21% of home sales happened due to financial pressure in Q2, an increase from the previous quarter. FNB says these distressed sellers would still prefer to buy a smaller home rather than return to renting, but some are re-entering the rental market. Doing so comes with big advantages, including mobility and, potentially, lower costs.
Tenants worse off, but not because of rent inflation
Unfortunately, rising average incomes have been outpaced by tenants’ expenses. Rents as a percentage of income didn’t move much year on year, but debt repayments did, going from 43% of income to 46.7% for the average applicant. Average disposable income is now just 23% of net income, compared to 27.2% a year earlier.
But behind the averages, there are some big differences between income brackets. Those earning R40 000 a month or less are much more burdened by debt than those on higher incomes. According to the PayProp Rental Index data, tenants spend more than half their net income on debt repayments on average.
In income brackets above R40 000, debt spending falls sharply, and disposable income rises to match. Those earning R80 000 and up have 54.1% of their net income left over after rent and debt expenses.
But there’s good news for landlords: while the pressure of debt repayments has increased year on year, that hasn’t stopped people from paying their rent. 18.1% of tenants were in rent arrears in Q2 2024 compared to 18.4% a year earlier, and they also owed slightly less on average.
For more findings from the PayProp Rental Index, join Head of Data Analytics Johette Smuts for a PayProp Masterclass webinar on 21 August.
