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Year starts on a positive note for luxury rental sector

The past two years have been a miserable time for residential property rentals as a whole, but now the luxury segment at least is showing good signs of improvement, according to the experts at Chas Everitt International.  

According to the latest PayProp Rental Index, the average annual rental increase had reached just 0,2% by the third quarter of 2021, compared to a peak of 4,1% a year at the end of 2018. Some provinces did better, with rentals in Mpumalanga showing a 3,5% annual growth rate, followed by the Western Cape at 2,5% and Limpopo and the North West both at 2,1%.

All, however, were below inflation, which continued to grow at a rapid rate in 2021, reaching 5,9% year-on-year in December, while the average take-home pay showed no increase in nominal terms and a decline in real (after inflation) terms. This underlines the ongoing inability of most tenants to cope with rental increases of any magnitude, and the dilemma facing landlords who need to raise rents to cover higher levies and other costs, but don't want to risk losing tenants who are good payers.

There is some good news, though, which is that the percentage of tenants in arrears has declined steadily since the second quarter of 2020 and the onset of the Covid-19 pandemic. It currently stands at 19% compared to 25% in June 2020, and this is confirmed by the latest available RentalMonitor from credit bureau TPN, which shows that the percentage of tenants in "good standing" had recovered to 80,34% by the second quarter of 2021, compared to 73,5% a year earlier.

What is more, while less than 10% of tenants rent for more than R12 000 a month, the statistics show a better than average payment profile for this segment, with 85% of tenants currently being in "good standing".

In addition, reports from Chas Everitt offices in many locations sought after by high-end tenants show that rentals for luxury properties have risen by as much as 12% in the face of high demand and a growing shortage of suitable stock.    

These patterns are in keeping with international rental markets, where the luxury sector is also leading the recovery, says Chas Everitt CEO Berry Everitt. "The reason for this is that many affluent individuals are on the move now, and that they will often rent a high-end home for a year or more before deciding to buy in an unfamiliar location.

"In SA, this is currently especially evident in the Western Cape market, which is attracting many semigrants from other parts of the country who want to take some time and experience the pros and cons of various areas before committing to a home purchase." 

He says the main drivers of the luxury rental market currently are the swing to remote working, which has enabled and encouraged many executives, professionals and entrepreneurs to move away from their cities to more appealing country and coastal locations, and the desire of many high-net worth individuals to own one or more additional homes outside of their own countries, which they will often let when they are not in residence.

"In addition, global economic shifts have prompted many companies to seek new business opportunities abroad, and they are once again taking up luxury rental properties for their executives working outside of their own countries."  


01 Feb 2022
Author Chas Everitt
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