Better times are approaching for long-suffering residential landlords. In recent years, many were forced to drop rentals when leases came up for renewal — or risk losing a tenant.
Latest real estate data points to a resurgence in rental growth, amid a dwindling supply of apartments, houses and townhouses to let in most metros.
Rental processing firm PayProp’s rental index notched up average growth of 5.6% in the first quarter across the nine provinces — the strongest in more than seven years.
That’s up from 3.7% a year earlier, and comfortably ahead of the multiyear, pandemic-induced lows of less than 1% recorded in 2020/2021 (see graph).
André van Rooyen, head of sales at PayProp, says the recent acceleration has pushed the average rent to a record R9,132 a month, from just under R7,000 in the first quarter of 2017.
That’s a 30.5% increase over eight years. Considering that the average house price at the moment is about R1.6m, according to FNB figures, buy-to-let investors are typically earning an annual gross rental yield of just below 7%. The industry norm is to deduct 1.5 to two percentage points for running costs. The latter include levies, rates and maintenance, which are borne by the landlord.
Renewal in the rental market has been particularly strong in the Western Cape, which continues to see an influx of semigrants who often rent before they buy.
The average monthly rent in Cape Town surpassed R11,000 for the first time late last year and is now sitting at R11,285 — 40% up on early 2017 levels.
The province is the most expensive for renting a home and the only one where the average rental exceeds R10,000 a month. Western Cape tenants must fork out almost 60% more on average for a roof over their heads than their counterparts in North West, the cheapest province for renting.
Van Rooyen says the rental market’s new lease of life amid rising tenant demand and falling inflation is already translating into improved buy-to-let returns.
Referring to the growing gap between rental growth and CPI, which fell below 3% earlier this year, he says the first quarter marks “the most significant real-term rental gains seen post-pandemic”, with most landlords finally starting to claw back losses.
Despite fewer than expected interest rate cuts since September, rising electricity tariffs, food and fuel costs and sky-high unemployment, PayProp’s figures show that the average rent-to-income ratio remains manageable at 28.8%. Van Rooyen says that is below the recommended maximum of 30%.
That suggests most tenants are not financially overstretched and would be able to absorb further rental increases. Still, he warns that owners of higher-end properties may need to keep pricing strategies in check to avoid shrinking their pool of potential tenants.
A deeper dive into PayProp’s data reveals different supply and demand metrics, resulting in a varied rental performance across provinces.
Limpopo led the pack in the first quarter, with growth of 10.9%, followed by the Western Cape at 9.6%. In stark contrast, Mpumalanga managed only 1.1%, making it the worst-performing province.
Gauteng also remains a worry. Despite anecdotal evidence of rental agents sitting with lower stock levels, the province has yet to see a meaningful rebound in rentals, with growth coming in at 2.9% in the first quarter.
Other industry data suggests that rentals have been buoyed by fewer properties standing empty. According to economists Rode & Associates, the national average flat vacancy came to 6.7% in the first quarter, down from 7.9% a year earlier.
Unsurprisingly, Cape Town vacancies are at a record low of about 2%. Joburg and Durban tenants have way more choice, with vacancies at 8% and 10% respectively. Still, that's well below the 13%-plus seen in both cities in 2020/2021.
It appears that buy-to-let investors are already returning to the market to cash in on firmer rentals and lower debt funding costs.
According to mortgage originator ooba, home loan application volumes hit a two-year high in the first quarter. CEO Rhys Dyer says the group’s application volumes rose 18% from the fourth quarter of 2023 (when housing activity bottomed) to the first quarter of 2025.
He says demand has been bolstered by a return of buy-to-let investors, with investment property buying reaching a record high of 12.9% of total application volumes in the first quarter, up from a historic average of 5%-7% until mid-2023
The Western Cape has seen a strong influx of buy-to-let investors, which accounted for a hefty 32% of all applications received by ooba in the first quarter, up from 30% a year ago and well ahead of the average 10%-20% seen pre-pandemic.
Dyer cites easing inflation and more manageable borrowing costs as key factors boosting investor sentiment. He believes increased competition for new business among mortgage lenders has also supported a rebound in buying activity. He notes that most banks are offering favourable discounts to prime rates, reduced bond registration fees, zero-deposit loans and flexible repayment terms.
Young buyers purchase properties in areas they can afford but then rent them out while they themselves continue to rent in neighbourhoods where they prefer to live, work and play
Industry players say there’s been an encouraging increase in investment buying among young South Africans in particular. Only Realty CEO Grant Smee says that’s in line with the emerging global trend of “rentvesting”, which refers to first-time buyers — mostly young millennials and Gen Z — purchasing properties in areas they can afford but do not necessarily want to reside in.
The idea is that investors rent out these properties while they themselves continue to rent in neighbourhoods where they prefer to live, work and play.
Smee says “rentvesting” makes sense because it’s still cheaper to rent than buy — despite recent rate cuts. That’s especially true in Cape Town, where house prices continue to climb at a faster pace than in the rest of the country.
The Atlantic seaboard is a prime example of an area where young professionals prefer to live but can’t afford to buy. For example, prices for one-bedroom flats in Sea Point/Bantry Bay start from R2m, which equates to a monthly mortgage repayment of R20,305 (over 20 years with no deposit at prime of 10.75%).
That excludes levies, rates and maintenance, additional costs that are borne by the property owner. By contrast, rentals for one-bedroom properties on the Atlantic seaboard start at R12,000.
Smee believes “rentvesting” has been a key contributor to the Western Cape’s buy-to-let boom. “The trend enables buyers to maintain their lifestyle, while also getting a foot on the property ladder, so they don’t have to sacrifice long-term investment goals.’’
Seeff Property Group chair Samuel Seeff warns that while the rental market has undoubtedly strengthened, prospective buy-to-let investors must do their due diligence. That applies especially to the booming Cape Town market, where buyers tend to overestimate rental returns. In fact, income yields can be lower in Cape Town than in Joburg, given the former’s higher entry prices.
Of course, Cape Town offers the potential for better capital growth over time, so could still outperform on the total return front.
Citing the upscale Atlantic seaboard as an example, Seeff area licensee Ross Levin says while there’s high rental demand in the area, rental yields are typically capped at 4%-6%.
In Cape Town’s more affordable northern suburbs such as Durbanville/Welgemoed, slightly higher yields of about 6%-8% can be had, with strong demand for rental apartments in the R7,500-R18,000 a month bracket.
In the seaside suburb of Blouberg, yields can rise to 8%-10%, with properties priced from R1.5m-R2m typically generating monthly rentals of R10,000-R17,000, depending on location, type and size of property.
Buy-to-let returns will be supported by the improved outlook for house price growth. Last week, FNB reported a better than expected 2.6% increase in May, up from multiyear lows of 0.5% in mid-2024. Last month was the highest growth recorded by the bank since February 2023.
FNB senior economist Siphamandla Mkhwanazi says house prices continue to accelerate steadily on the back of lower interest rates and housing supply contraction. The latter relates to sharp declines in new residential building completions in the past two years.
Mkhwanazi expects another 25 basis point rate drop by September, bringing the prime lending rate to 10.5%, which he says will continue to support buying activity and prices.
He refers to the housing market as “still subdued, yet stronger than anticipated” and adds that the growth outlook is “skewed to the upside, though global uncertainty continues to cloud the broader outlook”.
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