Tenants struggle as inflation rises: understanding the financial impact

Higher inflation continues to exert more pressure on tenants’ spending. 

This means that rental agents will need to vet tenants carefully and set market-related rents that neither stress affordability nor threaten landlords’ or agents’ livelihood.

“After several quarters of strong real-terms rental growth, we are starting to see affordability pressure build,” says Michelle Dickens from PayProp.

“While most tenants are still managing their commitments well, the rise in the number of tenants in arrears is a reminder that sustained increases in rent, debt levels and living costs can quickly squeeze budgets. As always, consistent tenant vetting and proactive renewal management, including rent increases, remains essential.”

South Africa's residential rental market continued to cool in the third quarter of this year, according to the latest PayProp Rental Index. 

Inflation edges higher as rental growth slows

Inflation averaged 3.4% across the quarter, up from the second quarter’s 2.9%, softening real-terms rental returns. Despite this, the third quarter marked the fifth consecutive quarter in which rental growth outpaced inflation, albeit by a smaller margin than earlier in the year.

Dickens notes that rental growth may now be stabilising after a period of higher increases to make up for negative real-terms growth during and immediately after the pandemic.

Year-on-year rental growth eased to 4.9%, down slightly from 5.0% in the second quarter. Average rent rose to R9 286, an increase of R430 compared to the same period last year, but the gap between rental growth and inflation narrowed as CPI edged higher during the quarter.

At the same time, the proportion of tenants in arrears rose to 17.2%, the highest level in a year (but still close to the historic low of 16.9%). However, tenants who did fall behind on their rent owed less than ever before: the average arrears percentage dropped to a new record low of 72.6% of monthly rent.

Mixed trends across SA

Rental performance varied significantly across South Africa in the third quarter, with some provinces accelerating while others lost momentum.

The Western Cape still has the highest rents in the country, posting 7.0% growth, which took average rent to R11 635. Despite sustained rental price growth, the province also maintained the lowest arrears levels nationally, highlighting the resilience of tenants in the area.

Limpopo’s rental growth surge continued for a fourth consecutive quarter, with rents climbing 10.9% year on year to reach R9 283. The province is on track to overtake KwaZulu-Natal and possibly Gauteng in average rent, if current trends persist.

Gauteng saw a slight improvement after two subdued quarters, recording 3.0% growth and lifting the average rent to R9 321. KwaZulu-Natal grew at 3.1%, taking its provincial average to R9 293 and remaining within a narrow margin of Gauteng and Limpopo in the price rankings.

The Eastern Cape continued to build on its recovery with strong 7.0% growth, bringing the average rent to R7 608, while the Free State slowed to 5.1% with rents averaging R7 120, now the lowest in the country.

At the lower end of the growth spectrum, Mpumalanga slipped into negative territory at -0.2%, becoming the first province to record a year-on-year decline since Q1 2024. Average rent edged down to R8 441. Meanwhile, the Northern Cape maintained its momentum with 7.1% growth and an average rent of R10 111.

Affordability tightens as debt eats into disposable income

While rent-to-income ratios have remained stable at an average of 31.2%, tenant finances are under increasing pressure from higher debt obligations. Applicants are now said to be spending 47.8% of their income on debt repayments, leaving just 1 in every 5 rand of income available after rent and debt.

As rents rise, upfront costs for tenants are also increasing. The average damage deposit in South Africa has remained stable at 1.31 times the average rent, but provinces with higher rents have correspondingly higher deposits.

In the Western Cape, the average deposit reached R19 630 in the third quarter, putting further strain on household budgets.

Future outlook 

Dickens says that while the sector remains fundamentally sound, the country is entering a more delicate phase for tenant affordability.

“Agents who strategically understand their local market data and who use it to guide pricing, vetting of tenants and renewals, will be best positioned to protect both landlords and tenants in the months ahead.”

The Landlords Association of South Africa (LASA) recently published an article titled Rent regulation is one of the most significant factors shaping the market. 

The organisation says the new rental laws encourage transparent, predictable rent increases tied to economic indicators rather than arbitrary decisions. This could stabilise rent inflation, offering more security to tenants, LASA said. 

However, it added that landlords will need to plan more carefully to maintain profitability. “Understanding how South African rental law changes will shape the rental market helps property owners forecast financial trends, adjust rent strategies, and maintain balanced tenant relationships.” 

 Independent Media Property