Data shows debt burden for South Africans earning less than R40,000

Credit check data from PayProp, the largest processor of residential rental transactions in South Africa

for Q2 2024, shows that average incomes are being outpaced by tenants’ expenses.

In Q2 2024, tenants earning R80,000 or more per month comprised 9.2% of all applicants, up from 8.5% in Q2 2023.

Additionally, every income bracket above R30,000 has seen growth, while the percentage of tenants earning below that has decreased from 49.3% two years ago to 42.9%.

Income growth partially explains this trend, said PayProp. Statistics South Africa’s quarterly employment statistics for Q1 2024 show that the average employed person earned R26,793 per month, up from R25,602 in Q1 2023.

However, this is still less than the average rental applicant’s income, which exceeded R30,000 in Q2, PayProp said.

The increase in tenant income may not necessarily indicate improved financial well-being but rather that wealthier tenants are continuing to rent instead of buying homes.

Persistent high interest rates have deterred potential first-time buyers, and even existing homeowners are feeling the pressure.

The FNB Property Barometer for June 2024 reported that 21% of home sales in Q2 were due to financial pressure, an increase from the previous quarter.

FNB noted that while distressed sellers would prefer to buy smaller homes rather than return to renting, some are re-entering the rental market, which offers advantages like mobility and potentially lower costs.

Despite rising average incomes, tenants’ expenses have outpaced their earnings. While rents as a percentage of income remained relatively stable year-on-year, debt repayments increased from 43% to 46.7% of income for the average applicant.

Consequently, average disposable income has dropped to 23% of net income, down from 27.2% a year earlier.

There are significant differences between income brackets. Tenants earning R40,000 or less per month are more burdened by debt, spending over half their net income on debt repayments on average.

In contrast, those earning above R40,000 see a sharp decline in debt spending and an increase in disposable income.

Tenants earning R80,000 or more have 54.1% of their net income left after rent and debt expenses.

For landlords, there’s a silver lining: despite the increased pressure of debt repayments, rent payments have remained consistent.

In Q2 2024, 18.1% of tenants were in rent arrears, slightly down from 18.4% a year earlier, and they owed slightly less on average.