The South African Reserve Bank (SARB) has raised interest rates by 475 basis points (bps) since 2021 to combat inflation.
However, this significant hike has exacerbated debt levels for many South Africans, particularly those with variable-rate loans such as mortgages and personal loans.
As borrowing costs have surged, households have found themselves under increased financial strain, leading to a rise in debt defaults and higher levels of credit impairments.
The situation has also worsened for tenants, with increased debt and stagnant salaries to blame for their stresses.
According to PayProp data, the average rent paid in South Africa increased by 3.8% compared to last year.
While this is still below inflation, salaries in the country have not fared any better.
According to the BER Survey of Inflation Expectations 2024Q2, salaries and wages are expected to increase by an average of 4.9% in 2024, while the average inflation forecast ranges between 4.9% and 5.3%.
This would result in either zero real growth or another 0.4% decline in inflation-adjusted consumer buying power.
Additionally, the latest TransUnion Consumer Pulse Survey highlighted that 61% of households have seen their salaries remain the same or actually decreased in the last three months, while only 39% reported increased income.
This comes at a time when debt levels of these consumers have reached record highs.
PayProp added that credit check data for Q2 2024 showed that 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.
This is unsurprising, as data from the South African Reserve Bank (SARB) showed household debt as a percentage of disposable income climbed to its highest level in over a decade in Q1 2024.
The SARB noted that the combination of increased interest rates and stagnant wages has placed significant financial pressure on South African households, leading to record-high debt burdens and an increase in defaults.
As a result, PayProp also highlighted that the percentage of tenants in arrears had risen to 18.3% from 17% in Q1 2024, undoing almost all of the progress made last year.
This could be due to tenants overspending during the December holidays, but the increase in arrears is significantly larger than the one measured in Q1 2023.
It added that the increase could also be a sign that the same affordability pressures that are suppressing rent increases are also causing more tenants to miss payments.
The average arrears percentage also grew from 74.0% in Q4 2023 to 77.5% in Q1 2024.
The average arrears percentage, which expresses the average amount in arrears as a percentage of the average rent overall—an average arrears percentage of 80%, therefore, means that on average, a tenant in arrears owes 80% of one month’s rent in a particular province.
Existing homeowners aren’t immune to the pressure either.
The FNB Property Barometer for June 2024 found that 21% of home sales in Q2 were due to financial pressure, an increase from the previous quarter.
FNB said these distressed sellers would still prefer to buy a smaller home rather than return to renting, but some are re-entering the rental market.
