South Africa’s rental market is at a crossroads where strong growth meets rising tenant vulnerability according to the latest TPN Residential Rental Monitor.

Despite record rental escalations outpacing inflation, household budgets are under strain with payment performance slowing and risk profiles shifting mid-lease.

Waldo Marcus, Director of Corporate Marketing at TPN from MRI Software warns that the data shows a “stable but slowing” market as landlords face growing exposure amid tenants’ increasing reliance on credit.

This complex interplay of forces demands a sophisticated, data-driven approach from landlords and property managers to mitigate exposure and capitalise on stable returns, he says.

The proportion of tenants meeting their full rental obligation by the end of the month saw only a marginal increase from 83.94% in Q2 2025 to 83.95% in Q3 2025, marking a significant slowdown compared to previous quarters.

The rate of tenants paying their rent on time improved from 69.8% in Q2 to 69.9% in Q3 which suggests that while full payment is slowing, tenants who can afford it, are prioritising timely settlement.

The percentage of tenants who made no payment towards their rent increased from 6% in Q2 to 6.15% in Q3, with TPN cautioning that this figure typically rises during the fourth quarter as household budget priorities shift towards the festive season. Partial payments also saw a minor dip from 10.6% to 9.9% in Q3.

Marcus says this stable-but-slowing good standing comes after the positive strides in compliance, leading SA’s removal from the Financial Action Task Force (FATF) grey list in Q4 2025. “The enhanced screening protocols that contributed to the delisting have already had a tangible, positive impact, de-risking new tenant placements and contributing to improved rental collections overall.”

Despite the signs of financial stress among tenants, property investors and managers have maintained a bullish approach to rental pricing, pushing average escalations well above CPI. National rental escalations increased from 4.62% in Q2 2025 to 4.76% in Q3 2025, consistently exceeding the CPI (3.4% in September 2025).

“This trend of rental prices rising faster than general inflation has been evident since the third quarter of 2024,” says Marcus, adding that the most aggressive escalations are seen in the lowest rental value bands.

“Rentals of less than R1 500 per month increased significantly from 6.33% in the second quarter to 7.86% in the third quarter 2025. This is largely attributed to landlords ‘rebasing’ lower rental values after a period of lower escalations in 2023 and is driven by increased demand for multi-let and room-share properties.”

The mid-market bands (R4 500 to R12 000), which account for the majority of the formal rental population (71.5%), saw robust but more stable growth, with the R7 000 to R12 000 band slightly exceeding the national average at 5.02% in Q3.

After a slowdown in the first half of the year, the luxury rental market (R25 000+) saw escalations accelerate in Q3 to 5.05%, up from 4.47% in Q2, maintaining above-average growth despite its small market size (1.8%). “The continued upward pressure on rentals limits the affordability of the most vulnerable tenants,” says Marcus.

TPN’s Residential Rental Monitors track screened tenants for 12 months post-application. The Q2 monitor reveals a frequently overlooked dynamic: the migration of tenant risk over the course of a lease agreement. While the application process screens for initial suitability, TPN’s data reveals that a tenant’s financial health is not static.

The average tenant who consistently meets their rental obligation saw their risk profile improve in Q2. The ‘Average Risk’ profile category reduced significantly from 18.3% at application to 5.6% during occupation, with these tenants migrating to the ‘Low Risk’ profile (which grew from 58.4% at application to 63.5% during occupation). This proves that dedicated rental payments contribute positively to credit profiles.

Of concern, however, is that the analysis shows a growing number of tenants slipping into higher-risk categories. “Tenants initially classified as ‘High Risk’ at application (11.7%) are being joined by others who were previously lower risk, causing the monitored ‘High Risk’ profile to increase during occupation. Similarly, the ‘Very High Risk’ profile increased from 11.7% at application to 13.6% during occupation,” explains Marcus.

This negative migration aligns with broader consumer trends, as tenants increasingly rely on credit to manage expenses. TransUnion reports that both outstanding balances on credit cards and the average new personal loan amount increased in Q2. The overall instalment to net income ratio for credit-active South Africans is 28%, highlighting the significant portion of income dedicated to debt servicing.

Tenant payment performance remains uneven across provinces with Q3 data highlighting shifts in stability and pricing power, correlating with regional economic conditions and property value dynamics.

The Western Cape continues to have the highest percentage of tenants in good standing despite two consecutive quarters of slippage. There was a small increase in tenants who did not make any payment toward their rental obligation, rising from 5.28% in Q2 to 5.51% in Q3. Rental escalations increased marginally from 4,88% in Q2 to 4.9% in Q3.

“The overall trend in the Western Cape continues to be downward but remains above the national average,” says Marcus. “The gross yield for rental properties in the province is 8% and 10% for full title and sectional title, respectively. Higher average property values are driving down yields in the province, coupled with a slowdown in rental escalations.”

In Gauteng, tenants in good standing improved slightly from 83.23% in Q2 to 83.29% in Q3. The average rental for sectional title units for Q3 is R8 307 per month, while full title is set to breach the R10 000 mark with average rentals for Q3 at R9 995 per month.

Gauteng’s rental market escalations grew to 4.08% in Q3, up from 3.87% in Q2. Gross yields for sectional title properties improved marginally (12% to 12.2%) while full title gross yields remained flat at 7.1%.

TPN’s data reveals that the financial impact of defaults continues to grow, despite improved collections and fewer cases ending up in court. The value of the average rental civil judgement granted has seen a dramatic 182.67% increase over the past decade. The average rental default value grew from R13 946 in 2015 to R39 421 by Q3 2025. Over the last decade, civil judgments totalling R2.75 billion for rental debt have been granted against individuals.

“While improved ‘soft collections’ and enhanced due diligence are resulting in fewer summonses being issued (216 560 summonses issued over the last decade resulted in 126 902 judgement orders), those cases that do reach court are of a significantly higher value,” reveals Marcus, adding that not only do landlords need to ensure legally compliant leases, but also follow up with swift legal action where necessary.

Moving forward, landlords must strike a delicate balance: enforce collections and adhere to the new stricter compliance framework, while prioritising proactive tenant engagement to sustain good standing. The ability to maintain upward rental growth without severe payment deterioration will define the sector’s success in the year ahead.

Landlords relying solely on application-phase credit scores are operating blind to the risk migration that occurs during tenancy.