One woman makes R45,000 a month tax-free by renting out backrooms in a South African township

A South African woman earns R45,000 a month by renting out 15 back rooms on her property, which she bought with her retirement pension. 

This is one example from the R30 billion room-rental sector in South Africa’s informal economy, which is overlooked by businesses and the authorities. 

This story, shared by GG Alcock in conversation with Standard Bank Talks, shows that backrooms are a huge industry and not a side gig for many participants. 

Alcock is an expert on the informal economy and grew up in a rural Zulu community before moving to Johannesburg to find work. 

In the city, he founded Minanawe Marketing, which focused on township and rural businesses in the early 1990s. 

Alcock said the informal economy is all around South Africans, and once you see it, you will notice it in rural towns, townships, suburbs, and CBDs. 

This economy ranges from the lady selling amagwinya (vetkoek) on the side of the road in Sandton through to an established butchery in rural KwaZulu-Natal. 

“It is the reality. If I try to convince executives about this, they say it is impossible. But, when you talk to people in that space, they get it straight away,” Alcock said. 

“One thing they don’t get is the scale of it. They do not understand the aggregated scale. They might know of a bakery here or a trader there, but they never add it all up.” 

To demonstrate the scale of the informal economy, Alcock used the example of a formally retired woman who rents out the back rooms of her home in a local township. 

“Someone told me this story the other day. Their mother took her formal retirement pension from working her whole life and built 15 amarum,” Alcock recalled. Amarum is the Zulu term for back-room rentals. 

“She is renting out these 15 rooms for R3,000 each. That is a great business, making her R45,000 a month by investing her pension.”

Alcock said people intuitively understand this business and how lucrative it is. But they do not understand the sector’s aggregate scale. 

“If I tell you that South Africans renting out back rooms make R30 billion a year, you will struggle to believe it. But, they do. They make R30 billion a year renting out back rooms,” Alcock said. 

Most of these businesses fly below the radar of SARS and other government agencies, which have failed to meet people where they are and make it easy to register a business. 

This does not mean these businesses do not contribute significantly to the formal economy through VAT payments, income supplementation, and the employment of thousands who cannot find jobs. 

Another thing that this story dispels, Alcock explained, is the idea that there are no retirement savings in the informal economy. 

Alcock said there are significant cash savings in the informal economy that people use to start businesses or invest in property. 

Old Mutual’s data shows that 64% of South Africans keep some portion of their savings in cash rather than in a bank account. 

This cash is vital, Alcock explained, to ensure that township entrepreneurs can one day start a business, as they cannot access credit or raise debt. 

Back-room rental photos