Rental housing market stabilises, outlook improves
Category Rentals
The outlook for the residential rental market continues to improve following the unprecedented challenges faced by tenants and landlords due to the Covid-19 pandemic lockdowns of the last two years.
Seeff takes a look at how the market is shaping up this year.
According to data from the First Quarter Market Strength Index of the TPN Credit Bureau, the rental market has recovered from the negative performance of 2020-2021 and is now trending in positive territory.
According to TPN, their Market Strength Index experienced 11 consecutive quarters of weakness. An important indicator shown by the index is that the balance between supply and demand has improved.
The improved position is important to enable recovery in rental income growth and the yields earned by landlords on their property investments.
One of the key trends which resulted from the drastic 30% cut in interest rates in 2020 was the exit of tenants out of the rental market and into their own homes aided by improved affordability and accessibility of home loan finance.
Financial pressure on tenants also precipitated a level of exit, leaving a position of excess stock combined with low rental growth.
A key result from the improved outlook in the market is a lowering of the vacancy rates which has improved from around 13.31% in the first quarter of 2021 to 8.26% in the second quarter of 2022. It is, however, still higher than the pre-pandemic level of 7.47% as measured in the first quarter of 2020.
While the index and outlook has improved, TPN cautions that the country’s challenging economic outlook will continue to influence the rental market. It is therefore not likely to fully recover to a position of profitability with inflation-beating rental growth and low vacancy rates until the economic outlook improves.
How do the various provinces fare in terms of vacancy rates?
There are always provincial and area differences, hence the outlook remains mixed with some provinces performing well while others are still in recovery mode. Working with an experienced local rental property agent is always advisable to ensure you make the right decisions in terms of your rental property.
Gauteng – 8.69% vacancy rate
Almost half of all tenants live in the Gauteng area which has a huge rental market across a broad spectrum of price bands. The province shows a vacancy rate of 8.69% for the first quarter of 2022 which is only slightly above the national average.
Although recovery has been slow in the province for a variety of reasons, the upside for landlords is that average rental income growth has also improved slightly.
Western Cape – 2.9% vacancy rate
Following significant challenges due to the lockdowns and border closures, the Western Cape rental market is again seeing strong demand.
According to Seeff’s rental agents the market is performing well across the price bands including the top end of the market, but landlords need to continue pricing realistically or they could risk higher vacancy rates.
The vacancy rate as at the first quarter of 2022 stands at just 2.9%, a phenomenal improvement from the peak of 14.38% in the Q2 of 2021.
KwaZulu-Natal - 13.26% vacancy rate
In contrast, the KZN province has experienced a worsening of its average vacancy rate to 13.26% as at the first quarter of 2022 compared to 9.34% in the last quarter of 2021.
The decline is potentially due to the challenges experienced in the province as a fall-out from the July 2021 riots and impact on the ability to fill rental units.
Eastern Cape – 7.77% vacancy rate
The Eastern Cape achieved a vacancy rate of 7.77%, but still appears to be maintaining the lowest average vacancy rate compared to the national average. This is evidently due to fewer rental properties in the market.
Rental escalations for the provinces stands at the following as at the first quarter of 2022:
Western Cape – 2.74%
Gauteng – 0.72%
KwaZulu-Natal – 4.5%
Eastern Cape – 3.52%
5 Smaller Provinces – 3.96%
Author: Gina Meintjes
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