Rental market outlook improves

Rental market outlook improves

Category Rentals

The latest rental market indicators from PayProp and TPN shows that while the rental market has improved slightly, it remains under pressure, especially in the high-demand tourist areas where short-term rental stock continues to weigh on the market.

Tenants in good standing are buying their own homes
The exodus of tenants in good standing into their own homes continues, albeit at a slightly slower pace compared to the latter half of 2020. At the same time, the lingering Pandemic continues to bear on household finances and although there are fewer impaired tenants, the financial pressure continued to put downward pressure on rental prices into the first quarter of 2021.

Recovery in rent payments continue with the just over 20% of tenants now in arears. The average arrears amount relative to rent has improved to 93.2% from the peak of 104.6%.

Rental growth slightly up
The financial pressure on the market has meant that landlords have not seen much in terms of rental growth over the last year as much of the focus has been on retaining good tenants and keeping properties occupied.

Rental growth tracked by PayProp recorded 1% for January, 0.7% for February and zero year-on-year growth for March 2021. This means that following five consecutive quarters of steady decreases, the first quarter of 2021 showed a marginal improvement of 0.5% measured year-on-year on average across the market.

This, however, remains well below the 3.2% year-on-year growth achieved in the first quarter of 2020 compared to 2019. Since 2018, rent levels have been increasing at a much lower pace compared to prior years and it is unlikely that growth rates will approach the boom years like 2013 when it was 10%.

Regional vacancy rates and rental growth
According to TPN, national vacancy rates have stabilised at 13.15%. The regional vacancy and growth rates now stand at:

Gauteng – half of the country’s rental population with an average vacancy rate of 12.4% (down from 13.8%) while Sandton still sits at the highest level of 26.7%. Randburg sits at 14.3%, Pretoria at 9% and Centurion at 4.8%.

Western Cape – still the best paying tenants with 82.92% back in good standing. The overall vacancy rate stands at 14.4% with the CBD at 28.8%, the Atlantic Seaboard at 13.3%, the Southern Suburbs at 12.9%, the Winelands at 9% and the Northern Suburbs at 0.5%.

KwaZulu-Natal - 14% vacancy rate and maintained a positive rental escalation rate of 2.4%. The vacancy rate for Durban stands at 10.5% while the North Coast with the highest vacancy rates at 17.2%.

Eastern Cape – continues to see positive rental escalation at 2.9% and the lowest vacancy rate at 4.3%. The vacancy rate for East London stands at 5.8% and for Gqeberha (Port Elizabeth) at 2.9%.

Average rental rates
The national average rental now stands at R7 819 (up from R7 786). The average damage deposit ratio across the country stands at 1.26, slightly higher than the 1.24 recorded in the prior year.

The average rental rates for the various regions now stands at:

- Gauteng - R8 390, up by 0.7%
- Western Cape - R9 142, down by 0.3%
- KwaZulu-Natal - R8 177, down by 0.8%
- Northern Cape - R8 327, up by 2.8%
- Free State - R6 368, down by 0.7%
- Eastern Cape - R6 202, 3.2% growth
- Mpumalanga - R7 471, up by 0.4%
- Northwest - R5 414, up by 3.7%

Managing tenant risk
Minimum-risk tenants tend to have higher incomes and represented almost 40% of the credit checks done through PayProp in the first quarter of the year, slightly higher compared to last year. More than 60% of tenants fall into the minimum to low risk categories, while almost a quarter were high-risk.

In a complex rental landscape exacerbated by the challenges of the Covid Pandemic, landlords are best advised to work with a credible and experienced rental agent to assist them to mitigate their risks and maintain the value of the asset. Feel free to contact our nearest Seeff branch for more information or assistance.

Sources: PayProp, TPN

Author: Gina Meintjes