Worrying signs for South Africa’s property market
The rental market in South Africa showed a year-on-year decrease in vacancy rates for the fourth quarter of 2022.
According to the latest TPN Vacancy Survey, the national vacancy rate – the number of vacant properties – dropped from 11.71% in Q4 2021 to 8.13% in Q4 2022.
While this is an encouraging sign for landlords in the country, the credit bureau said the performance of the rental market is partly because home ownership has become unaffordable for many South Africans.
The survey conducted in 2022 indicated that most tenants across all ages rent because they simply cannot afford to buy, with 54% rating affordability as the number one reason for not purchasing a property.
The survey also showed that tenants aged 18 to 29 listed the flexibility to move as their second most significant reason, while those aged 40 to 49 listed having a bad credit score as their biggest reason after affordability.
The credit bureau pointed to rising interest rates and stagnant salaries as the main reason many South Africans could not afford to buy property.
In January 2023, the South African Reserve Bank (SARB) announced a 25 basis point hike, taking the current prime lending rate to 10.75% – the ninth rate hike since the current hike cycle started in November 2021, totalling 375 basis points over the period.
This puts property ownership out of reach for many South Africans, especially those looking to become first-time homeowners.
Kicking prospective homeowners while they’re down is that salaries are not keeping up with the heightened inflation experienced in South Africa over the past couple of years.
According to global solutions company WTW’s Salary Budget Planning Report at the start of 2023, employers across the country aim for salary hikes averaging a 6.1% increase for this year – slightly higher than the 5.9% average boost in the pay budget given in 2022.
Despite the slightly higher pay budget, this comes in lower than average annual consumer price inflation for 2022, recorded at 6.9%.
While inflation is expected to decrease marginally in 2023, salaries will ultimately remain stagnant.
“Unfortunately, the current state of South Africa means the financial outlook for companies is generally bleak, and this will have a direct impact on their ability to offer any kind of meaningful increases to employees,” said EXCO member and Master Reward Specialist Dr Mark Bussin.
With ever-rising interest rates and stagnant salaries, more and more consumers inevitably turn to rental properties than home ownership in uncertain economic times, said TPN.
This trend is evident as the residential rental Market Strength Index remains positive at 56.47 as demand outstrips supply.
While the vacancy rate of 8.13% represents a quarterly increase of 1,2% compared to the 6.92% in Q3 2022, TPN said the increase in vacancies resulted from delayed supply and inventory coming onto the market over the quarter.
The demand rating increased from 67.24 points in Q3 2022 to 71.38 in Q4 2022. At the same time, the supply rating also showed a marginal uptick from 57.53 in Q3 2022 to 58.47 in the fourth quarter – showing demand is sitting over 20 points higher than available supply in the country.
As a result of low business and consumer confidence, the steep gradient of interest rate hikes, and stagnant salaries, rental demand is set to grow in South Africa, said TPN.
However, sensitivity to rental price will continue to play a decisive role in whether a unit is occupied or remains vacant as consumers continue to be placed under burgeoning pressure for the foreseeable future, added TPN.
Loading ...