Provinces that have the highest demand for property in South Africa
A survey conducted by TPN Credit Bureau shows that vacancy rates in South Africa’s rental market continued to drop in the first quarter of 2023, highlighting the best provincial rental markets in the country for homeowners.
According to the latest TPN Vacancy Survey, the national vacancy rate – the number of vacant properties – dropped from 8.26% in Q1 2022 to 6.19% in Q1 2023.
Provincially, vacancy rates vary as each province cultivates a unique set of factors that drives its economy and rental market. Semigration, property prices and career opportunities differ vastly in each region, influencing rental occupancy in each province differently, said TPN.
According to the credit bureau, the Western Cape remains the best rental market, reflecting its lowest vacancy level since 2016 at 1.66% – 4.5% below the national average.
TPN said that this is partly because of the low supply rating in the Western Cape rental market compared to an extremely high demand rating which is expected to accelerate rental escalation in the region.
“Given continued strong demand and a lack of supply in the Western Cape, investors will continue investing in this province to meet demand.
“However, this investment will come at a cost to the tenant, with escalations expected to accelerate, placing the lower rental bracket and income households under pressure to meet expectations,” said TPN.
The report also noted the drop in the vacancy rate in Gauteng, although it is not so much a result of an increase in demand but rather a drop in supply. Gauteng vacancy level was recorded at 7.31% in Q1 2023, 2.76% below that in Q4 2022.
“Although the perceived demand in Gauteng remains high, the number of units available is also high.
“However, considering that the number of new building plans approved this year is much lower than previous years, market strength and demand has improved slightly,” the report noted.
On the other end of the spectrum, KZN saw an increase in vacancy rates over 2023 and ended the quarter with 10.13% of rental properties without tenants, showing a vacancy rate almost 4% higher than the national average.
Eastern Cape experienced growth in the value of new building plans approved in 2021 and 2022 compared to previous years, which resulted in an improved supply rating for 2021 and 2022.
However, in the first quarter of 2023, the improvement in the supply rating has slowed. The province maintains a high demand rating of 77.78 points, up from 73.77 in the previous quarter.
Vacancies decreased from a record high at the end of last year of 17.82% to 10.32% – the most significant shift in vacancy rate across all provinces – however, one in 10 properties in the area still remains vacant.
Good news for rentals but bad news for the property market
While the drop in the vacancy rate is a good 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.
“Given rampant inflation, another interest rate hike, and the cost of mitigating the effects of load shedding – the latter which is potentially the most taxing of all – and it’s clear that consumers are buckling under increased financial pressure,” said the report.
This trend is shown by the shifts in the residential rental Market Strength Index, which remains positive at 59.14 as demand outstrips supply.
The demand rating increased from 71.38 points in Q4 2022 to 75.07 in Q1 2023. At the same time, however, the supply rating decreased from 58.47 in Q4 2022 to 56.80 in the first quarter of 2023 – showing demand is sitting close to 20 points higher than available supply in the country.
The report noted that this is expected to get worse, as further decreases in the vacancy rate can be expected as demand remains strong and new stock is slow to enter the market. It added that the average annual vacancies should stay below the 6% to 7% mark for most of the year.
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