Good news for landlords in South Africa – but with a catch

TPN’s latest data shows that South Africa’s residential rental vacancy rate is close to record lows after 2023, which is great news for landlords—provided they continue implementing reasonable escalations for tenants.

According to the TPN Residential Vacancy Survey for the fourth quarter of 2023, the national vacancy rate was 6.69%, a further decline from the third quarter at 6.76%.

The national average vacancy rate for 2023 was 6.73%, an impressive 11.69% down from 2022.

The report said that, despite a strong demand rating, there has also been a gradual but slow improvement in the TPN supply rating, ending 2023 at 58.99 points, illustrating a positive reaction to the increased demand.

The data continues to paint a positive outlook for the immediate future, where residential units remain occupied.

However, the report warned that landlords must be mindful of the prevailing economic conditions.

One of the main reasons for the strong performance of the residential rental market in South Africa was the higher interest rates and low consumer confidence.

These factors have discouraged many South Africans from buying a home and, instead, shifted their focus towards renting residential properties that are considered more secure and predictable.

“These interest rate hikes have put increased financial pressure on consumers and encouraged a more frugal approach to household expenditure, including strictly managing accommodation costs,” said the report.

TPN suggests that the current constrained economy requires property investors and practitioners to carefully navigate stressed consumers by implementing reasonable escalations, ensuring good payment behaviour, and keeping their premises occupied.

Western Cape on top

The report highlighted that sluggish economic growth, high unemployment, and strained municipal service delivery have made many South Africans extremely sensitive to location risk.

When considering where to live, consumers are prioritising safe and well-serviced locations to exploit the limited opportunities available.

This sentiment around service delivery has booted the demand for rentals in well-run municipalities such as the Western Cape, while the inverse hit provinces such as Kwa-Zulu Natal (KZN).

The Western Cape maintains the lowest vacancy rate in the country, with only 3.18% of residential stock vacant at the end of 2023.

As a prime holiday destination for local and international tourists, the Western Cape enjoys lower vacancies during the festive season, driving lower vacancies into the first quarter of the new year.

In contrast to the positive performance that the Western Cape – even the Eastern Cape – experienced at the end of 2023, KwaZulu-Natal saw an increase in vacancies in the last quarter of 2023, breaking the 10% mark after a confident performance in the third quarter of 2023.

The report noted that the province continues to be challenged by extreme weather and poorly maintained infrastructure, especially inland.

However, closed beaches have not provided a substantial influx of tourists to take up shorter-term holiday rentals.

The many challenges currently facing consumers, including the increased cost of living, have benefited the residential property investor and the various industries that support the overall residential rental market ecosystem.

“Persistently high interest rates and the increased cost of living augers well for the residential rental market, as consumers remain wary of buying property,” said TPN.

Rentals continue to grow, and tenants are committed to paying their rent.

However, it added landlords would need to manage rental increases carefully as they balance tenant affordability with supply and demand.

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