Landlords are winning in South Africa

In the first quarter of 2024, national rental vacancies are at historic lows, with demand for rental property far outstripping supply in South Africa—which is great news for landlords as they look to the second half of the year.

According to TPN’s Vacancy Survey Report for the first quarter of 2024, the number of households renting is increasing, while home ownership is on the decline.

The survey assesses the number of vacant full-title and sectional-title residential units, offering a comprehensive overview of the industry.

According to Stats SA’s latest General Household Survey, 62.9% of households lived in a property that they owned or were in the process of paying off in 2023, compared to 64.4% in 2022.

During the same period, the percentage of households in the rental market increased from 22.5% in 2022 to 23.9% in 2023.

The percentage of households occupying properties rent-free remained steady at 13.2% between 2022 and 2023.

The credit bureau highlighted that this is a result of high interest rates combined with poor employment, salaries, and general political and economic uncertainty, which have seen a decline in the number of households living in a property that they own or are in the process of paying off.

As a result, in the first quarter of 2024, the report noted that the national residential vacancy rate decreased to its lowest number since TPN started its survey in 2016.

Nationally, 4.42% of rental properties were vacant in the first quarter of 2024 compared to 6.69% in the previous quarter.

Joy for landlords

The current rental market is 9.66 points above equilibrium due to higher demand than what is available within the rental market.

In the first quarter of 2024, the overall supply rating was 57.54 points, and the demand rating was 76.85. These numbers indicate an optimistic sentiment within the residential rental market.

This positive outlook is understandable as the rental market continues to experience low vacancies and positive rental growth.

The highest rental value band, between R12,000 and R25,000 per month, had the highest index at 61.56 points, which is also good news for prospective landlords.

Additionally, the mid-level rental value bands recovered from the drop in the previous quarter.

Investors in rental properties are influenced by several factors that impact supply and demand.

They often have to compete for funding with other investment opportunities that may offer better returns than real estate.

When interest rates are high, using debt to finance new developments becomes more expensive and can squeeze net returns.

Currently, low vacancy rates offer investors increased security and reduce the risk of units remaining unoccupied.

However, location and rental prices should still be taken into account, while landlords are cautioned that constrained household budgets can result in an increase in the number of tenants defaulting on their rental.

According to TPN, the Western Cape and Gauteng offer the best markets for landlords or prospective investors.

Forecast

Due to the high interest rates in the second quarter of 2024, the preference for renting over home ownership is expected to continue.

The property market expected interest rates to start decreasing in the second half of the year.

However, this is becoming less likely as the local economy continues to be affected by both local and international uncertainty.

In May 2024, the South African Reserve Bank (SARB) announced that the repo rate would remain at 8.25%, resulting in local commercial banks maintaining their prime lending rate at 11.75%.

The persistently high interest rates, unchanged for six consecutive quarters, continue to burden consumers with debt.

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