Best news in 8 years for landlords in South Africa

The South African rental market has recently undergone significant changes, with vacancy rates reaching their lowest levels since 2016 during the first half of 2024, a trend that continued into the second quarter, which is good news for landlords.

According to the Q2 2024 TPN Residential Vacancy Survey, the average national vacancy rate for the first half of 2024 was 5.57%, a notable reduction of 17.21% from the previous year.

The first quarter even recorded the lowest vacancy rate since the survey began 2016. This is good news for landlords, as low vacancy rates translate to higher demand and steady rental income.

Residential vacancy rates increased from 4.42% in Q1 to 6.72% in Q2.

However, an increase from Q1 to Q2 is not uncommon as it reflects properties under shorter-term leases being occupied during the end of the festive season and student accommodation starting in Q1, temporarily boosting occupancy rates in the lower rental value bands.

Despite the vacancy uptick during Q2, the first half of 2024 maintains the lowest average annual national vacancy rate since 2016.

Given the broader economic pressures, the period of low vacancies comes as a pleasant surprise. High interest rates, which have been in place since 2021, have made property ownership less attainable for many, which has bolstered rental demand.

This is particularly beneficial for landlords who have managed to keep their properties occupied despite rising living costs and increased inflation.

Low vacancy rates are a clear indicator of a favourable market for landlords. When demand for rental properties outstrips supply, landlords can maintain consistent rental income streams without the burden of vacant properties.

The market dynamics 2024 show that well-managed rental properties are more likely to stay occupied.

This trend is expected to persist as interest rates are predicted to remain high through most of the year, keeping home ownership out of reach for many.

The survey also shows that specific rental segments have fared better than others. The middle-income bracket, particularly properties in the R4,500 to R12,000 range, continues to demonstrate strong demand.

Despite slight increases in vacancies during the second quarter of 2024, demand for rentals in this segment has remained robust, and vacancies are still below the national average.

This suggests that landlords with properties in these price bands can expect continued stability.

Another advantage for landlords is the potential for rental escalations.

When demand is high and vacancy rates are low, property owners are more likely to increase rental prices, boosting their overall returns.

This is particularly evident in the luxury rental market, where vacancy rates have remained the lowest, signalling sustained demand despite higher rental escalations.

Looking ahead

Looking forward, property experts are cautiously optimistic about the prospects for the South African rental market in the remainder of 2024 and into 2025. Several factors are contributing to this outlook.

First, there are growing expectations that the South African Reserve Bank (SARB) will begin cutting interest rates as inflation trends toward the midpoint of its target range of 4.5%.

If interest rates are reduced, more consumers may shift from renting to buying, potentially increasing the supply of rental properties on the market​.

However, the rental market is expected to remain stable in the short to medium term, with well-managed properties likely to continue attracting tenants.

The TPN Market Strength Index, which measures supply and demand in the rental market, indicates that demand is still outpacing supply, with a reading of 60.36 points in Q2 2024.

This is good news for landlords, as it shows that despite fluctuations in economic conditions, there is still a strong appetite for rental properties across the country​.

While vacancy rates did increase slightly in Q2 2024, rising from 4.42% in Q1 to 6.72% in Q2, this is not an uncommon seasonal trend.

The early part of the year typically sees lower vacancies due to factors such as students securing accommodation and the conclusion of holiday rental periods.

However, the overall annual average remains the lowest since 2016, suggesting that these temporary increases are unlikely to persist.

The market’s resilience is also reflected in the strong demand in certain regions.

For instance, Gauteng and the Western Cape, two of South Africa’s key economic hubs, have reported fewer vacancies compared to the national average.

These regions continue to see a high demand for rental properties, driven by ongoing urbanisation and a growing population.

While some uncertainty remains about the future trajectory of the South African economy, the rental market appears to be well-positioned for continued growth.

For landlords, the current environment presents an opportunity to capitalise on high demand and low vacancy rates, ensuring a steady stream of income and the potential for rental escalations.

As interest rates potentially ease in 2025, the dynamics may shift, but in the near term, the outlook remains positive for property investors.

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