South Africa’s rental property market is flourishing, driven by strong demand that has led to low vacancy rates.
Factors such as high interest rates, economic uncertainty and low employment levels have prompted many to shift from owning homes to renting.
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The Western Cape and Gauteng stand out as key areas for landlords and investors, with a continued trend favouring rentals over homeownership expected into the second quarter of 2024.
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Despite various challenges, the rental market presents an exceptional opportunity for investors, with promising returns on the horizon.
South Africa’s residential property scene reveals an intriguing story. The demand for rental properties significantly surpasses supply, signalling strong returns for landlords as the year progresses.
At the beginning of 2024, TPN’s Vacancy Survey Report provided valuable insights into the rental landscape. This survey encompassed both full-title and sectional-title properties, showcasing the overall dynamics of the sector. An increase in households opting to rent has been observed, while the appeal of homeownership continues to decline.
Specifically, the percentage of families owning homes decreased from 64.4% in 2022 to 62.9% in 2023, while the rental market saw a rise from 22.5% in 2022 to 23.9% in 2023.
The shift in the housing market narrative is closely tied to various socio-economic factors. High-interest rates, economic uncertainty, and low employment rates have led many to prefer renting over owning. This trend resulted in historically low national residential vacancy rates in the first quarter of 2024.
During the first three months of 2024, the national residential vacancy rate fell to its lowest level since TPN began its survey in 2016, reaching just 4.42%, a drop from 6.69% in the previous quarter. This imbalance between supply and demand has pushed the rental market significantly above equilibrium.
The dynamics within the rental property market are influenced by multiple factors. Landlords and investors often compete for financing against other investment options, which may yield higher returns. Elevated interest rates make securing loans for new ventures costly, thereby squeezing net profits.
Despite these hurdles, the currently low vacancy rates offer a safety net for investors, minimising the risk of properties remaining vacant. The location of the property and rental pricing are crucial considerations for landlords, who must also be mindful of the potential rise in rent defaults due to financial strain on households.
According to TPN’s data, the Western Cape and Gauteng are identified as the prime regions for landlords and investors. The trend of preferring rentals over homeownership is anticipated to continue into the second quarter of 2024, especially amid high-interest rates.
While the property market is expected to see a reduction in interest rates later in the year, this forecast remains uncertain due to ongoing domestic and international economic pressures. The South African Reserve Bank (SARB) announced in May 2024 that the repo rate will stay at 8.25%, allowing local banks to maintain their prime lending rate at 11.75%.
Persistently high-interest rates, unchanged for six consecutive quarters, continue to burden consumers with debt.
As we gaze into the future of South Africa’s housing market, the evolving trends in homeownership and renting present an intriguing narrative. The rental market, characterised by low vacancy rates and positive rental growth, offers optimism for landlords and investors. The path ahead promises excitement as the landscape adapts to the ever-changing economic environment.
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Picture: Volschenk and Heyns