Estate agents have reported a flurry of activity in the rental market in recent months, as South Africans adjust to post-lockdown shifts in their housing needs. Of course, many who lost their jobs or took pay cuts have been forced to downsize. But upsizing and interprovincial relocations are apparently equally common, driven by thousands of previously office-bound staff now working from home.
An anecdotal rise in emigration-related selling is seemingly also fuelling demand for rental housing, albeit temporarily, while those looking to leave the country wait for international travel restrictions to be lifted.
However, buy-to-let investors are not necessarily benefiting from the rush of rental activity. Latest industry figures show rental growth rates remain under pressure, with tenants becoming increasingly price sensitive. In addition, the number of rental flats and townhouses standing empty has spiked, forcing landlords to be more negotiable on their asking price.
According to credit bureau TPN, which tracks various rental market metrics, the national vacancy rate jumped to a record high of 11.39% in the third quarter so far (July and August). That’s up from 9.42% a year earlier and the highest level since January 2016, when TPN launched its vacancy survey.
It’s also well ahead of TPN’s 4½-year average of 7%.
Interestingly, rental properties priced above R25,000 a month have the highest vacancy rate, at a whopping 23%, followed by those priced below R3,000 a month, at 17%.
TPN MD Michelle Dickens cites a worrying but not entirely unexpected uptick in tenant delinquencies (nonpayment) in both the low-and high-income categories as the key reason for above-average vacancies.
However, the oversupply of rental stock at the top end of the market has probably been lifted by a flood of big-ticket furnished Airbnb properties and other short-term leisure accommodation coming to the long-term letting market during lockdown.
Until there are job recoveries, rentals will remain under pressure
— Michelle Dickens
TPN’s data for "tenants in good standing" — people paying their rent on time and in full — reflects a sharp drop to 73.5% in the second quarter (latest figures), from 83% a year earlier. So at least one in every four tenants is now financially distressed.
The good news is Dickens expects the tally for the third quarter to remain at about the 73% level, which is still comfortably ahead of late 2008 and early 2009, when "tenants in good standing" hit a record low of 66% following the global financial crisis.
However, she says it’s difficult to predict how far out a recovery is, given that it can take up to three months for landlords to evict delinquent tenants. "Most important, until there are job recoveries, rentals will remain under pressure," she adds.
In fact, latest figures by rental processing firm PayProp show that rental growth across SA slowed to a mere 1.6% year on year in the second quarter, down from 3.9% a year earlier. It’s the lowest quarterly growth rate in the index’s eight-year history.
Johette Smuts, head of data and analytics at PayProp, believes the main driver is affordability.
"Many tenants suffered a loss of income during the pandemic-related lockdowns, while others may have been forced to downscale," she says.
According to Smuts, rentals have been further suppressed by the return of short-term lets to the long-term market on the back of travel restrictions.
It means she doesn’t expect average growth rates to recover to inflation-beating levels any time soon. "Both these factors — pandemic-related affordability and supply — will influence rental growth rates for some time to come," she says.
FNB property strategist John Loos voices a similar sentiment. He also refers to this year’s three percentage-point interest rate cuts as a key factor that could deter landlords from raising rental prices.
"Low interest rates may be working moderately in favour of home buying and against renting, further constraining rental demand growth," says Loos.
It’s not all bad news. PayProp’s rental figures for individual provinces show rentals in some areas accelerated in the second quarter (see graph).. The biggest increases were recorded in the Free State (+4.7%), the North West (+3.9%) and the Northern Cape (+3.7%).
Smuts says North West’s figures have been supported by a vibrant student housing market in Potchefstroom, while mining activity in the Northern Cape — amid limited supply — has probably boosted rental growth there. The biggest drops in rentals were recorded in Limpopo (-3.7%), KwaZulu-Natal (-1.6%) and the Western Cape (-0.03%).
Despite softer rentals, the Western Cape is still the most expensive province in which to rent a property, at an average R9,022 a month. That compares with a national average of R7,746.
In contrast, despite a noticeable rise in the second quarter, the North West is still the cheapest province for rental housing, at an average R5,235, probably a result of the province’s rental stock being dominated by lower-priced student dorm rooms and shared apartments.
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