Good news for South Africa's rental housing market
TPN Credit Bureau says that South Africa's residential rental market is back in positive territory, citing data from its first-quarter 2022 Market Strength Index.
TPN Credit Bureau's Residential Vacancy Survey shows how the South African residential rental market has overcome an almost three-year period of imbalance between demand and supply.
The financial services group said that its Market Strength Index is currently 52.9 points, indicating a recovery into a favourable market position, with market equilibrium between demand and supply being reached at 50 points.
An upward trend in the index's demand strength is likely to assist landlords in recovering from below inflation escalations, it said.
"Although demand for residential rental property has been waning since 2016, the pandemic coupled with the other economic shocks has resulted in a depressed Market Strength Index for 11 consecutive quarters," said TPN.
The group said that while the lower national vacancy rate has recovered from the double-digit rates in 2021 - 13.31% in the first quarter of 2021 compared to 8.26% in the first quarter of 2021 - it has yet to return to the pre-pandemic level of 7.47% achieved in the first quarter of 2020.
"Despite improved business confidence, slow economic growth, high rates of unemployment and financially constrained households continue to be a challenge in the property sector, slowing down the recovery," stressed TPN.
Across provinces, the vacancy rate is mixed with the continued growth in the supply of rental housing in some provinces, limiting a return to pre-pandemic vacancy levels:
Home to close to half of all tenants in South Africa, Gauteng has had its vacancy rate recover considerably to slightly above the national average vacancy rate of 8.26% at 8.69%.
"The province's slower rate of recovery is being exacerbated by a higher rate of office buildings being converted into rental housing accommodation as commercial real estate remains under pressure," noted TPN.
While recovery may be slow, Gauteng has seen negative rental escalations mitigated and is back in positive territory.
Demand for properties in the Western Cape continues on a positive trajectory in its return to low vacancy levels, last seen in 2016 and 2017.
In the second quarter of 2021, the vacancy rate of the Western Cape peaked at 14.38%, and now is at 2.9%, said TPN.
KwaZulu-Natal has had a different first quarter of 2022 compared to the other provinces going from 9.34% in the final quarter of 2021 to 13.26%.
"This is likely the result of the continued impact of the July 2021 civil unrest and riots, which resulted in higher unemployment and the closure of some businesses in the province," said TPN.
The Eastern Cape has maintained the lowest average vacancy rate of all provinces at 6.3% - more than 2% lower than the national average for the same period.
According to TPN, this lower vacancy rate is partially attributed to the province's reduced number of rental properties.
TPN said that after two years of a strained market, rapidly increasing costs in the form of rate, maintenance and utilities, landlords would be looking to above inflation escalations to recover.
As a result, high demand areas will achieve above-average rental growth. At the same time, other pockets of the market will continue to see high levels of vacancies because of supply being too high or a lack of demand, linked to unusual economic stressors.
20 Apr 2022
Author Businesstech