Market Outlook Improves as Rental Housing Stabilises

    Seeff comments on the recovery of the post-pandemic property market.

    The Covid-19 pandemic lockdowns over the last two years brought about unprecedented challenges for landlords and tenants worldwide; however, according to Seeff, there is still hope as the outlook for the residential rental market made a strong recovery and continues to improve.

    Data from the First Quarter Market Strength Index of the TPN Credit Bureau supports this view and confirms that the market recovered strongly following its negative performance in 2020-2021. TPN stated that their Market Strength Index (MSI) experienced 11 consecutive quarters of weakness and that data revealed many positive trends in the current rental market.

    The first trend revealed through the TPN’s data was a significant improvement in the balance between supply and demand; landlords, in particular, can celebrate this improved position as it enables a strong recovery in rental income growth and increased yields earned on their property investments. The second positive trend that stemmed from the 30% cut in interest rates during 2020 was the increased amount of tenants exiting the rental market into their homes, aided by increased accessibility and affordability of home loan finance. Tenants also experienced significant financial pressure, and many fled from the rental market, leaving behind the excess stock with low levels of rental growth.

    The third and perhaps most significant key trend that resulted from the improved outlook in the market was a decrease in vacancy rates; this figure dropped from 13.31% in the first quarter of 2021 to around 8.26% in the second quarter of 2022 and remained higher than the pre-pandemic levels recorded in the first quarter of 2020.

    Despite these positive trends stemming from the boosted MSI and the improved market outlook, TPN remains concerned. They believe South Africa’s challenging economic outlook will continue influencing the rental market. Therefore, a full recovery to a profitable financial position where growth rates beat inflation and vacancy rates remain low is unlikely without proper economic reform.

    Vacancy Rate Variances Across The Provinces

    The vacancy rate always differs by province, affecting the outlook, as some regions perform better than others that remain in economic recovery. We advise that you work with a trusted local property practitioner to ensure you make the best possible decisions for your rental property.

    Gauteng (8.69% vacancy rate)

    The Gauteng province sits at a vacancy of 8.69% for the first quarter of 2022; this is not surprising considering it has a massive rental market across a range of price bands and comprises almost half of all rental tenants. Despite a slow recovery for many reasons, the province’s rental income growth improved slightly, much to the delight of local landlords. 

    Western Cape (2.9% vacancy rate)

    The Western Cape province has a recorded vacancy rate of 2.9%, a vast improvement from the peak of 14.38% recorded in the second quarter of 2021. Despite facing significant challenges due to the Covid-19 lockdowns and subsequent border closures, the local rental market is growing in demand again.

    According to our rental property practitioners, the market is flourishing across all price bands, including those at the top end of the market; however, landlords must continue to price their properties realistically or run the risk of higher vacancy rates. 

    KwaZulu-Natal (13.26% vacancy rate)

    The KZN province experienced a severe decline in its average vacancy rate in the first quarter of 2022 to 13.26%, a stark contrast to the 9.34% recorded in the final quarter of 2021. The decline was directly attributable to the fallout from the riots in July 2021 and the inability to fill sufficient rental units.

    Eastern Cape (7.77% vacancy rate)

    Despite achieving a vacancy rate of 7.77%, the Eastern Cape province remains at the lowest average vacancy rate compared to the national average; this is directly related to the lack of available stock on the market.

    The rental escalations for all the provinces recorded in the first quarter of 2022 are as follows:

    Western Cape – 2.74%

    Gauteng – 0.72%

    KwaZulu-Natal – 4.5%

    Eastern Cape – 3.52%

    5 Smaller Provinces – 3.96%

    property ready for rental

    At Seeff, home is our story, and whether you are buying, selling or putting your home out on the rental market, we want your story to be a success.

    For those looking to purchase a property as a rental investment that could successfully earn you passive income, you might consider reading our article on ensuring your property investment is fit for the rental market.

    Author: Seeff Property Group
    Related Articles
    Home is our story logo