Optimistic predictions for South Africa's rental market

Seeff shares its predictions for South Africa’s rental market in 2023.

Seeff has good news if you’re a landlord or property investor: With COVID-19 a thing of the past, Samuel Seeff, chairman of the Seeff Property Group, predicts a promising 2023 for the South African rental market.

The market’s resilience is apparent as many of the COVID-induced challenges on the property market now appear obsolete.   

What is driving the rental market recovery?

Rising interest rates, inflation, Gross Domestic Product (GDP), and high cost of living have prompted tenants to seek a more affordable alternative to buying: renting. However, landlords and tenants alike should take heed of the warning from John Loos of First National Bank (FNB): the economic impact of higher interest rates will likely continue to keep rental escalation rates under pressure.

The Western Cape has long been a popular destination for prospective tenants, which has led to an influx of people to the province. Over 300,000 people have moved to the Western Cape between 2016 and 2021- significantly more than Gauteng, the Eastern Cape, and other locations.

This wave of migration and its positive impact on the Western Cape's residential sales and the rental market is encouraging for property investors. 

Monthly rental costs within the rental market

The latest TPN Rental Barometer reveals that rental growth in the third quarter of last year was 3%, higher than GDP growth but lower than the Consumer Price Index (CPI) rate of 6.9% in January 2023.

With rental yields remaining below inflation, Loos explains that this could be why the buy-to-let property sector only accounted for 6% of sales over the past year. When the county returns to a GDP growth of 3%-4%, Loos believes we will see higher investments in the rental market.

The average monthly rental has increased to R8,023, compared to R7,800 in the first quarter of 2022. However, the average rental costs differ across the country. Seeff provides the following breakdown: 

• Northern Cape’s monthly rental is R8,721 - an astounding 8.1% increase - and the highest growth and the only province to top inflation. However, it is also the second most expensive province for tenants.

• KwaZulu-Natal boasts R8,537, a 3.7% increase between 2021 and 2022. It’s the third most expensive province for tenants.
  

• Gauteng sits at R8,235, only 1.8% up from the previous year. Notably, Gauteng remains the most affordable major metro in the country.
  
  
• Mpumalanga is R7,897, up by 2.6% from the previous year and currently the most expensive inland province outside of Gauteng.
  
  
• Limpopo is at R7,354, a 4.7% increase year-on-year, but a more expensive destination for tenants. 
   
  
• Eastern Cape’s average rental is R6,467, up by 4% year-on-year, but still the third most affordable province in the country.
  
  
• Free State’s monthly rental sits at R6,281, a 0.2% decline compared to the previous year and now the second most affordable province.
  
  
• North West’s monthly rental is R5,509, 4.8% higher than the previous year and yet the most affordable for tenants as it boasts the lowest average rent in the country.

Rental arrears are in decline

It's encouraging to note that the number of tenants in arrears is now at 18.3%, its lowest level since the pandemic began. While this is a significant improvement, Seeff cautions landlords to remain vigilant, as it remains to be seen how higher interest rates and inflation will affect tenant payments as the year draws on. 

• The Free State, North West, and KZN provinces are experiencing the most difficulty regarding arrears. 
  

• On the other hand, tenants in the Western Cape are faring the best, with only 14.7% in arrears. 
  
  
• Gauteng and Mpumalanga follow close behind at 16.3% and 16.4%, respectively.
  

As the rental market recovers, you might consider property investment and renting out homes to tenants. While it’s not without risks, there will always be demand for homes, making residential property a fine investment choice. Seeff offers a comprehensive list of property investment tips to guide aspiring landlords in South Africa.

With Seeff’s expert advice, you can enter the property market with up-to-date industry knowledge and insights.