From dynamic economic factors and investment trends, here’s what landlords can expect from the 2024 South Africa rental market
In 2023, the property market faced its challenges, notably due to rising interest rates. Yet amidst this downturn, the rental sector experienced a welcome resurgence. After enduring three years of stagnation, where landlords were often forced to lower rents just to attract tenants, last year marked a turning point with a positive uptick in rental growth.
Rising interest rates typically make buying a home less affordable for many, pushing them towards renting as a more viable option until the financial climate stabilises. This shift was palpable over the past year, as we saw a significant boost in the demand for rental properties across numerous regions.
A telling sign of this trend was observed by Seeff's mortgage lending partner, ooba, which reported a decline in mortgage applications year-on-year.
Factors Likely to Impact the 2024 South Africa Rental Market
- Economic Indicators: The health of employment rates, inflation, and GDP growth will significantly influence the residential rental market, with weaker economic conditions maintaining strong demand for rentals.
- Financial Pressures: If economic growth remains muted and tenant finances are strained, rental rates may face pressures, particularly in certain price categories, due to inflation and the rising cost of living affecting consumer finances.
- Geopolitical and Domestic Challenges: Ongoing conflicts such as those in Ukraine and the Middle East, combined with the Eskom crisis and load shedding in the domestic sphere, could impact the cost of goods and utility costs, thereby straining household budgets further.
- Finance Minister’s Budget 2024: Potential tax hikes announced in the budget could have a direct impact on consumer spending power and affect the rental market.
- Interest Rates: The direction of interest rates, with potential stability or cuts of 75 bps to 100 bps around mid-year, will be a critical determinant in the property market's performance, potentially easing household budgets and benefiting landlords.
- Migration Patterns and Demographic Shifts: Changes in where and how people live, driven by new job entrants and students at the beginning of the year, significantly affect the demand for rental accommodation.
2024 South Africa Rental Market: The Rise of Property Investment
Ooba confirms that the property investment and buy-to-let market has experienced a major revival, with an increase in the purchase of investment properties, notably those intended for the rental market. This surge saw investment purchases climb to almost 15% of all mortgage applications in December, marking the highest proportion of such investments since the late 2008 period.
This trend wasn't limited to a single region. While the Western Cape led the charge with the highest volume of investment and buy-to-let purchases, other provinces, including Mpumalanga, Limpopo, and the Free State, also demonstrated noticeable enthusiasm towards property investment, according to Ooba's findings. This widespread interest across various provinces underscores the growing confidence in the property investment sector.
2024 South Africa Rental Market: Tenant Payment Health
Tenant finances are expected to remain somewhat pressured due to the higher cost of debt, a direct consequence of increased interest rates, and the overall surge in the cost of living. This situation is likely to persist until the economic climate improves.
How Will Tenant Finances Affect Rental Rates?
PayProp shares that by the third quarter of 2023, rental growth had reached 4.6%, closely mirroring the inflation rate and showcasing improvement from the preceding three years.
As we step into 2024, the rental market seems to maintain a similar stance to the previous year, with little to no change in the interest rate and economic growth. This status quo implies that landlords might have a slight margin to increase rental prices this year. However, the ability of landlords to secure reasonable returns on their rental property investments in 2024 will largely depend on the unfolding economic scenario.
The Impact of Inflation on Rental Growth
The potential for real growth in rental income is linked to the inflation rate. The Reserve Bank's projections suggest a more favourable inflation outlook for 2024, with rates expected to reduce to around 5%, significantly better than the 7% average recorded in 2021 but still higher than the 3.21% average in 2019, as per macrotrends.net.
This anticipated inflation rate presents a cautiously optimistic picture for landlords, indicating a possibility for growth in rental yields.
To give yourself the best chance of success in the 2024 South Africa rental market, Seeff advises landlords to contact a reputable rental Property Practitioner. This partnership is crucial for accurately assessing the current market conditions and setting rental rates that are competitive and appropriate. Engaging with credible and proficient experts also helps landlords to attract and manage high-quality tenants.
Explore Seeff’s landlord services for step-by-step guidance.
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