Rental market stabilises, but challenges remain

    According to recent reports from PayProp and TPN, the rental market continues to stabilise with indicators showing improvement, but it remains under pressure, particularly in areas where there are high stock levels or where tenants are experiencing financial difficulties.

    The Seeff Property Group summarises the latest market trends as follows:

    Many good tenants have left the market

    Tenants who were financially able have left the market and purchased their own homes. The lingering Pandemic also continues to affect household finances and although there are fewer impaired tenants, the financial pressure is still putting downward pressure on rental prices as measured in the first quarter of 2021.

    Recovery in rent payments continue with just over 20% of tenants now in arears. The average arrears amount relative to rent has improved to 93.2% from the peak of 104.6%.

    Landlords are finally getting a bit more rent

    Following five consecutive quarters of steady decreases, the first quarter of 2021 showed a marginal improvement of 0.5% year-on-year in the average rents paid across the market. The average is based on growth of 1% for January, 0.7% for February and zero year-on-year growth for March 2021.

    This is still far off the 3.2% growth achieved in the first quarter of 2019. In reality, since 2018, rent levels have been increasing at a much lower pace compared to prior years and it is unlikely that growth rates will approach the boom years like 2013 when it was 10%.

    Vacancy rates have decreased

    National vacancy rates have stabilised at 13.15% and the regional vacancy and growth rates now stand at:

    Gauteng – half of the country’s rental population with an average vacancy rate of 12.4% (down from 13.8%) while Sandton still sits at the highest level of 26.7%. Randburg sits at 14.3%, Pretoria at 9% and Centurion at 4.8%.

    Western Cape – still the best paying tenants with 82.92% back in good standing. The overall vacancy rate stands at 14.4% with the CBD at 28.8%, the Atlantic Seaboard at 13.3%, the Southern Suburbs at 12.9%, the Winelands at 9% and the Northern Suburbs at 0.5%.

    KwaZulu-Natal - 14% vacancy rate and maintained a positive rental escalation rate of 2.4%. The vacancy rate for Durban stands at 10.5% while the North Coast with the highest vacancy rates at 17.2%.

    Eastern Cape – continues to see positive rental escalation at 2.9% and the lowest vacancy rate at 4.3%. The vacancy rate for East London stands at 5.8% and for Gqeberha (Port Elizabeth) at 2.9%.

    Western Cape has the highest average rents

    The national average rental now stands at R7 819 (up from R7 786) while the average damage deposit ratio across the country stands at 1.26 (slightly up from 1.24 last year). The average rental rates for the various regions now stands at:

    -      Gauteng - R8 390, up by 0.7%

    -      Western Cape - R9 142, down by 0.3%

    -      KwaZulu-Natal - R8 177, down by                 0.8%

    -      Northern Cape - R8 327, up by 2.8%

    -      Free State - R6 368, down by 0.7%

    -      Eastern Cape - R6 202, 3.2% growth

    -      Mpumalanga - R7 471, up by 0.4%

    -      North West - R5 414, up by 3.7%

    Managing tenant risk

    Minimum-risk tenants tend to have higher incomes and represented almost 40% of the credit checks done through PayProp in the first quarter of the year, slightly higher compared to last year. More than 60% of tenants fall into the minimum to low risk categories, while almost a quarter were high-risk.

    In a complex rental landscape exacerbated by the challenges of the Covid Pandemic, landlords are best advised to work with a credible and experienced rental agent to assist them to mitigate their risks and maintain the value of the asset. Feel free to contact our nearest Seeff branch for more information or assistance.

    Sources: PayProp, TPN

    Author: Gina Meintjes
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