Top trend: Rentals on the mend
Category News
There's good news for investors in the latest rental statistics, starting with the results of a vacancy survey by the TPN Credit Bureau. These show that vacancies in the residential rental sector fell by almost 38% during 2022 as the market recovered from the effects of the Covid-19 pandemic and are continuing to decline. TPN reports that the national vacancy rate in the first quarter of this year was just over 6%, down from around 8% in the final quarter of 2022.
This is occurring in response to the substantial rise in interest rates since November 2021 and high inflation, which has persuaded many would-be owners to delay home purchases and try to contain their living costs by opting for the relative predictability of renting.
In addition, developers and builders have responded to higher rates and a fall-off in property purchases by putting many plans and projects on hold, so there is less new rental (or housing) inventory becoming available.
This suggests that vacancies will continue to shrink for the foreseeable future, and that of course will underpin rental increases. Indeed, the latest market report from rental management systems company PayProp shows that the national average monthly rental showed a year-on-year increase of more than 4% in the first quarter of this year - the highest annual gain since 2017.
This took the national average monthly rent to R8 294, with the highest regional average being in the Western Cape at R9872, which was actually 5% up on the same period of 2022. Northwest had the lowest average rent of R5738, which was just under 4% up.
Thanks to an average inflation rate of 7% in the first quarter, the only province to show an above-inflation rental increase was the Northern Cape, where the average jumped 10,2% to R9248. In Gauteng, the average rental rose around 3% to R8641 and in KwaZulu Natal the increase was 5% to an average of R8801.
However, inflation started to fall off in the second quarter, dropping in May to 6,3%, which is the closest it has been to the Reserve Bank's target range in over a year. And if this trend continues, it may create room for the Reserve Bank to slow or even halt interest rate increases, and take some pressure off household finances.
Nevertheless, investors and landlords do need to keep in mind that tenants are currently spending almost 29% of their income on rent, on average, and that the percentage of tenants in arrears is around 18%, or almost one in five, according to PayProp.
In short, tenant affordability is already a problem, and low salary growth in the current poor economic climate as well as high unemployment could make the situation worse before it gets better. Consequently, the best advice to landlords at the moment is to focus on attracting and retaining good tenants who pay on time and in full, rather than on trying to implement bigger rent increases.
They should also always work with experienced and professional managing agents, not only to help them screen prospective tenants, but also to ensure that their properties are kept in a good state of repair and to provide accurate information about current market and rental trends.
Author: Chas Everitt