Amid high interest rates and generally tough economic conditions, home ownership has become less attainable — forcing more people to rent. Gauteng, the country’s economic hub, has more renters than homeowners.
TPN Credit Bureau, which specialises in tenant behaviour tracking, published its latest vacancy survey report last week. The report found that residential rental vacancies have dropped to their lowest level since the bureau started the survey in 2016.
Nationally, 4.42% of rental properties were vacant in the first quarter of 2024 compared with 6.69% in the previous quarter.
The survey measures the number of vacant full-title and sectional-title residential units. It gathers responses from 19 000 TPN landlords, investors and property managers.
Demand for rental property has risen, driving vacancies down, TPN Credit Bureau industry principle Waldo Marcus noted.
“If we look at 2020, when interest rates were low and people were purchasing properties, the number of owned and fully paid off properties was 63.5% of households nationally,” Marcus said.
“In 2023 we see that owned and fully paid off properties decreased to 56.5%. In 2020 17.7% of households rented and in 2023 that increased to 23.9%.”
The balance accounted for people who occupied structures rent-free, Marcus added. These are people living in informal settlements, caravans and on agricultural land.
According to Statistics South Africa’s latest general household survey, the number of people living in a property they owned, or were in the process of paying off, fell from 64.4% in 2022 to 62.9% in 2023. The percentage of households in the rental market during that same period increased from 22.5% in 2022 to 23.9% in 2023.
“What we do expect to see as soon as interest rates come down is that the number of people who own properties and that live in their own properties will start to increase,” Marcus said.
“We see this cycle repeat itself when interest rates drop and people start feeling more comfortable purchasing.”
At its last meeting in May, the South African Reserve Bank’s monetary policy committee decided to hold the repo rate at 8.25%, citing far worse inflation outcomes than expected earlier in the year.
Nedbank’s economists anticipate at least two rate cuts in 2024 — 25 basis points in September and another in November. But there is a chance the central bank will continue to hold rates for the rest of the year.
According to the TPN report, the most noticeable vacancy decline is in the rental value bands of R3 000 or less a month and R4 500 to R7 000 a month.
Vacancies in the rental value band of less than R3 000 a month fell from 8.46% in the fourth quarter of 2023 to 4.51% in the first quarter of 2024. Vacancies in the R4 500 to R7 000 rental price bracket reduced from 8.17% in the fourth quarter of 2023 to 4.92% in the first quarter of 2024.
The R4 500 to R7 000 bracket accounted for the bulk of people who rent in South Africa.
While lower residential rental vacancies are good news for property owners and investors, they should be cautious because constrained household budgets could result in an increase in the number of tenants defaulting on their rent, Marcus said.
Renier Kriek, managing director at Sentinel Homes, said for the past few decades wages have not increased at the same pace as residential property values, making it difficult for families to purchase homes.
“Property prices are very high compared to the mean wage. This leads to people trading property throughout their economic life but they do it in low capital fashion via renting,” Kriek said.
Stats SA published the results of its latest quarterly employment survey this week, which showed that average monthly earnings paid to workers decreased by 0.1% from R2 817 in November 2023 to R26 793 in February 2024.
“TPN’s survey is indicative and confirmatory that people are holding off on large capital expenditures,” Kriek said.
“They are not buying straight away because they are worried about the election outcomes, interest rates and the like, so they are renting as an interim measure and that is why rental vacancies are low.”
According to the general household survey, Gauteng, at 37.8%, has the highest number of households renting compared to 35.9% that lived in fully-paid properties. Just over 10.5% of families lived in properties that had not been paid off yet. The balance occupied properties rent-free.
The vacancy rate reduced from 8.14% to 4.3% in the first quarter of 2024, primarily driven by improved demand in Gauteng.
In the Eastern Cape, the percentage of households that lived in rental properties was the lowest of all provinces, with only 12.7% relying on rented accommodation. More than 65% lived in fully paid properties, while 3.1% are still paying instalments towards ownership and 18.6% live rent-free. The vacancy rate in the Eastern Cape decreased to 3.54% in the first quarter.
KwaZulu-Natal had the highest percentage of households living in owned properties, with 74.6% of people either owning their property or in the process of paying it off. A total of 17.3% paid rent and 8.1% lived rent-free.
Rental vacancies in the province decreased from 10.5% to 6.41% between the fourth quarter of 2023 and the first quarter of 2024.
The Western Cape boasts the lowest number of vacant rental units in the country at 1.51%. A total of 27.8% of households rented, while 49.2% lived in a property that was fully paid off and 14.2% were in the process of paying off their property.
The Western Cape has the lowest percentage of households that occupy rental property rent-free at 8.8%.
Kriek noted that the market for property is not entirely elastic and so an increase in demand for rental property does not immediately create additional supply.
“In Cape Town, there are few rental properties available and when something comes on the market the landlord can probably ask whatever they like. Stock is very dear at the moment,” he said.
According to PayProp’s Rental Index for the first quarter of 2024, the Western Cape’s rental growth ticked up from 3.8% in the fourth quarter of 2023 to 4.3% in the first quarter of 2024. The province still has the most expensive rent in the country at an average of R10 300.
“It’s not that suddenly people want to rent or that they have a high desire to rent. It’s not a change in consumer behaviour. South Africans still believe in buying a house as a way of achieving security and financial stability. But consumers are being squeezed out of the market,” Kriek said.