Rental market records fastest growth in nearly 8 years

Both the TPN and PayProp Rental Indices recently reported that the residential rental market is in good shape as we head towards the latter part of the year. There is no doubt that the recent interest rate cut - which Seeff hopes is the first of more to come - is also a boost for the rental market as it has improved the spending capacity of tenants.

According to the Q2 2024 TPN Residential Vacancy Survey, vacancy rates are now back down to levels last seen in 2016. Despite an increase in vacancies between Q1 and Q2, the overall vacancy rate for the first six months of 2024, stands at around 5.57% nationally. This is significantly lower compared to a high of 17.21% last year.

The increase in the vacancy rate between Q1 and Q2 is largely attributed to short-term leases, typical of the holiday season, which would have added to stock levels in Q1. This increase had no bearing on the overall average for the year which is at an eight-year low, according to the data.

The market is now  quite favourable for landlords who can expect steady rental income due to the high demand, and low stock levels. Landlords should also note that well-maintained and managed rental properties tend to stay occupied, and attract good rental rates. When demand is high and stock levels low, it also usually positively impacts the rental growth for landlords, ultimately boosting rental yields.

The Gauteng and Western Cape rental markets, both important economic hubs, currently have lower vacancy rates compared to the national average. For the Western Cape where 27.8% of households rent, the vacancy rate fell to just 1.51% in Q2 which is the lowest in the country.

For Gauteng where 37.8% of households rent (the highest in the country), the vacancy rate reduced to 4.3% in Q2, from 8.14% in Q1, largely due to higher demand, and a marginal decrease in supply.

The Eastern Cape where only 12.7% of households rent (the lowest ratio of tenants in the country), the vacancy rate decreased to 3.54% in Q2. In KwaZulu-Natal where only 17.3% of households rent, the vacancy rate decreased to 6.41% in Q2, from a high of 10.5% in Q1.

TPN also stated that specific rental segments performed better, most notably the lower price bands below R7,000 per month experienced a notable decrease in vacancies. The middle-income bracket in the R4,500 to R12,000 per month range, continue to demonstrate strong demand. The luxury rental market has also performed well with sustained high demand, low vacancy rates, and good rental escalation growth.

According to the PayProp Rental Index, the average national rent stands at around R8,785 per month as at Q2 of this year. All provinces recorded rental growth. The highest rents paid is still in the Western Cape where the average monthly rent now stands at R10,673 with growth of 9.7% as at the second quarter.

Comparatively, KZN only achieved growth of 1.5%, the lowest in the country, and now boasts an average monthly rent of R8,945. Much of the weak rental performance appears to be linked to the poor performance of the province when it comes to service delivery as well as other challenges.

Gauteng recorded growth of 3.8%, and still notably lags when compared to the Western Cape. The average monthly rent for Gauteng now stands at R9,018 which is the third highest in the country.

The second most expensive province for tenants is the Northern Cape at R9,274 per month. The Mpumalanga average rent is at R8,369, Limpopo is R8,027, Eastern Cape is R7,021, Free State is R6,927, and the lowest average rent is the North West at R6,301 per month.

The rental market outlook remains fairly optimistic, especially in view of the improved economic and property market fundamentals off the back of optimism around the Government of National Unity (GNU).

The potential for another rate cut if inflation eases further may also add to the good performance of the rental market. While a rate cut will improve the ability of tenants to afford higher rent, it might also see a level of exodus out of the rental market as some tenants will take the opportunity to purchase their own homes.