The rental market in South Africa has been a haven for many who cannot afford to purchase a home yet. But the latest report by Rode Property Consultants, shows how flat vacancies have dropped nationally.
According to Rode’s head researcher, Kobus Lamprecht, Cape Town is the most expensive place to rent in the country.
“Cape Town’s demand for housing is being boosted by the city’s perceived better governance and lifestyle, and more reliable electricity,” he said.
Cape Town’s appeal
Lamprecht said some of the reasons why Cape Town had such a huge demand for rentals and why landlords could charge so much was because the local economy was creating jobs and the official unemployment rate of Cape Town was declining, recorded at 22.9% in Q4 of 2023 compared to 24.5% in Q4 of 2022.
“Cape Town’s average flat vacancy rate was only 2.5% in the first quarter of 2024. However, the rest of the Western Cape is also shining with low flat vacancies (Stellenbosch and George) and strong demand for housing”.
Lamprecht said some two bedroom flat rentals in Camps Bay, Clifton and Bantry Bay, were fetching as much as R75,000 for landlords in the first quarter of 2024.
He said that the highest rent in Cape Town over the past two quarters were Camps Bay, Clifton, Bantry Bay, The V&A Waterfront, Sea Point, Green Point, Three Anchor Bay and the City Centre.
| Areas | Upmarket 2-bedroom (Q4 of 2023) | Upmarket 2-bedroom (Q1 of 2024 |
| V&A Waterfront | R32,000 | – |
| Camps Bay/Clifton/Bantry Bay | – | R75,000 |
| City Centre | R21,000 | R24,000 |
| Sea Point/Green Point/Three Anchor Bay | – | R35,000 |
Flat vacancies have dropped nationally
The report said that flat vacancy rates have dropped in South Africa from 8.1% in Q4 of 2023 to 7.9% in Q1 2024.
It also noted that the Western Cape had a flat vacancy rate of 2.3% in Q1 2024. The lowest in the country.
It is understood that semigration to the province is boosting demand for renting and buying properties.
Cape Town’s vacancy rate specifically averaged 2.5% in Q1 of 2024, according to the report, with Stellenbosch and George having a vacancy rate of 0%.
Nominal rental growth in KwaZulu-Natal was measured at 4.4% in Q1 of 2024, in line with Cape Town’s growth.
Despite Durban having major service delivery issues and and decaying infrastructure, the flat vacancy rates are still in double digits in the city, according to the report.
In Gauteng, the rental market growth improved further to 2% at the start of 2024 but was still the slowest growth rate of all nine provinces. The flat vacancy rates remained high at 9.3% in Q1 of 2024, which was better than the 10.9% recorded in Q4 of 2023.
The report said the Free State stood out with nominal rental growth of 6.4% in Q1 of 2024, up from 4.5% in Q1 of 2023.
This data shows that the Free State performed the best of all provinces and was the only province where rentals managed to outpace inflation.
Are South African’s paying their rent nationally?
According to the latest data from PayProp’s Rental Index for Q4 of 2023, 17% of tenants were behind on their rent during Q4 of 2023 but this is a step up when compared to the 17.5% in Q3 of 2023.
“This data might surprise readers, given the financial struggles of the consumer, but a possible explanation is that this is an improvement compared with the dire situation during Covid-19,” the report noted.
The data showed that the average tenant in arrears owed 74% of their monthly rent, the same as the previous quarter and still the lowest recorded in the index.
A major reason why tenants are paying their rent is not just because they have tightened their belts but also according to the index, there was a 7.5% rise in average income in Q4 of 2023 compared to a year earlier.
“That has led to an improvement in spending patterns, spending on both rent and debt repayments declined as a proportion of income despite the strong rental growth measured in 2023 and continued high-interest rates. As a result, tenants were left with 26.8% of their income to do with as they wish, up from 23.1% a year earlier,” the report said.
PayProp’s research noted that while the national trends were positive, some provinces saw deteriorations in tenant finances.
“In Mpumalanga, the share of tenants in arrears rose from 17.5% in Q3 of 2023 to 18% in Q4 of 2023. Meanwhile, in the Northern Cape, this figure also rose from 17% in Q3 to 17.5% in Q4, although this is still much better than it was a year earlier.”
Should you buy or continue to rent?
Currently, more households choose to rent rather than to buy, primarily due to the high prime lending rate of 11.75%.
“Prospects for the economy over the next few years are not bright (low growth in household incomes), and although interest rates will likely decline, they will not drop again to the ultra-low pandemic level”.
According to the report, it remains cheaper to rent than to buy over the short term.
But Carol Reynolds, an area manager at Pam Golding Properties, differs, saying buying the right kind of residential property in the right location and at the right time in an interest rate cycle, are key ingredients for extremely sound investment potential.
“Given that interest rates are likely to start entering a downward cycle later this year, augurs well for home buyers and investors. If you can secure an investment now and get the numbers to work within your budget at the current interest rates, then the advantage of seizing the opportunity to purchase now before house prices start increasing, is that as soon as the cycle turns, you will reap the rewards of the declining interest rates and enjoy greater profitability,” Reynolds added.
She said that in many areas, it is still a buyer's market, which means buyers have the benefit of a good selection of homes to choose from.
“If you are looking to acquire an investment property, location and rental returns are the most important factors. In a good location you will enjoy capital growth and also benefit from sound returns,” she advised
“However, if you invest in an area that is not very appealing nor well-positioned, you could find yourself with very little appreciation over time and low demand from tenants.
“If you are purchasing an apartment, invest in a good, solid apartment block with healthy financials and a well-managed body corporate.”
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