MAIN IMAGE: Andrew Schaefer – MD of property management company Trafalgar, Waldo Marcus – industry principal at TPN
Senior writer
“The increase in rental property availability since 2024 has created a challenging balance between property pricing for tenant attraction and retention and landlords’ need to see a return on investment”, says Andrew Schaefer, MD of property management company Trafalgar.
“As it is, high interest rates over the past two years have cut into those returns by increasing landlord’s bond repayments, insurance premiums and other costs but have also made tenant retention more difficult due to their negative influence on overall affordability and the ability of tenants to keep up with the rent, even without any rental increases.”
Provinces’ up- and downswings
Despite the fluctuations, certain provinces show promising signs, according to the Q1 PayProp report. For instance, the Eastern Cape is demonstrating a steady 5.6% year-on-year growth, albeit slower than Q4 2023’s 7.3%. Similarly, Gauteng, with its current average rent of R8,943 (Q1 2024), is on the brink of surpassing the average rental of R9,000, if it can maintain its upward growth trajectory. This potential growth in Gauteng’s rental market is a reason for optimism among stakeholders.
One of the most intriguing aspects of the report is the rental performance of the Free State. It is the second fastest growing province in terms of rental escalations, despite having the second lowest average rental at R6,927. This figure is actually R579 more than what was recorded a year ago, making it a province worth keeping an eye on.
Sadly, the same cannot be said for KZN, which is on track to become the first province to experience negative rental growth since Q1 2023. “Rents shrank by 0,4%, going from a quarterly average of R8 801 in Q1 2023 to R8 770 in Q1 2024. Having been the third most expensive province for renters until Q3 2023, the gap between KZN and the top three is widening,” says PayProp.
The report describes Limpopo as performing solidly and enjoying above-average rental growth throughout 2023. Limpopo carried that momentum into Q1 2024 with 4.8% growth. Mpumalanga’s rental growth, however, crashed to just 1.2% in Q1 2024 and has the fifth most expensive rents, averaging R8 369.
The North West did not quite reach the double digits (at 9.8%) that it did at the end of last year but still retains the lowest rentals at R6 301. The Northern Cape is also experiencing some decline in rental growth, with a rather sharp drop from its double-digit performance in Q1 2023 to 5,0% for the same period this year. Rentals in the province also experienced a quarter-on-quarter fall of over R100, which is R26 more than a year earlier.
While the Western Cape recorded below-average rental growth last year, rents grew in Q1 2024 to above the national average of 3.8%, although average rents remain the highest in the country at R10 300.
What affects these movements?
Tech is undoubtedly playing a significant role. Schaefer indicates, “Advanced technologies combined with meticulous tenant screening and diligent tenant and property management by a competent, experienced rental agent are increasingly vital elements of a successful leasing experience.
“Other disruptors include competitive pricing, eco-friendly properties, and lease adaptation, all of which are expected to remain market features for the foreseeable future,” he says. “Although, if interest rates start to fall later this year as expected, there is significant potential for the rental property market to flourish, particularly in the R6 000 to R12 000 a month rental range.”
Interest rate continues to impact
Schaefer also anticipates that when they come, the expected lower interest rates will make it progressively easier for tenants in that bracket to afford their rent, “but it could take quite some time before they are prompted to consider homeownership, especially if they like the flexibility of renting.”
The interest rate remains the most watched disruptor. According to TPN‘s Credit Bureau’s 2024 Vacancy Survey Report, it has been a major driver of the lowest level of residential rental vacancies since 2016, as demand for rental property outstrips supply amidst declining home ownership.
“A greater number of households are renting as high interest rates continue to make ownership unattainable for many people,” says Waldo Marcus, industry principal at TPN. “I expect the trend towards renting instead of homeownership will remain in place while interest rates remain high.
“That rate has been at a 15-year high for six consecutive quarters, which continues to place indebted consumers under pressure,” he says. “Both the property market and several economists had expected interest rates to start decreasing towards the second half of 2024. Heightened uncertainty, however, means that any interest rate cut remains on hold.”
But, as PayProp says, “what goes up must come down”. Its report states that “the slimming chance of a rate cut this year means that the pressure on tenant affordability and housing sales is unlikely to let up. A lot can change in a quarter, but the real estate market will likely worsen before it gets better!” That is somewhat depressing as the market and its stakeholders continue to hold out for better days.