The number of residential rental properties standing vacant nationally increased from a low 6.92% during Q3 2022 to 8.13% in Q4 2022, according to the latest TPN Vacancy Survey.
The survey attributes the increase in vacancies to delayed inventory coming onto the market coupled with high rates of vacancies in rental stock with lower price points. All indications are that the residential rental market will be able to absorb the available supply of rental properties. However, the increased cost of living is expected to weigh on the lower end of the market with high vacancy levels expected to continue.
Vacancy rates tend to vary from province to province depending on factors such as semigration, property prices, and job opportunities. Gauteng increased its vacancy rate in the last six months of 2022, ending the year with 10% of rental properties vacant which is well above the national average of 8.13%.
High demand and low supply for rental property in the Western Cape is reflected in a vacancy rate which is at its lowest level since 2016 at 2.13%. Rental escalations are likely to accelerate as a result.
KwaZulu-Natal defied all predictions, decreasing its vacancies and ending the year with a 3.26% vacancy rate, well below the national average.
Waldo Marcus, Head of Marketing at TPN Credit Bureau reveals that KwaZulu-Natal has defied traditional market factors and is currently an extremely unpredictable residential rental market.
“This is likely to pose challenges for landlords trying to determine the right rental price. The TPN Market Strength Index reveals strong demand and an improved supply rating. Property market professionals in the province are confident however that the market will absorb new and newly repaired rental stock. Time will tell whether this confidence is misplaced or if it is a sign that consumers are choosing KwaZulu-Natal as a more affordable alternative to the Western Cape as a semigration destination.”
The Eastern Cape experienced its highest vacancy rate to date at 17.82% although the market remained in equilibrium with demand just above supply. High unemployment in the province means that many consumers are unable to afford formal accommodation.
The Vacancy Survey also considers vacancies by value band. Lower rental brackets – properties with a rental value of R7 000 or less per month – increased their vacancies in the latter half of 2022. In contrast, properties with rental values above R7 000 continued to see a decrease in vacancies. The lowest vacancies were in the R7 000 to R12 000 rental bracket at a rate of 5%.
TPN’s Market Strength Index, a measure of market supply and demand, remained in positive territory throughout 2022, indicating the potential for rental escalation and reduced vacancy rates. The supply rating strengthened in the latter half of 2022 as more rental stock entered the market. Supply strength is determined by how much stock is perceived by property professionals to be available while demand strength is based on their perceptions of demand for residential rental stock.
Marcus says price remains the key consideration for prospective tenants which means that property owners will have to strike a deliberate balance between occupancy and price. “In the current economic environment, failing to achieve the right balance could result in an increase in defaulting tenants,” he says.
The majority of tenants rent because they can’t afford to buy and for the flexibility that renting provides, according to TPN’s Tenant Survey, an annual independent survey which provides the residential market with key insights into what is important to tenants. Asked what factors they consider when looking for a rental home, respondents said price was their biggest consideration (57%), followed by security (37%). Other considerations included pet friendly properties, the size of the property and distance from work.
“What the Tenant Survey reveals is that the rental price is a deciding factor in whether a unit is occupied or remains vacant,” says Marcus. “The exception to this is in the higher rental price brackets, where price becomes secondary to security and being pet friendly. In the R25 000 a month rental bracket, security is the primary concern.”
Business and consumer confidence has historically played an important role in the performance of the residential property sector. “Poor confidence levels as a result of interest rate hikes, loadshedding and high inflation is having an impact on economically active consumers,” says Marcus. “In uncertain economic times, the demand for rental property tends to grow. While we expect this to continue, landlords need to be sensitive to rental price. Prime rental properties – in particular, those offering an alternative energy source and a back-up water supply – will continue to be in high demand.”