Residential rental sector showing real signs of renewal, with Northern Cape leading the way
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Loading... - Franka Darlingon
- 05 May 2022
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This is according to TPN Credit Bureau’s Residential Rental Monitor, stating that based on the current trajectory, further recovery is expected during 2022. However, tenants are likely to continue to be under pressure.
Low inflation and the need to stimulate a fragile local economy during the pandemic resulted in historically low prime interest rates. One of the consequences of this was a perception of cheap capital and artificial demand.
This, combined with an increased number of distressed estates and human capital migration, created an over-supply of property in some areas and, in complete contrast, hyped demand in previously ignored locations of South Africa. As historical trends have shown, this imbalance will have to correct itself in time.
The low number of property transfer that occurred in 2020 was no surprise. A bigger surprise is that 2021 recorded an even lower number of property transfers.
Another concerning trend was the decline of cash property purchases, despite the fact that financial institutions are still providing home loans.
While the economy grew 1.2% in real terms during the fourth quarter of 2021, this growth did not translate into job creation. Unemployment - the biggest challenge facing South Africa - reached a record high of 35.3% in Q4 of 2021. However, while full-time employment decreased, part-time employment grew by 16.5%. These trends are likely to impact the residential rental market.
Encouragingly, TPN’s Residential Rental Monitor reveals that nationally, the number of tenants in good standing continued to improve. Tenants in good standing are those whose accounts have been settled in full by the end of the month including any arrears.
At the end of 2021, 81.4% of tenants nationally were in good standing. On average, the percentage of tenants in good standing has been improving since the hard lockdown low of Q2 in 2020. However, some rental bands are not yet on the road to recovery. The below R4 500 rental band, for example, continued to struggle to break through the 80% good standing mark.
The number of tenants renting in the below R3 000 category are struggling to make any sort of rental payment with the number of tenants who made no payment remaining stubbornly high at just under 17%. In addition to the lower rental collection, units below R3 000 were also standing vacant with a recorded vacancy rate of 14.42% in the fourth quarter of 2021. Tenants who did not pay in the below R3 000 rental band have been increasing steadily since 2014.
The best performing rental segment were those renting for R7 000 to R12 000 per month with 87.29% in good standing. This rental band also delivered the lowest did not pay number at just 4.2%.
Tenants paying a monthly rental of between R12 000 and R25 000 were the second-best performers with 86.10% in good standing and only 4.71% falling into the did not pay category. This sector of the rental market had the lowest vacancy rate of all rental bands at just 10.23%.
Luxury property rentals above R25 000 per month had a good standing of just under 80%. However, this category had the highest percentage of tenants who paid in a grace period at 5.81%.
Gauteng
From a provincial perspective, Gauteng did not break through the 80% good standing mark and struggled with the highest did not pay percentage of all provinces. Combined with a high vacancy rate and low escalations, South Africa’s economic hub continued to experience the after-effects of the pandemic, hard lockdown and high unemployment. There are, however, areas that were performing well in the fourth quarter of 2021 in terms of capital growth as well as effective yield including Tshwane, Merafong City and Sandton.
Western Cape
Western Cape is performing well and has the second-best number of tenants in good standing at 85.99%. Escalations are also back in positive territory and property prices in the province are healthy. Read More…
