You are here: ABC International Real Estate / Latest News / Residential Rental Sector Demonstrating Signs Of Improvement

Residential Rental Sector Demonstrating Signs of Improvement


Residential Rental Sector Demonstrating Signs of Improvement

Category News

The residential rental sector started to show real signs of renewal in the first quarter of 2022 with key national property indicators revealing that the sector is through the worst of the economic storm, according to TPN Credit Bureau's Residential Rental Monitor.

Based on the current trajectory, further recovery is expected during the second quarter of 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 as we have been experiencing of late, with further rate hikes forecasted.

The low number of property transfers that occurred in 2020 was no surprise. A bigger surprise is that 2021 recorded an even lower number of property transfers.

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 April 2022, 82.8% 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 R3000 were also standing vacant with a recorded vacancy rate of 13.53% in the first quarter of 2022. 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 88.14% in good standing. This rental band also delivered the lowest did not pay number at just 4.2%. In the last month ABC International Real Estate has placed in excess of 15 tenants in this price point throughout rental properties in Cape Town - with all tenants passing our vetting process. 

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 in the Western Cape had a good standing of just under 80%. However, this category had the highest percentage of tenants who paid in a grace period at 5.94%.

From a provincial perspective Western Cape, specifically, Cape Town is performing well and has the second-best number of tenants in good standing at 85.99% behind the Northern Cape's 87.76%. Escalations are also back in positive territory and property prices in Cape Town are healthy.

The rental market may see an increase in risk as more consumers come to rely on part-time income streams to address the rising cost of living. It will become increasingly difficult to rely solely on employment status to determine tenant risk in the foreseeable future as tenants require innovative new ways to make and supplement their incomes.

The key to successful property investments will be to select the right location, find the right tenant and ensure that they remain prompt payers while at the same time managing and minimising costs as far as possible.

Our 4 step vetting process at ABC International Real Estate has proven to be successful as 98% of placed and managed tenants have paid within the stipulated period. 

See our Landlords Guide for details and pricing should you be interested in placing your property on the rental market with us. 

Author ABC International Real Estate
Published 19 May 2022 / Views -
Disclaimer:  While every effort will be made to ensure that the information contained within the ABC International Real Estate website is accurate and up to date, ABC International Real Estate makes no warranty, representation or undertaking whether expressed or implied, nor do we assume any legal liability, whether direct or indirect, or responsibility for the accuracy, completeness, or usefulness of any information. Prospective purchasers and tenants should make their own enquiries to verify the information contained herein.