Rental property on the up as consumers remain cautious about buying

South Africa’s residential rental property market continues to show resilience in the face of high interest rates and weak consumer disposable income, registering low vacancies and payment defaults in the first quarter of 2023.

This is according to insights shared in TPN’s latest Residential Rental Monitor Report this week.

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According to TPN Credit Bureau, residential rentals have benefitted from high interest rates, which have dissuaded consumers from committing to long-term bond repayment contracts.

The rental market may continue to enjoy these spoils as interest rates are expected to remain elevated for the rest of the year, it adds.

The latest report indicates that vacancies in the first quarter of 2023 stood at 6.19% compared to 13.31% in the previous year. Further, TPN’s Market Strength Index pinned the balance between demand and the availability of residential rental property above the market equilibrium and at 59.14 points, levels reportedly last seen in 2017.

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“Traditional market factors indicate that the residential rental market is buoyant with improved returns and lower vacancies,” says Waldo Marcus, industry principal at TPN Credit Bureau, in a statement.

“A further interest rate hike before the end of the year is expected to further deter property purchases and retain healthy demand for residential rental property.”

Consumers struggling

Despite this surprising upside, TPN warns that the market may soon start to feel pressure from consumers who are struggling to keep up with the high cost of living.

The worst is reportedly being felt on the extremes of the rental scale, with tenants paying less than R3 000 in monthly rent and those paying over R25 000 feeling the most pressure in trying to keep up with payments.

In fact, data reveals that the count of tenants in good standing has continued to decline slightly for three consecutive quarters as consumers buckle under financial pressure.

“Although overall sentiment in the sector remains positive, property owners need to consider how a tenant’s late or no payment will impact them,” says Marcus.

“Tenants classified as squatting pose a severe risk to the ability of landlords to collect and recover rental due. Landlords, therefore, need to act proactively and utilise the various legal tools available to them to collect the outstanding rental.”

A breakdown of consumer performance in provinces reveals that tenants in the Western Cape were most likely to honour rental payments, while KwaZulu-Natal reportedly had the highest number of squatting tenants, increasing to 5.09% in Q1 of 2023, from 4.67% in the previous year.

Residential units in the R7 000 to R12 000 bracket had the highest proportion of tenants in good standing.

However, consumers may face increased pressure on their pockets, at least until the end of the year, with TPN predicting that rentals may continue to climb gradually until that point.

“Early signs indicating that consumer credit repayments are slipping combined with lacklustre economic growth cloud the positive outlook for the residential rental market for the rest of the year,” says Marcus.

“The current economic landscape means that the risk of defaulting tenants is more likely, making proper background checks and vetting more important now than ever before.

“Needless to say, the right tenant in the right rental bracket is gold right now.”

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