Residential property:rental market vacancies up-but there are signs that a revival will take place.
Category News
The South African Tenant Profile Network published their annual national market report at the end of 2020 and its indices showed that vacancies in the residential property market were more than double those recorded at the start of that year. The figure, in fact, rose from a reasonable 5% to a dismal 11%---but is slowly showing first signs of improvement says Rowan Alexander, Director of the Cape Town estate agency, Alexander Swart Property.
Particularly hard hit, says Alexander, were the two price categories that are always the first to feel the effects of a tough economic period : those homes renting below R3000 per month (where the vacancy level rose to 17% ) and those renting above R25 000 per month ( which had a 25% vacancy level).
Asked to explain these severe slumps, Alexander said that three main factors have impacted on the rental market -but, he said, these are all reversible and are, in fact, temporary. Within the next year there will, he predicted, be a turn-around and rentals will have returned to satisfactory levels.
The first factor affecting the market, he said, was the Covid lockdown (from May to July)which had in turn resulted in an economic lockdown, with GDP some 7% lower than it had been a year before. This caused jobs to be lost, incomes to be reduced and rentals to fall.
The government, said Alexander, had realised that in future lockdowns jobs as well as lives had to be protected and this was evident in the second lockdown. It is, he said, highly unlikely that we will see such drastic measures taken again-with the result that the economy and rentals will now start to show a steady improvement.
The second major cause of the rental slump, he said, had been the flooding of the rental market by the former short-term rental sector. This, he said, was the result of the Covid-related decline in tourists not only from overseas but also from SA's inland cities. Faced by a lack of tourists, short-term landlords put their stock into the longer-term rental market, adding to the over-supply situation already brought about by the economic lockdown.
This situation, said Alexander, will improve as the tourism industry gets back into its stride towards the end of this year. Already there are signs that no more "dumping" of former short-term rental stock into the longer-term market will take place and it is quite possible that by 2022 many of the former short-term rentals will have reverted to their previous roles. Again, therefore, the future for the rental market as a whole looks better.
The third factor impacting on the rental market, he said, had been the lower interest rates in operation for most of 2020. In many cases the tenants' current rentals became only a little higher or even equal to their monthly instalments on the bond that they could now get at 7% prime or even prime less 1%. Quite rightly, therefore, many seized the chance to buy at last, leaving the landlords again with surplus stock. But the low interest rates, the only possible reaction to the economic downturn, will not remain in place for much longer, said Alexander: as the economy improves, higher rates will return and it is even possible that some of those who are buying now will have to revert to renting-so the over-supply and rental slump situation are also temporary.
All the indicators, therefore, said Alexander point to a brighter future for them rental market. He warned, however, that landlords will for the time being have to be sympathetic to the plight of many of their tenants-- and realize that they expect the security of their homes to be at a higher level than previously. They also increasingly value homes that under the present limited travel and work-from-home conditions offer them an attractive lifestyle -with parks, gardens, open spaces, walks, retail centres, wine farms and open air bistros all nearby.
The TPN report, said Alexander, should not be seen as a warning to avoid the rental sector.
"As I have tried to indicate, to me it is clear that we have ridden out the storm in the rental market and that from now on the prospects of a return to normal trading\rental conditions are good," he said.
For further information, please contact Rowan Alexander on email rowan@asproperty.co.za
Author: Rowan Alexander
