Rentals most attractive in R14k to R25k band, while Western Cape sees lowest vacancies, TPN report says
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There has a significant increase in the number of tenants paying R12 000 to R25 000 per month and since 2016, the number of tenants in this rental band had almost doubled, while the Western Cape has the lowest vacancy rate, according to credit Bureau TPN’s Residential Rental Monitor for the third quarter released yesterday.
“This year alone, the percentage of tenants in this rental value band has experienced three-consecutive growth quarters,” it said.
Positively, more tenants were paying their rent and the number of tenants in good standing had continued to improve for the third-consecutive quarter, despite a tough economy and constrained household budgets, the monitor said.
In the third quarter of 2023, 83.34% tenants were in good standing – an improvement from 82.73% in the second quarter and 81.86% in the first quarter, said the monitor.
A tenant is classified as in good standing if all their rental obligations are met by the end of the month. These include tenants that paid on time (POT), paid within a grace period (GP) afforded by landlords, or paid late (PL), but ensured they covered their rental payment before month end.
Waldo Marcus, an industry principal at TPN Credit Bureau, said residential property investors were being impacted by the high cost of capital, maintenance, security, municipal charges and the downward pressure on rental returns.
However, although margins were under pressure, the fact that investors had been receiving more of their rental on time would have eased some of their cashflow strains.
Although the longer-term overall good standing trend is positive, Marcus said the concern was with the lowest and highest rental value bands, which fell short of national averages.
“The highest rental value band – those paying R25 000 or more a month – saw a slight drop in the number of tenants in good standing, from 82.15% in the second quarter to 81.94% in the third quarter.
“Late payment of rental occurs most frequently in the R3 000 to R7 000 band, with 12.41% of tenants paying late. The next highest percentage of late paying tenants is the luxury rental property segment with properties costing over R25 000 per month where 11.56% of tenants pay late.”
The luxury rental market – defined as tenants paying R25 000 or more per month – had seen no noticeable change in the past four quarters. Instead, the market had shrunk In the first quarter of 2020, it accounted for 1.8% of the rental market, but had declined to 1.2% in the third quarter of 2023.
“Low interest rates during the pandemic made it very attractive for these tenants to purchase property,” said Marcus. “However, given that interest rates are expected to remain high for the foreseeable future, we anticipate growth in this rental band. The big question now is whether cash-strapped consumers can afford these high-end rentals in the current economic environment.”
Rental escalations continued to be on a slow upward trajectory, growing from 4.8% in the second quarter to 4.84% in the third quarter, but slightly below September’s consumer price inflation of 5.4%.
“The slowdown in the national average rental escalation rate indicates that price sensitive consumers have reached a precarious point within the rental market,” said Marcus. “Property investors need to be cautious when escalating rentals as consumers remain under pressure and vacancies could increase if rentals become unaffordable.”
Vacancies in the Eastern Cape and KwaZulu-Natal had remained high, while Gauteng’s vacancy rate has dropped from 8.8% in the second quarter to 6.85% in the third quarter, providing property owners with an opportunity to escalate rentals marginally.
The Western Cape saw the lowest vacancy rate of all provinces. Rentals escalated from 6.47% in the second quarter to 6.56% in the third quarter.
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