South African provinces with the best rental markets - with one considered as the new semigration de
A survey conducted by TPN Credit Bureau shows that vacancy rates in South Africa's rental market dropped for the fourth quarter of 2022, highlighting the best provincial rental markets in the country.
According to the latest TPN Vacancy Survey, the national vacancy rate - the number of vacant properties - dropped from 11.71% in Q4 2021 to 8.13% in Q4 2022.
Provincially, vacancy rates vary as each province cultivates a unique set of factors that drives its economy and rental market. Semigration, property prices and career opportunities differ vastly in each region, influencing rental occupancy in each province differently, said TPN.
According to the credit bureau, the Western Cape remains the best rental market, reflecting its lowest vacancy level since 2016 at 2.13% - 6% below the national average.
TPN said that this is partly because of the low supply rating in the Western Cape rental market compared to an extremely high demand rating which is expected to accelerate rental escalation in the region.
However, price remains the key consideration for prospective tenants, which has seen vacancy rates plummet in Kwa-Zulu Natal as consumers choose KZN as a more affordable alternative to the Western Cape as a semigration destination, added TPN.
The survey showed that demand in KZN's rental market moved to a rating of 72 - just above the national average of 71.38 - while the supply rating improved from 37 points in Q3 2022 to 57 points in Q4 2022.
This high level of demand in the province meant KZN decreased its vacancy rate by a notable margin, ending the year at a mere 3.26%, well below the national average of 8.13%.
On the other end of the spectrum, Gauteng saw an increase in vacancy rates in the last six months of 2022 and ended the year with 10% of properties in the economic hub of the country without tenants, showing a vacancy rate that is almost 2% higher than the national average.
TPN noted that semigration is a contributing factor, as it has noticed a net outflow of consumers from the province.
The Eastern Cape (EC) reflected the worst vacancy rate, with a record high of 17.82% in Q4 2022, almost 10% above the national average.
With an unemployment rate of 47.1%, the credit bureau said that the province continues to grapple with high unemployment and, as a result, points to affordability as the main culprit for the record-high vacancy rate.
"Although the market remains in equilibrium and despite the perceived demand, many consumers in the EC are not signing lease agreements as they cannot afford formal accommodation," said TPN.
Good news for rentals but bad news for the property market
While the drop in the vacancy rate is a good sign for landlords in the country, the credit bureau said the performance of the rental market is partly because home ownership has become unaffordable for many South Africans.
The survey conducted at the end of 2022 indicated that most tenants across all ages rent because they simply cannot afford to buy, with 54% rating affordability as the number one reason for not purchasing a property.
The credit bureau pointed to rising interest rates and stagnant salaries as the main reason many South Africans could not afford to buy property.
With ever-rising interest rates and stagnant salaries, more and more consumers inevitably turn to rental properties than home ownership in uncertain economic times, said TPN.
This trend is evident as the residential rental Market Strength Index remains positive at 56.47 as demand outstrips supply.
The demand rating increased from 67.24 points in Q3 2022 to 71.38 in Q4 2022. At the same time, the supply rating also showed a marginal uptick from 57.53 in Q3 2022 to 58.47 in the fourth quarter - showing demand is sitting over 20 points higher than available supply in the country.
Due to low business and consumer confidence, the steep gradient of interest rate hikes, and stagnant salaries, rental demand is set to grow in South Africa, said TPN.
As a result, the credit bureau warned landlords that sensitivity to rental prices would continue to play a decisive role in whether a unit is occupied or remains vacant as consumers continue to be placed under burgeoning pressure for the foreseeable future.
13 Mar 2023
Author Business Tech