RESIDENTIAL PROPERTY MARKET INSIGHTS | SPRING 2022
Category Advice
Spring has sprung, yet I'm not feeling that "spring" feeling? As we take a moment to reflect on where we are in the residential rental market specifically, we can understand why we're not quite singing "The Hills Are Alive" yet.
The last quarter has not been dramatic in terms of any drastic market movement, but has rather been a period of consolidation as we settle into the 'post-pandemic' period (thank goodness!). Climbing interest rates have been a global phenomenon over the past few quarters, which has naturally spilt over into the South African market with the interest rate having been increased at every SARB review since November 2021.
We have experienced marginally increasing rentals as reported in Payprop's latest Rental Index (Q2:2022), which reports that the Western Cape, with its 3.0% average rental growth, has outperformed the national average rental growth of 2.8% in this quarter. This seemingly low increase is a very welcome sign that the South African residential rental market continues to grow (albeit slowly) following the 20-25% reductions in rentals during the dreaded Covid pandemic. As we continue to gradually climb away from those "dark days" we have a long way to go before property investors are comfortable with the performance of their investments. With growing inflation translating into ever-increasing property-related expenses (rates, insurance, maintenance costs, property management software etc.) the real rental growth is negated by the increased expenses.
The expectation that the SARB will continue to follow the global trend of increasing interest rates, coupled with historically high inflation levels, means that a number of would-be home buyers in the upper rental bracket, choose to rent rather than buy until the trend dissipates. This is good for the rental market, as we've seen with the high demand for our rental homes upward of the R20 000/month level, which have been let after only a short time of being advertised. Many of the applicants for these properties are South Africans relocating from other provinces to the Western Cape.
We have noted that our managed flats in the lower rental bracket, ranging between R4 500 and R6 500/month, receive a high level of interest with a number of potential tenants arriving for scheduled viewings. This unfortunately doesn't translate into a successfully let property, given the number of applicants in poor financial standing, which is evident once credit checks are performed. This is not unexpected given the immensely challenging few years for so many of us, so we do try to encourage landlords to keep an open-mind in terms of disregarding an applicant with a poor credit rating. We are having to dive deeper (than we would have a few years ago) into the results of credit checks, with the applicant's input, to see if we're able to make an application work where the applicant is able to prove they're heading towards being in a stronger financial position.
We encourage our landlords to increase rentals where they are below market levels, even if done so conservatively, so as to gently mitigate against the increasing expenses associated with operating a rental property. A delicate balance needs to be struck, whereby the rental increase takes into account the ever-increasing cost of a 'basket of goods' directly influencing tenants' affordability.
While the picture isn't a bunch of roses, it's certainly better than this time last year. At Steer & Co, we're focusing on successfully letting the relatively small pool of vacant properties within our portfolio, with properties advertised at the right rental attracting good quality tenants. We are rewarding our dedicated team for their hard work and commitment by enjoying some team building activities and trialing an earlier (16h15) Friday closing time to encourage more of a work/life balance. We have also been focused on the onboarding of some exciting new investment properties in our portfolio, so look out for some new available apartments on the Steer & Co website in suburbs including Green Point, Tamboerskloof, Rosebank and Boston.
Author: Nina Vass