Provinces that have the highest demand for rentals in South Africa
A survey conducted by TPN Credit Bureau shows that vacancy rates in South Africa’s rental market recovered slightly in the second quarter of 2023, highlighting the best provincial rental markets in the country for property owners.
According to the latest TPN Vacancy Survey, the national vacancy rate – the number of vacant properties – increased from 6.19% in Q1 2023 to 7.27% in Q2, representing a slight year-on-year increase of 0.11% from 7.16% in Q2 2022.
TPN said that the slight improvement in rental vacancies resulted from consumers acclimating to higher interest rates and adjusting their lifestyles for higher food, fuel, and housing costs.
Consumer confidence levels, however, have dropped from -23 in the first quarter to -25 points in the second quarter, according to the latest study from the Bureau of Economic Research. “Poor confidence levels do not bode well for potential house buyers or investors,” said TPN.
Nevertheless, investors have seen a healthy recovery since 2020 with improved escalations, lower vacancies and a relative slowdown in new supply coming online, the Bureau added.
It warned, however, that during uncertain times, landlords must continue to balance rental growth with vacancies.
“Although early indications are that inflation is under control locally, global economies continue to exhibit strain, which has the potential to impact the volatile rand, which could result in imported inflation.
“It is also unlikely that there will be an easing of interest rates in the short term, given the SARB’s commitment to inflation targets,” said the report.
Provioncial performance
Provincially, vacancy rates vary as each province cultivates a unique set of factors that drive 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.
Western Cape
The Western Cape retains its position as the province with the lowest number of vacant units. Just 3.62% of residential units are vacant.
The province also boasts the highest rental Market Strength Index at 66.13 points. Market equilibrium above 50 means a higher demand than supply, allowing investors to escalate rentals.
“The Western Cape has seen healthy rental escalations due to a strong perception of demand and a low supply rating,” it said. “Investors can expect escalations to remain healthy as demand remains elevated, with the supply rating 32.26 points below the perceived demand rating,” TPN added.
A perceived lack of residential rental stock and an extremely high demand rating are driving higher rental escalations in the Western Cape.
Kwa-Zulu Natal
KwaZulu-Natal continues to experience an increase in the number of vacancies. In the fourth quarter of 2022, vacancies in the province were at the lowest levels since 2016, at 3.26%.
However, early 2023 saw an increase in vacant units to 10.13% in Q1, which increased further to 12.06% in the second quarter. The province currently has the lowest occupancy rate in South Africa. The demand rating for the province remains extremely strong at 74 points, while the supply rating is at 56.33 points.
“This resulted in a Market Strength Index of 58.86 points, which is above the national average of 57.3 points, but a decrease from the previous quarter’s optimistic strength index position of 66 points,” said TPN.
Gauteng
Residential property investors and owners in Gauteng can expect an 82.2% occupancy. This is down from the previous quarter but remains below the national average of 92.73%.
The TPN Residential Market Strength Index in Gauteng also dropped to below 50 points in the second quarter of 2023, meaning that the perceived supply is higher than demand in this province.
“Escalations in Gauteng have been slower than other provinces, and the weak market strength will tame rental growth,” noted the report.
“Gauteng had the highest value of completed residential properties in the second quarter. However, a notable slowdown in the value of building plans passed in the province reflects slowing demand. Gauteng has been struggling to reach a market equilibrium, with supply outstripping demand since 2018,” said TPN.
Interestingly, the Eastern Cape is the only province that has seen an improvement in occupancies. At the end of the second quarter of 2023, 9.62% of residential rental properties were vacant, compared to 10.32% in the first quarter.
“The Eastern Cape has seen a gradual increase in the value of completed residential properties as reported by large municipalities since 2021. This is reflected in a perceived increase in supply rating reported by property professionals,” said the report.
“The province’s overall vacancy rate, however, remains above the national average. The demand rating deteriorated during the same period, resulting in a market equilibrium of 58.33 points,” said TPN.
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