South Africa's rental market to continue upward trajectory into 2023.

South Africa's rental market to continue upward trajectory into 2023

By Antonie Goosen, Principal and Owner of Meridian Realty

The is no doubt that South Africans are under increasing financial pressure. This is due to the current high interest rates, rising inflation and economic uncertainty; exacerbated by things like ongoing load shedding, weak employment growth and petrol price hikes.

This has had a ripple effect on the property market. As the economy emerged from hard lockdown, interest rates were low and the buyers' market was booming, with house prices rising off the back of high demand and limited stock. However, with the onset of interest rate hikes, many people have found buying homes unaffordable.

According to the Eighty20 / XDS Credit Stress Report for Q3 2022, "home loan and vehicle asset finance (VAF) customers in the middle-class workers' segment are under pressure with the total value of these loans moving into default over the last quarter increased by 20%."

First time and mid-market home buyers have been most affected by the rise in interest rates. An increasing number of people have opted to rent rather than buy. Reasons for renting include flexibility, fixed monthly costs for a fixed period, and the fact that some might be able to afford to rent a property that is of a higher value than a property they would get bond approval for. The expectation is for this trend to continue well into 2023.

According to WeconnectU, an end-to-end property management software solution, the number of residential rental leases across customers has grown by 23% over the past twelve months. In addition, the average portfolio size of rental agents has increased by 7% over the past year from an average of 181 to 193 properties per agent. Notably, rental margins have gone up slightly over the past 12 months, by only 3%, from an average of R8581 to R8852.

This shows that the market is picking up and that agents are managing a growing number of properties. There are also no signs of this trend slowing, as interest rates are predicted to continue to rise albeit at a slower rate than we have seen in 2022. All signs point to protracted inflationary increases off the back of interest rate hikes.

These changes will be welcomed by landlords who have had a hard time of it over the past few years. Many landlords struggled to find tenants during the period of low interest rates as many were opting to buy. Even before that, many landlords bore the brunt of Covid with many tenants being unable to pay annual rent increases.

The demand for rental property will rise and revive the market into 2023, however, landlords must remain cognisant of the financial strain that many tenants are under and will continue to be under into next year. Landlords need to ensure they still get a fair yield whilst maintaining occupancy - which are both push-pull forces that need to be balanced to find a happy medium to encourage tenants to occupy a property. This is evident in the slow growth in rent margins over the past 12 months. We predict this marginal growth to continue, with landlords focussing on retaining occupancy in their properties. This will most likely be the case in the rental market between R5,000 to R11,000 per month.

Property professionals are continually having to demonstrate their value to investors or landlords. This role will become increasingly important into 2023, as portfolio sizes increase. One way to manage a growing portfolio size is to make use of intuitive software that covers the full value chain that includes the application process, rental accounts management, lease management, inspections and maintenance management and compliance management.

2023 is going to be a balancing act for landlords as the rental market continues to grow. However, when demand starts to exceed supply, landlords will be in a position to put their rentals up. This will probably only happen in the second half of 2023. The use of intelligent property management solutions to manage growing portfolios is critical for the future of agents wanting to grow their business effortlessly.