Residential rental vacancies at historic lows, says TPN

by | Jul 9, 2024

Residential rental vacancies are at their lowest level since 2016 as demand for rental property outstrips supply amidst declining home ownership, according to TPN Credit Bureau’s latest Vacancy Survey Report for the first quarter of 2024. 

A greater number of households are renting as high interest rates continue to make ownership unattainable for many people, says Waldo Marcus, Industry Principal at TPN Credit Bureau, an MRI Software company. He expects that the trend towards renting as opposed to homeownership will remain in place while interest rates remain high. 

“Interest rates have remained at a 15-year high for six consecutive quarters which continues to place indebted consumers under pressure,” he says. Both the property market and several economists had expected interest rates to start decreasing towards the second half of 2024. Heightened uncertainty, however, means that any interest rate cuts remain on hold.  

High interest rates combined with persistently high unemployment has a direct impact on formal residential rental markets. Stats SA’s latest General Household Survey revealed that the number of people living in a property they owned or were in the process of paying declined from 64.4% in 2022 to 62.9% in 2023. The percentage of households in the rental market in that same period increased from 22.5% in 2022 to 23.9% in 2023. 

The national residential vacancy rate decreased in the first quarter of 2024 to its lowest number since TPN started the Vacancy Survey in 2016. Nationally, 4.42% of rental properties were vacant in the first quarter of 2024 compared to 6.69% in the previous quarter. The survey measures the number of vacant full-title and sectional-title residential units, providing the most comprehensive and complete overview of the industry. 

While national vacancies are at their lowest level on record, the TPN Rental Market Strength Index came in at 59.66 points, lower than 2016’s average of 64.73 points. In 2016, the national average vacancy rate was 6.53%. 

“The TPN Rental Market Strength Index measures perceived demand and supply within the rental market,” reveals Marcus. “When perceived demand equals supply, the market is at equilibrium at 50 points. The current rental market is 9.66 points above equilibrium due to higher demand than what is available within the rental market. Indicating the optimistic sentiment within the residential rental market given low vacancies and positive rental growth, the overall supply rating in the first quarter of 2024 is at 57.54 points and demand is at 76.85 points.”

The Rental Market Strength Index improved across all rental value bands in the first quarter of 2024. The R12 000 and R25 000 per month rental band had the highest index at 61.56 points, followed by the R3 000 and R4 500 band with a rental strength score at 59.43 points.

“The mid-level rental value bands recovered from the previous quarter’s drop when demand decreased while supply remained strong, negatively impacting the strength index,” says Marcus. 

Increased demand and balanced supply, says Marcus, are reflected in the improved occupancy levels of all rental stock. “The most noticeable vacancy decrease is within the rental value bands of R3 000 or less a month and R4 500 to R7000. Vacancies in the rental value band of less than R3 000 per month decreased from 8.46% in the fourth quarter of 2023 to 4.51% in the first quarter of 2024, with demand improving while supply remained stable.”

Reduced vacancies in the R4 500 to R7 000 rental price bracket, he adds, are due to increased demand and a decrease in supply. Vacancies were reduced in this bracket from 8.17% in the fourth quarter of 2023 to 4.92% in the first quarter of 2024. 

According to Stats SA’s latest General Household Survey, Gauteng has the highest percentage of households renting at 37.8%, compared to 35.9% that live in fully paid, owned properties,10.5% that live in owned, but not yet fully paid properties, while the balance occupy property rent-free. Vacancies reduced from 8.14% to 4.3% in the first quarter of 2024, primarily driven by improved demand. Supply had a marginal decrease, taking the province’s Rental Market Strength index to 51 points, the highest since 2018.

The vacancy rate in the Eastern Cape decreased to 3.54% in the first quarter. Its improved occupancy, explains Marcus, is due to higher demand resulting in a Market Strength Index of 58.33 points. The percentage of households that live in rental properties is the lowest of all provinces, with 12.7% relying on rented accommodation, 65.6% living in fully paid and owned properties, while 3.1% are still paying installments towards ownership and 18.6% live rent-free.  

KwaZulu-Natal has the highest percentage of households living in owned properties with 74.6% of people either owning their property outright or in the process of paying off their property. A total of 17.3% pay rent for their accommodation and 8.1% live rent-free. Improved demand and a decrease in supply resulted in vacancies in the province decreasing from 10.5% to 6.41% between the fourth quarter of 2023 and the first quarter of 2024. 

The Western Cape continues to boast the lowest number of vacant rental units in the country at 1.51%. Rental demand increased from 85 points in 2023 to 90 points in 2024. The rental market strength index increased to 73 points as the supply rating decreased from the fourth quarter of 2023 to the first quarter of 2024. A total of 27.8% of households rent, while 49.2% live in a property that is fully paid off and 14.2% are in the process of paying off their property. The Western Cape has the lowest percentage of households that occupy rental property rent-free at 8.8%. 

While lower residential rental vacancies are good news for property owners and investors, Marcus warns that investors should be cautious as constrained household budgets could result in an increase in the number of tenants defaulting on their rental. “While the low rate of vacancies currently provides investors with improved security and reduces the need to factor in a loss of income due to units standing empty, in a high interest rate environment it’s important to keep location and rental value band in mind,” he concludes.

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