The SA residential rental market continues to show strength with the national vacancy rate reaching a record low of 5.07% in the third quarter, according to the latest vacancy survey by TPN Credit Bureau.
TPN expects the strong performance to continue, with vacancy rates remaining where they are for now, while rental growth is expected to have accelerated in the fourth quarter. This follows a trend seen in the first three quarters of 2024, where the average residential rental vacancy was 5.4%, the lowest since the TPN began doing the survey in 2016.
Waldo Marcus, the marketing director for MRI Software, which recently acquired TPN, said: “The residential rental market continues to perform strongly with rental properties still in high demand as new supply is slower to come online.
“Post-election economic sentiment is positive, with improved confidence and economic indicators. The second interest rate cut in November adds to the positive outlook, offering relief to tenants and property owners.”
The TPN report shows stock with a rental value of less than R12,000 a month all saw vacancies decrease during the period. In the R3,000 or less bracket vacancies dropped from 10.97% in the second quarter to 6.89% in the third.
Vacancies in the R3,000-R7,000 range fell from 6.75% to 5.8%, with a slight drop decline in the market strength index due to increased supply and a small drop in demand. Despite the increase in stock, demand remains strong in this segment.
Vacancies in the R7,000-R12,000 band fell to 3.4% from 5.51% in the previous quarter. Overall, demand decreased slightly while supply rose.
Marcus said S&P Global Ratings’ improved outlook for SA, along with potential structural reforms, could lower government borrowing costs, driving economic growth and addressing unemployment. While unemployment fell marginally during the review quarter, the increase in discouraged workers highlighted the need for a stronger job market to support the residential rental sector, he said.
Stable employment was key to maintaining low vacancy rates, while high interest rates posed challenges, he said. Though they discouraged property purchases, they also hurt property owners, who may need to lower rental growth to keep tenants and ensure timely payments.
Meanwhile, the luxury rental market came under pressure, with vacancies in properties priced from R12,000-R25,000 increasing from 4.52% to 5.93% due to declining demand but consistent supply.
“Though this sector continues to show strong demand, increased vacancies could be early signs of market migration. At the top end of the market, residential units with a price tag of R25,000 or more a month saw an even bigger vacancy increase from 7.16% in the second quarter to 12.03% in the third, despite less luxury stock being available,” reads the report.
The Western Cape maintains the lowest vacancy rate, driven by low supply and high demand. Rental increases were the highest here, benefiting investors but potentially pricing out lower-income households. Vacancies did, however, also fall in all other provinces.
As interest rates continue to fall, Marcus suggests some tenants may move towards property ownership, potentially increasing residential vacancies in higher rental value segments.
“We expect that consumers will need time to recover adequately from the recent volatile economic landscape. Added to that, as property investors start to raise rentals, it could act as an obstacle to tenants saving to enter the property market as owners.
“Despite strong demand for residential rental property, investors have been cautious about increasing supply due to economic uncertainty and high interest rates.
“While a lack of supply has prevented a potential rental bubble, it may lead to lower rental increases, higher vacancy rates and increased tenant defaults. The downward trend in completed residential buildings suggests that supply will continue to be limited,” Marcus said.
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