Good news for rentals in South Africa
Category Property Advice
Rising inflation is creating what is now a long-lasting, increasing interest rate cycle. Historically, this type of interest rate environment fosters a growing demand for residential rental properties as entry-level property buyers have to rethink property ownership due to affordability concerns.
As a result of this protracted interest rate environment, the product head at FNB Commercial Property Finance, Makhosini Ndlovu, says there is a healthy demand for rental properties across South Africa, prompting a recovery in the sector.
"Rentals took a fairly severe hit as a result of the double whammy delivered by Covid-19 as many landlords were required to hold rentals steady or even decrease them over the past two years due to tenant income pressures, and at the same time, a large number of people who would have been renters became first-time homeowners, taking advantage of the massive drop in interest rates as the government worked to cushion the economic blow of the pandemic," said Ndlovu.
Despite this blow to rentals, he added that demand for rental properties recovered during the first half of 2022 as rising interest rates put landlords back in a favourable position.
Ndlovu said that demand for rentals will likely continue growing into 2023, particularly in the rent affordability 'sweet spot', which ranges between R6,000 and R12,000 per month, depending on the province.
He said that this growth in demand will be equally evident in all parts of the country, thanks largely to the shift towards work-from-home and hybrid work arrangements.
"While the expectations of a full-scale work-from-home workplace culture that were evident during the lockdowns have not fully materialised, there has been a significant move towards remote working arrangements that have resulted in a more even spread of rental demand across the country - even in smaller towns that would never previously have been attractive to long-term tenants," he said.
As a result of these shifts, FNB has seen a significant spike in demand for rental properties outside of major centres, particularly in coastal towns. Ndlovu said that demand is not only rising in these small towns that were historically just holiday destinations, but there are also pockets of rising demand in the cities - and the good news is that this is being driven primarily by younger tenants.
"As the workforce becomes younger, it's likely that a more vibrant and sustainable residential property market will continue to emerge, and much of that demand by younger tenants is for smaller, affordable properties that meet their lifestyle aspirations," he added.
Ndlovu noted that, currently, the supply of rental stock is still largely sufficient to meet the gradually growing demand as the impact of increasing interest rates is still filtering through to consumer budgets, but that may change soon.
He said demand is likely to gradually overtake supply in the coming months, which presents a real opportunity for residential property investors and developers.
Author: Businesstech.co.za
