You can also listen to this podcast on iono.fm here.
ADVERTISEMENT
CONTINUE READING BELOW
Download the free LiSTN audio app on Google Play, Apple or here.
FIFI PETERS: It is Property Tuesday today, and we’re talking about landlords. It does seem that the landlords – in the residential market in particular – have been having it pretty okay. If we take vacancies as anything to go by, we are seeing that vacancies of residential properties are currently sitting at their lowest levels in around six years. That is according to the TPN Credit Bureau Vacancy Survey, which was recently released. We have Waldo Marcus, who is the industry principal at TPN Credit Bureau, with us to dig further into the survey.
Waldo, thanks so much for your time. According to your report, we have seen a decline in vacancies across the board at a national average level, declining to around 6.76% in the third quarter of 2023. So perhaps just paint the fuller picture for us and tell us where vacancies are coming from.
WALDO MARCUS: Yes, in the TPN Vacancy Survey for Residential Properties specifically. So if we look at vacancies from big listed entities that have 7/8/9 000 units, and then all the way down to smaller investor landlords who sit with one or two units, what we’ve seen is one of the lowest recorded vacancy rates for this specific quarter, the third quarter, since 2017. So it has decreased from the previous quarter, where it was sitting at 7.27%; quarter three was sitting at 6.76%. And to give the listeners an idea, the last time we saw these low numbers for a third quarter was in 2017.
So overall, we’ve seen strong demand, and that demand remains very buoyant for residential rental properties.
As you mentioned earlier, it’s due to the high interest rates, but also due to predictability.
That I think [is what] a lot of South African consumers … are looking for [when] they enter into a lease agreement. They know what their monthly rent will be. They know what their escalations will be. And there is a buffer that gives the landlord the responsibility to ensure maintenance and security – and all those costs have increased well above inflation.
So it’s dual purpose. We’ve seen people rather going to rent as it’s more affordable and a lot more predictable.
FIFI PETERS: Give us the provincial breakdown – in terms of whether we are seeing vacancies on the down across the entire country, or whether certain provinces are performing better than others.
WALDO MARCUS: The provinces perform very differently, and we’ve kind of seen that during the pandemic. It accentuated and amplified the differences by province. So from a national perspective, as I mentioned, we’re sitting at 6.76%.
If we’re looking at the best-performing province, that’s the Western Cape. It is sitting at 4.57%, so well below the national average.
Read: Rental property on the up as consumers remain cautious about buying
KwaZulu-Natal decreased its vacancies considerably from the second quarter to the third quarter, to sit at 7.36%. It almost halved vacancies between quarter two and quarter three, but is still above the national average.
Gauteng saw a slight decline in the number of units standing vacant from quarter two to the third quarter. It is sitting at 6.85%.
The Western Cape has bucked the trend. There we’ve seen a real increase in the number of vacant units. It is sitting at just under 14%, considering that it was at just under 10% in the previous quarter.
So each province performed very differently. Two factors that we consider when we do the survey are the number of units on the market, so a supply rating, and then the number of enquiries about rental units – and there we generate the demand rating.
FIFI PETERS: You spoke about just under 14%. You’re talking about the Eastern Cape vacancy rate, not the Western Cape, right?
WALDO MARCUS: That’s the Eastern Cape.
FIFI PETERS: Okay.
WALDO MARCUS: We look at the demand and supply ratings, and we’ve seen that in most provinces the demand rating remains relatively strong.
KwaZulu-Natal has one of the weakest demand ratings, but also a low supply rating. That means that there’s a lack of demand, but there’s also a slowdown in supply.
And if you consider the number of building plans that have been passed by the larger municipalities, we’ve seen those decrease compared to previous years. And buildings that have been completed have also decreased.
Read: Private sector building plans drop by R10bn
So we expect the supply rating to remain kind of where it currently is, but demand to remain buoyant as interest rates are expected to remain in the higher end going into 2024 in the first and second quarter.
FIFI PETERS: Just going back to the Western Cape, however, you said the vacancies in that part of the world are sitting at a 4.57%, which is below the national average. But it’s higher than where vacancies stood in the first quarter and the second quarter. So vacancies there have been on the up.
I’d like to understand where you see that picture going, because I know that there has been a strong push to move to the Western Cape for a whole host of reasons – maybe job opportunities, maybe the feeling that the province there is run a lot better from a government and municipal point of view.
ADVERTISEMENT
CONTINUE READING BELOW
But if this trend that we are seeing with vacancies ticking higher in the Western Cape continues, just talk to us about what you think may happen there.
Read: Residential property market wake-up call in six charts
WALDO MARCUS: To give the listeners an idea, the Western Cape in the first quarter of this year had an extremely low vacancy rate of 1.66%. That increased in the second quarter to 3.62% and is sitting at 4.57% now. There are a couple of reasons we’ve seen that.
We’ve seen that investors have turned to the Western Cape as a place where they would find good-quality tenants, but also … tenants fill those properties.
So they’ve started ramping up supply in the province. We expect the vacancies to continue on a slight upward trend.
Read: Buy to let: How to lose 60% of your investment
Traditionally in the fourth quarter of the year we see – especially in the coastal regions – vacancies increase as investors hold back rather for shorter-term rentals.
So they tend to say: ‘Well, the lease ends in November; we’ll keep December and January for shorter-term rentals.’
So they still show good returns, but they would sit vacant should that not take place. We saw that especially during 2021, when we had additional travel bans imposed. We saw the vacancies increase in both KwaZulu-Natal, the Eastern Cape and the Western Cape.
So although there’s very strong demand in the Western Cape, we’ve also seen additional supply coming online.
FIFI PETERS: You were talking about the quality of tenants, and I’d like to know whether this low national vacancy rate that we are seeing is also reflective of the fact that tenants are paying on time.
There was a time when landlords were finding it really difficult to get quality tenants, or even ask some tenants occupying their apartments in buildings to leave during the pandemic because some tenants staged a sit-in.
So are we talking about a national vacancy rate that’s also being followed by people paying up?
WALDO MARCUS: Yes, we are seeing the residential nationally in good standing, and in good standing as tenants that have met their rental obligation in full by the end of the month. And from quarter two to quarter three of this year, there’s been an improvement.
In quarter three, we had 83.34% of tenants in good standing, meaning that although the consumer is under pressure – and there’s a lot of coverage around why that is, I’m not going to go into the detail of it – it’s coming through in our data that the tenants occupying these properties are also committing to ensure that they meet their rental obligations.
What we further see is that during the pandemic in 2020/21, Gauteng and the Western Cape experienced de-escalation. So they had negative rental growth. As you said, you’d rather sit with a tenant in your property that can make some sort of payment, rather than [have] it is sitting vacant.
The markets reacted during those two years very aggressively, so much so that they reduced their rentals. But we are now back at a national rental escalation of just under 5%.
The Western Cape is at 6.56%, which is one of the highest escalation rates in in the country. However, looking back prior to the pandemic, the Western Cape has always achieved between 7% and 8% rental growth. We are now sitting at 6.56% with the higher demand and the lower vacancies. And, although we see more supply coming online, we expect that to kind of sit again between 7% and 8% towards mid-next year.
Listen/read:
‘We won’t see a residential property boom for a long time yet’
Interest rates and other trends affecting SA’s housing market
So we are seeing that the tenants who are in occupation and are occupying their premises, they’re also very much committed to ensuring that they make their rental payment on time. That upward trend is expected to continue should we solve some of our other economic challenges that we face as the consumers’ rands and budgets can stretch only that far.
So the overall residential rental market overview for this year has been very good. It’s been very positive and resilient. But again, there are certain pockets that are facing challenges in certain provinces and, more importantly, certain rental value bands facing different types of challenges – including collecting rental on time, ensuring that you’ve got lower vacancies, and achieving better rental growth.
FIFI PETERS: Thanks for that. I do see that in terms of those rental bands, you’re talking about the effect that the band around R3 000 or so is doing – a lot better than those between R3 000 and R4 500. Also, we have seen the lower end doing slightly better than the sort of mid-to-higher end of R7 000 to R12 000 in terms of rentals.
But we’ll leave it there for now. Thanks so much for your time. Fascinating insights on the residential property market with Waldo Marcus, the industrial principal over at TPN Credit Bureau.
