Rental markets under pressure

12 February 2018

The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news.

Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it's a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.

This is according to Lew Geffen, Chairman of Sotheby's International Realty, who adds that possible tax hikes this year would further exacerbate the situation.

"Another glimmer of hope was the change in ANC leadership in December and the positive response of the Rand but this is only cause for cautious optimism as no real impact will be felt in the market until an exit strategy and date have been announced."

Johette Smuts, head of data and analytics at Payrop, says that the performance of rental markets in the different provinces varied considerably last year due to a number of additional influencing factors

"Rent levels in provinces strongly supported by mining, for example, can be more volatile as they are notably affected by international commodity price movement - and perhaps even more so by overseas investors' decisions.

"In 2017, five out of the nine provinces saw a reduction in the rental growth rate, with a flagging Limpopo dampening the national figure, while the North West, also a mining area, Province bounced back recently after very low growth the previous two years. Gauteng and the Western Cape, which have shown high, more consistent growth, are again in first and third place respectively as they were the previous two years."

Market performance has also varied considerably between suburbs and areas, especially in the major metros and most of the markets shifts seen last year are expected to continue in 2018.

Lorraine Dellbridge, Rentals Manager for Lew Geffen Sotheby's International Realty in the southern suburbs, Noordhoek and False Bay, says: " lthough the market remained fairly stable, there has certainly been a reaction to the prevailing climate, especially with the deepening water crisis which has dramatically slowed semigration to the Western Cape.

"There has been a notable increase in stock on the market, especially in the middle areas and, at the top end of the market, landlords have begun to lower their asking prices after homes have stood vacant for up to four months. Prices in the Fish Hoek areas and surrounds did however see significant increases, particularly in estates.

"And although we have had a number of enquiries from foreign investors already this year, I think that with the water situation it is very likely that we will begin to see less foreign tenants."

Lisa Hendricks, Dellbridge's colleague on the Atlantic Seaboard, says that although the rental market on the sought-after coastal strip has retained considerable strength, one of the main reasons for the area��s continued resilience is that landlords have been more open to negotiation which has resulted in stable rental prices across the Atlantic Seaboard.'

She adds: " Unfortunately, the positive sentiment and boost in investor confidence we saw after the election of ANC president Cyril Ramaphosa in December is being off-set by the severe drought and we are now starting to see many prospective tenants from abroad and across South Africa opting to move to the Gauteng region instead of investing here.��"

According to Shaun Groves, Rental Specialist for Lew Geffen Sotheby's International Realty in Gauteng, there has been an increase in demand in recent months, particularly at the top end of the market.

"Last year "the Parks�� seemed, as always to be the most resilient and, although rentals were not completely immune, prices for the most part remained constant with only slight adjustment. "

"The low to middle market sectional title sector in and around Sandton has taken the hardest knock. The number of vacancies has increased dramatically and yields came under severe pressure."

However, Groves anticipates that in most areas 2018 could well be a better year for rental yields.

"Basic economics of supply and demand apply and if landlords remain realistic then there is every chance that they will enjoy a solid rental year."

In Durban, the shift to the northern suburbs looks set to continue as ongoing commercial and residential development continues unabated.

"There are a multitude of new developments North of Umhlanga Rocks that are attracting families and executives who are not deterred by a slightly longer commute to work and we believe these areas will continue to gain market share," says Mandy Testa, area specialist for Lew Geffen Sotheby's International Realty in Durban North and Umhlanga.

"Durban North, Glen Ashley and La Lucia are the most resilient in terms of vacancies as demand far out strips supply in these areas. The Umhlanga beachfront fares well, however many landlords prefer to use these properties for short term holiday lets.

"The New Town centre around the Gateway Theatre of Shopping now provides the best supply of rental accommodation and landlords continue to yield steady growth. This area provides a perfect target market for the buy-to-let investor."

Smuts says that it's also essential for landlords and investor buyers to do their homework.

"Knowing what drives supply and demand of rental stock in your province is very important when looking at the bigger picture as it will allow you to position your property within the market.

Geffen concludes: �� Ultimately, a well-priced home in most areas will always find a tenant - and in the current economy, especially, it is far more costly to have a property stand vacant for several months than to reduce the rental."

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