Did the rental market crash or was it just a blip in the road? The old argument is that ‘securing the roof over your head’ means there is infinite need for housing stock and landlords can negotiate on their terms, says Michelle Dickens, chief executive officer of TPN Credit Bureau.
Nationally, vacancy rates have stabilised at 13.15%, while a Demand Rating at 53.01 confirms that tenants are still in the market but in reduced numbers, and a Supply Rating of 68.76 means that landlords are competing for this limited tenant attention, said Dickens.
“It’s a tenant’s market, an oversupply of vacant properties is driving down rental prices as tenants are in the position to shop around for a better deal. Price sensitivity is a critical consideration and remains the most important aspect for a tenant, followed closely by security and then distance to work, schools and shops.”
According to Dickens, landlords have a more pessimistic perception of the market. They reported a weaker view of demand at 51.50 and perceived a strong Supply Rating of 73.32.
“No doubt driven by fewer tenants responding to their property adverts, in some instances landlords report zero interest in the property until the price is dropped and re-advertised. Perception aside, the Vacancy Rate reality reported by landlords is a high 14.29%.”
Dickens questions whether landlords reacted slower to reducing their rent, causing them to bear the bigger brunt of overall vacancies.
Estate agents have the benefit of foot traffic through their shop, or many adverts for a variety of properties to entice the reduced number of tenants said the chief executive. As a result, the estate agent’s perception of the market strength indicates slightly more tenant demand than landlords perceive.
“Estate agents also perceive the supply of rental properties to be strong at 63.31 but not as overstocked as the landlord’s perception of 73.32 – this may be an impact of the estate agent property stock supply which is created by landlords farming out their tenant procurement to multiple agents at the same time,” she said.
Nonetheless, estate agents seem to have better occupancy with only a 9.87% Vacancy Rate, Dickens pointed out.
Gauteng – home to half the rental population
Gauteng is home to 47% (source: StatsSA General Household Survey) of all tenants and even so, the Demand Rating has dipped below fifty to 48.15, coupled with a persistently strong Supply Rating of 73.90.
The aggregation of the Demand and Supply Rating as reported by landlords and estate agents result in a severely restricted Market Strength of 37.13. The perception of recovery not showing in the data yet.
Sandton remains a concern with a 26.7% Vacancy Rate – the impact of office-to-residential conversions, with large lease-up portfolios of quality new units with enticing incentives, putting pressure on this area.
Although by no means a full recovery, 82.92% of Western Cape tenants are back in good standing, said TPN. “And even more pleasing, only 5.6% of Western Cape tenants are in the did not pay status. The biggest challenge for arrears are the 11.48% of Western Cape tenants who remain in the partially paid status,” said Dickens.
“Hold onto your tenants because tenant demand has also deteriorated down to 51.21. The strong Supply Rating of 70.51 keeps the Market Strength in excess supply territory at 40.35. Landlords and estate agents are not feeling a recovery in the market yet.”
Dickens said that the Cape Town story is a double whammy of increased supply caused by converting short-term holiday rentals into long-term lets and work-from-home opportunities which allow tenants to relocate to the more affordable northern suburbs.
TPNnoted that the Constitutional Court recently found that occupiers on the Ingoyma Trust land had been unjustly charged rental and ordered the Ingoyma Trust to refund tenants with the amount at stake running into the billions.
In the private open market, landlords and estate agents perceive a stable Supply Rating of 58.13, meaning that the potential shock of the pandemic on Market Strength was cushioned by a recent history of a limited supply of new rental property stock.
This translates into a province that has been able to maintain a positive escalation of 2.4%. The North Coast, which is the region benefiting from the limited new supply and home to upper-end tenants, has felt the impact on vacancies pushing up to 17.2%.
“Put simply, supply has not kept up with demand. Inconsequential new supply to the rental market has kept the Supply Rating at a current level 50, with a Demand Rating of 69.84 delivering a market with excess demand at a Market Strength of 59.92,” said Dickens.
She said that tenants in arrears with a salary are still recovering from their partial, full or temporary loss of earnings during the hard lockdown from a year ago, as the 13.9% of tenants stuck in the partial-payments status indicates.
“The biggest threat to the recovery of the residential rental market remains the persistently high and increasing rate of unemployment. Household size is expected to increase as co-living becomes a solution for affordability while tenants get back on their feet financially.”
Source: Business Tech