Rent in 2021 may be cheaper than this year - as many tenants rush to buy
- With more than 11% of residential rental properties now standing empty, landlords are scrambling to find tenants, which is putting pressure on rental prices.
- On average, rent is now only 1.4% more expensive than a year ago - and FNB expects that it may be cheaper next year than this year.
- Some tenants - hit hard by the pandemic - can't afford to pay rent and are "merging" households.
- But others are buying instead, as instalments have fallen far thanks to rate cuts.
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The South African rental market is taking strain.
The latest data from FNB shows that rental prices in the third quarter were only 1.4% higher than a year ago, from 1.8% in the previous quarter.
Rental prices for townhouses are now only 1.1% higher than a year ago, weaker than houses (+1.4%) and flats (+1.7%).
While as recently as 2017, rental prices were still growing by 6% a year, FNB now says there is an increasing possibility of “a period of average rental deflation” – where rental prices will be lower than the year before - in 2021.
There is big pressure on rental prices as landlords are increasingly scrambling to fill properties.
The most recent data from Tenant Profile Network (TPN), the largest credit bureau that tracks tenant payment behaviour in SA, showed that more than 11.4% of rental properties were vacant in the third quarter – compared to just 5.4% in 2017.
READ | New tenants may get their first month free - as 20% of Sandton, Soweto rental homes stand empty
Almost a quarter of all high-end properties – rentals of above R25,000 per month – are now standing empty, while the vacancy rate is around 10.3% for properties with rent of R4,500 to R12,000 a month. In Gauteng, TPN is reporting “staggering” vacancies in Randburg (18.3%), Sandton (19.2%) and Soweto (19.4%).
This is mostly because people can't afford to rent anymore, as they lost their jobs during the pandemic. Struggling tenants are moving back with their families, or merging households to save on rent.
But the rental market also took a hit because more people are moving from being tenants to being homeowners - thanks to low interest rates. So far this year, rates have been cut by 300 basis points, to the lowest level in half a century.
FNB compiled an index comparing the monthly cost of a 100% new home loan on the average priced home compared to the average rent. “With the very significant interest rate reduction, it has plummeted by a massive -25.2% since a decade high recorded in May 2016,” the bank found.
“This points to a very significant improvement in the appeal of home buying relative to the rental option, all other things equal, much of this relative change coming in 2020 due to sharp SARB rate cutting.”
This has caused a very unlikely mini boom in residential property– which was supposed to be left bleeding by the pandemic.
Currently, houses are only on the market for 10 weeks and 6 days before being sold – the lowest average time since 2008. And much of the buying interest is coming from first-timers.
Some 24% of residential property buyers now own homes for the first time – up from 19% a year ago.
So while rental prices increased by only 1.4% by September, FNB’s latest data shows that average house prices rose by 3.14% in the year to September.
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