While the property sales market declined notably during 2023 due to the spike in the interest rate, the rental market soared as many would-be buyers turned to rentals for more affordability and reduced risk, according to the Seeff Property Group.
The Seeff Group said it experienced a significant increase in its rental book with areas seeing growth of 17% to 19%, and in some cases, doubling their rental book over the last three years.
With interest rates hitting a 15-year high, weak economic conditions and demographic shifts, the demand for rentals has increased notably in most areas.
It is especially prevalent in the affordable price bands where rising urbanisation is offering huge opportunity for developers and rental investors.
Even the high end luxury sector of the market is buoyant, says Ross Levin, licensee for Seeff Atlantic Seaboard and City Bowl.
While the R20,000 to R35,000 per month is the most in demand, there is plenty of activity in the R40,000 to 60,000 range with high-end rentals still reaching R80,000 to R100,000.
Caché Pasqualle, rental manager for Seeff Sandton says that while the R10,000 to R15,000 per month range is the most active, Seeff has achieved up to R92,250 per month in Hyde Park.
The Pretoria East luxury sector is also seeing significant activity according to PG van der Linde, rentals manager for Seeff, with high end tenants paying up to R79,300 in Woodhill Golf Estate.
According to PayProp, the best growth rates for rental properties were in the inland/upcountry provinces such as North West (9.3%), Mpumalanga (6.3%), and Northern Cape (6.2%).
The main economic provinces being Gauteng (4.7%), Western Cape (4.3%) and KZN (2.5%) achieved considerably lower growth.
The Western Cape remains the most expensive with an average rental rate of R9,946 per month.
The upside of the improved rental market outlook is that buy-to-let, and investment property sales rose to the highest levels since late 2008, according to mortgage originator, ooba. It comprised some 14.85% of all mortgage applications by the end of 2023. 56% of buyers were investing in the price bands below R1.5 million, 32% up to R3 million, and the balance of 12% in the upper price bands above R3m.
The strongest area for investment and buy-to-let is the Western Cape at 28.5% followed by Mpumalanga (10%), Free State (9.6%), Limpopo (9.2%) and Eastern Cape (8.1%). It was a lot lower in the metros with potentially some of the biggest demand such as the greater Joburg area (3.5%-4.2%), Pretoria (6.4%), and KZN (5.6%).
High rental demand and stock shortages are prevalent in the smaller centres such as Lydenburg, Middelburg and Polokwane according to Seeff’s licensees in the areas. Richards Bay also has a buoyant rental market.
With house prices largely stalled over the last year, investment buyers are able to find properties at historically low prices. Elaine Vandayar, licensee for Seeff Richards Bay though cautions that potential rental investors must bear in mind that while they can earn a substantial return on their investment, they must do their research as it is not an investment without risk.
Check out the average rental pricing and speak to a rental agent in the area that interests you, she says. Obtaining this information can assist the landlord in determining whether the investment is worthwhile by indicating the amount of rental income they may anticipate.
The highest demand usually tends to be in the low to mid-market price ranges and for properties closer to places of work, or with access to good transport networks. The objective is to earn a consistent income and return on your investment, but you would also want to keep your unit filled with a good calibre tenant who will pay their rent on time and look after the property.
The downside of a tough economy could mean higher tenant defaults. Combined with a more complex legislative and regulation environment, makes managing a rental property all the more important. Working with a rental agent can be hugely beneficial and assist in not only legal compliance, but managing the entire rental process, from sourcing to tenant and property management.
BUSINESS REPORT