Rental vacancy rates have dropped from 13% during the pandemic to 7.8% in Q3 2022.
- On Thursday, the SARB Monetary Policy Committee increased the repo rate by another 75 basis points to 7%, the seventh consecutive rise in the repo rate.
- Signs of a change in the local real estate market due to these interest rate hikes are already reflected in the FNB Home Ownership Barometer and RE/MAX inquiries.
- One of those signs is improving rental vacancy rates.
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Property data shows a shift in the local real estate market as rising interest rates are affecting affordability and therefore forcing more prospective homeowners to opt to rent.
On Thursday, the Reserve Bank of SA’s Monetary Policy Committee (MPC) increased the repo rate by another 75 basis points to 7%. This is the seventh consecutive hike, and interest rates are now at their highest level since 2016. The prime rate is now 10.5%.
“The effects of these interest rate increases only become apparent a few months after consumers adjust to paying the higher debt payments. However, we have already begun to see signs that housing market activity is changing,” says Adrian Goslett, regional director and CEO of RE/MAX South Africa.
“Over the past two months, our digital marketing agency has noticed an increase in rental-related search terms and a decrease in purchase search terms. This points to an upcoming shift in the local property market. [as] affordability becomes an increasing concern for homeowners over time.”
The latest FNB Homeownership Barometer indicates that rising borrowing costs likely shifted some demand for homeownership toward rentals. It shows that the rental market has continued on a path of gradual recovery. Rental vacancy rates have dropped from 13% during the pandemic to 7.8% in the third quarter of 2022. However, vacancy rates remain above the pre-pandemic average of 5.3% between 2017 and 2019.
Rental inflation rose 2.8% year-on-year in Q3 2022, up from what FNB calls a “trough” of 0.6% in Q1 2021.
“The rhythm of [rental] the recovery is still constrained by weak job growth and rising cost of living. Although the demand is improving, there is still an excess supply in the market. This is reflected in the decline in the average real rental rate, as well as in above-average vacancy rates,” the FNB barometer report states.
According to Samuel Seeff, president of Seeff Property Group, emigration and the return of tourism have also boosted rental demand.
house prices
Annual growth in the FNB house price index moved marginally lower in October, averaging 3% from 3.1% in September. According to FNB, the slower price growth reflects weaker demand due to increased financial pressure on consumers, especially in lower-priced housing segments.
Seeff predicts that by 2023 the strongest residential property market is likely to be the Western Cape, driven by emigration and the return of international buyers.
“We have already seen a noticeable increase in sales above the R10 million to R15 million mark for the first time since 2017 in the Cape,” says Seeff.
Given the increasing affordability challenge due to rising interest rates, Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, says the first prize is always holding on to your home.
“So if you’re struggling with bond payments, be proactive and talk to your financial institution. There isn’t a bank in the world that wants to repossess a house if it can be avoided,” says Geffen.
