RESIDENTIAL PROPERTY MARKET TRENDS 1st QUARTER 2022
The latest Rode property report highlighted several aspects linked to the residential market. Rental flats are filling up slowly in the residential market, but real rentals and house prices are still lagging. Rode's Report found that the housing market had a steady start to 2022. During the first two months, nominal prices increased by 3.8% year on year, which was slower than the 4.2% growth for the entire year of 2021.
However, in real terms, house prices have decreased by about 2% so far in 2022 due to the sharp rise in consumer inflation to 5.7%. At this stage, it is highly likely that real house prices will decline for the seventh consecutive year in 2022. Slower house price growth was expected given the fading impact of low interest rates amid record-high unemployment and an economy that is struggling to get back to pre-pandemic levels.
According to Rode's residential survey data, flat vacancies averaged 9.9% during the first quarter of 2022. This is down slightly from 10.2% during the fourth quarter of 2021.Generally, vacancies have improved after hitting a peak of 13.1% during the fourth quarter of 2020. However, vacancy rates remain well above the 5.3% average recorded from 2017 to 2019 before the pandemic, implying that they are still relatively high.
PayProp data shows that rentals surprisingly increased during the fourth quarter of 2021, with a growth of +0.8% year on year. Rentals are still declining in real terms after adjusting for consumer inflation. This means that landlords are generally under pressure as costs are rising faster than their income. Higher interest rates also mean increased bond instalments.
Consumers advised to watch rising interest rates
Nationally, tenants spent 45.3% of their income on debt repayments in Q4 2021, up from 40% the year before. A further 29% was spent on rent, in line with the position the year before. Overall, this left tenants with 25.7% of their take-home pay as disposable income to cover everyday expenses, down from 30.9% the year before - largely due to increased spending on debt repayment.
The lower interest rates in 2021 might have given tenants a false sense of financial optimism. With the lower cost of credit, it might be that the increase in the debt-to-income ratio was due to tenants taking on more debt - something that could soon prove problematic in the rising interest rate environment.
Provincial metrics
Payprop 4th Quarter 2021 reporting indicated that rent in the Western Cape increased by 1.7% from Q4 2020 to Q4 2021, ending with an average rent of R9,413. The Western Cape also outperformed all other provinces in both arrears metrics. Just 15.1% of tenants were in arrears in Q4 2021, down from 17.2% in Q1 and coming in below the 18.4% of tenants nationwide.
In addition, tenant financial health seems to be much improved following the economic shock of Covid-19. However, consumers should be on guard against the rising interest rate, which might leave those with high debt feeling the pinch.
Here's how much people are paying for rent across the country:
Interest rates
Interest rates have entered a rising cycle to counter higher inflation. The prime rate ended March 2022 at 7.75% - up from its pandemic low of 7% during October 2021.
With further rates increase anticipated, this will impact on the slowing of house prices and sales volumes. Nobody knows for sure by how much interest rates will be hiked and how quickly. The next meeting of the South African Reserve Bank's Monetary Policy Commission in May should indicate what the immediate future holds.
In conclusion, landlords looking to increase rent unrealistically in this highly competitive market now run the risk of having a quality tenant move to an available property in the vicinity that they find more affordable. However, landlords who budget carefully, set their rate correctly for their particular case, keep abreast of macroeconomic trends and create opportunities that foster great tenant-landlord relationships should emerge in a prosperous position for all parties involved.
19 May 2022
Author Watchprop