SA's tenants are prioritising rentals despite interest rate upward trend

While economic recovery is slowing with the brakes being applied on the back of rising interest rates, the residential rental market is remarkably resilient. 

According to The Property Network (TPN) Residential Rental Market Monitor, the second quarter of 2022 indicates that tenants are keeping up with their rental payments even when faced with economic challenges, loadshedding and a spike in fuel prices. This shows that tenants regard their rental obligation as a vital monthly budget priority.

Craig Coetzee, managing director of managing agents, WatchProp, says this is good news for landlords. The confidence shown by tenants on the back of trying economic challenges indicates a willingness to face tough times. This in turn will feed back into the industry and provide further investor confidence, leading to more "buy-to-rent" opportunities as more approved tenants move into the market. 

The number of tenants in good standing (those who have paid their rent on time and in full) improved from 80.78% in the first quarter to 82.22% in the second quarter of this year. Tenants who are paying between R7 000 and R12000 up to the R12000 to R25 000 monthly rental band are showing a strong commitment of paying on time, with 88% and 87% of tenants respectively in these bands in good standing.

On the lower rental band, which are those tenants paying between R3 000 and R7 000, a band that represents more than half the rental market, the stability has not yet returned to pre-pandemic levels, although this market is showing signs of an upward trend with their good standing up to 82.8%.

Rental payments above R25 000 monthly rental have seen a drop in good standing to a low 77.38%. Historical data shows that this rental bracket experiences a drop in the second quarter of each year and tends to strengthen in the third quarter.

Coetzee says that the Western Cape is a popular tourism hotspot and despite overall rental increases averaging just over 4%, this has not impacted on the collection of rentals in this region. TPN Rental Market Monitor indicates that the province has a high good standing rate of 86,61% and stable vacancy rates. He expects this region to continue to recover as tourists begin their return post-pandemic. Investor interest in the Western Cape continues to be high.

As interest rates continue an upward trajectory, property sales may slow down while the demand for rental property will rise. Higher interest rates traditionally precede an increased demand for property rentals. The higher inflation and interest rate trend, however, will impact consumers' abilities to meet rental payments and this may further pressurise the economy.

Coetzee concurs with market sentiment that some areas have gone against the trend, especially high demand areas which continue to attract interest from local and foreign investors who view homes in these areas as attractive.

The work-from-home trend appears to be maintaining its popularity which fuelled the property boom during, and immediately after, the pandemic. On the flip side, the end of a low interest period and upward pressure on inflation, coupled with the Reserve Bank's policy to curb inflationary pressures, has seen landlords pass increased costs onto tenants. Consequently, a period will follow in which rental property will become more expensive.

Property has always been a barometer for the economy with tenants bearing the brunt of inflation and interest rates, says Coetzee. Landlords share in this pressure with higher vacancies and difficulty in collecting rent.

For now, though, it is encouraging to see that tenants are maintaining their commitment to their rental payments.

WatchProp can be contacted on 021 441 8800 or email info@watchprop.co.za.