Gauteng lags in residential rental growth, reaching lowest rate in SA

Gauteng has lagged in residential rental growth over the past few years compared to the Western Cape and KwaZulu-Natal, based on Statistics South Africa data.

In the third quarter of this year, Gauteng had the lowest rental growth of all provinces, namely 1.1% compared to the third quarter of 2021. In that same quarter, KZN saw rental growth of 5.4%, and the Western Cape 2.7%.

Compared to a year earlier – in the third quarter of 2021, Gauteng even had negative rental growth of -0.3%, compared to a positive 1.1% in KZN and 1.2% in the Western Cape. In the third quarter of 2020, rentals in Gauteng grew by 0.3%, while they grew by 2.5% and 3.4% in KZN and the Western Cape, respectively.

High vacancy rates in Gauteng put pressure on rentals, according to the latest report on the SA property market released by property consultant firm Rode & Associates. In the third quarter of this year, flat vacancy rates in Gauteng, for example, averaged 9.5%, about the same as in the second quarter of 2022.

In the Western Cape, flat vacancies improved thanks to strong demand. Rode is of the view that so-called semigration has led to vacancy rates of as low as 1.3% in George, for example. The same goes for Cape Town, where the vacancy rate decreased to 4% in the third quarter from 8.9% in the second quarter. Cape Town’s better-perceived governance, lifestyle, and lower stages of load shedding are contributing to semigration, according to the report.

According to the report, in most provinces and cities, flat vacancy rates are generally trending down. This has led to an acceleration in nominal rental growth in most parts of the country, although in the low single digits. However, rental growth is still declining in real terms – therefore, when taking inflation – which averaged 7.7% over the third quarter – into account.

“Landlords are generally feeling the heat as total costs, including items like insurance, rates and taxes, and maintenance, are rising faster than their rental income,” states the report. Stats SA’s measure for maintenance and repairs rose by 4.6% year-on-year in the third quarter. Higher interest rates are also lifting landlords’ mortgage bond instalments.

Rode says data suggests that property owners have generally tried to keep rental increases low to reduce vacancies.

“The cost of living crisis and high unemployment levels could show more in vacancy rates in the coming quarters as tenants are squeezed, with some forced to look for cheaper [accommodation] or move in with parents or friends. This implies it will take a while longer to reach pre-Covid-19 vacancy rates,” states the report.

“We believe rental growth will probably remain lower than inflation over the medium term as it will be difficult for landlords to pass on sharp cost increases to tenants in the current difficult and worsening economic environment.” – news24.com