While the property market saw a downturn in 2023, primarily due to increases in interest rates, the rental market experienced a notable upturn, according to Seeff Property Group.
Following the challenges experienced over the previous three years, where rental growth was minimal and landlords often had to lower rates to fill vacancies, there was finally positive growth for landlords in 2023, the property group said.
Typically, when interest rates rise, more people turn to renting due to affordability, as renting is often cheaper than buying until interest rates decrease again.
This shift was evident in the market over the past year, with increased demand for rental properties in many areas. For instance, Seeff’s mortgage lending partners, ooba, reported a decline in mortgage applications year-on-year, indicating a shift towards the rental market.
Factors Likely to Influence the Rental Market in 2024
Various economic indicators such as employment rates, inflation, and GDP growth can significantly affect the residential rental market.
Given the current economic challenges, the subdued economic outlook is expected to continue driving demand in the rental market. Weaker economic conditions could lead to increased demand for rentals, said Seeff.
If economic growth remains sluggish and tenants face financial strain, rental rates may be impacted, the property specialist said, especially in certain price ranges.
Inflation and rising living costs will also impact the rental market by impacting consumer finances. Domestically, issues like the Eskom crisis and rising utility costs pose risks to household budgets.
Additionally, potential tax hikes announced in the Finance Minister’s Budget 2024 could further impact consumers.
The interest rate remains a significant factor in the property market, said Seeff.
The current outlook suggests stability in the interest rate for the year, with potential cuts of around 75 to 100 basis points from mid-year, which could stimulate the economy and property market, benefiting landlords.
Migration patterns and demographic shifts also play a role in rental demand. The beginning of the year typically sees increased demand for rentals as new job entrants and students seek residential accommodations, Seeff said.
Rise in Property Investment/Buy-to-Let Market
It pointed to a noticeable increase in the purchase of investment properties, including those intended for rental purposes, citing ooba. These accounted for almost 15% of all mortgage applications in December, the highest since late 2008.
The Western Cape saw the highest volume of investment purchases.
Rental Increases and Tenant Payment Health
Tenant payment health improved notably in 2023 as the market recovered from the challenges of the Covid-19 pandemic.
However, Seeff said that tenant finances may still face pressure due to higher debt costs from increased interest rates and general living cost hikes.
Regarding rental rates, PayProp reported a growth of 4.6% as of the third quarter of 2023, closely tracking inflation and showing improvement compared to previous years.
Looking ahead to 2024, Seeff said that the rental market appears to be in a similar position economically. Landlords may see slight increases in rents this year, but adjustments should align with local market conditions.
Whether landlords experience real growth will depend on factors like inflation rate trends, it said.