Overstocked rental market shows record low growth in 2020

PayProp’s Rental Index annual review for 2020 confirms the devastating effects of the national lockdown on South Africa’s rental market.

Measured year-on-year, 2020’s final quarter was even lower than the second and third quarter. In November, the first time since the index launched in 2012, growth was negative with the average rental sitting at 0.3% lower than in November 2019.

Rental growth dropped from 3.2% in the first quarter, 1.6% in the second quarter, 1.5% in the third quarter and just 0.2% in the fourth quarter with the average rental increasing from R7 844 in 2019’s fourth quarter to R7 854 in 2020’s fourth quarter – an increase of barely R10 over a one-year period.

Johette Smuts, head of data analytics at PayProp, says economic revival continues to be strained with lockdown restrictions still in place, although slightly lifted: “affordability remains an important consideration for consumers in general but specifically among tenants. We expect growth to remain muted for some time”.

From a quarterly perspective, Smuts says average rental growth was already under pressure coming into 2020 and slowing down even before the pandemic hit our shores. “Four years ago – at the start of 2017 – rental growth rates were above 7%. Since then, the growth trended downward and then sideways (neither speeding up nor slowing down) between 3% and 4% for most of 2018 and 2019. Rental growth in the first quarter of 2020 still followed that trend, clocking in at 3.2%”.

A few factors impeded growth over the year says Smuts. The first of which being the obvious loss of income due to the national lockdown with tenants not being able to afford an increase in their rent. Added to this, there was less demand for higher-priced properties and landlords were left with little choice but to curb their expectations when setting their asking price.

The second factor is that many short-term and leisure rental properties moved onto the long-term rental market in 2020 after a sharp decline in tourism, both locally and from international visitors which led to an oversupply of housing, particularly in tourism hotspots like KwaZulu-Natal and the Western Cape, placing further downward pressure on rental prices.

Finally, in 2020, many tenants chose to take advantage of lower interest rates by moving onto the property ladder. The exit of tenants from the rental market meant an additional oversupply of rental properties to the already overstocked pool, further pressuring the rental price.

Source: Propertywheel.co.za | https://propertywheel.co.za/2021/03/overstocked-rental-market-shows-record-low-growth-in-2020/

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