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South Africa’s rental market is expected to see increased demand in 2024, but landlords have to keep the high cost of living in South Africa in mind.
According to Payprop, the South African property industry continued the trend of rental growth, with eight consecutive quarters of growth, while the number of tenants in arrears dropped again. This was despite the cost-of-living crisis in the country.
That said, high-interest rates hit the sales market, while inflation impacted agents’ short-term returns.
For 2024, interest rates will be the biggest factor affecting rental market performance.
The repo rate currently stands at 8.25%. This is the highest level since 2009 and double that seen at the start of 2022, which has put off buyers and encouraged others to rent instead.
Lightstone Property said that transactions are down nearly a third since 2022.
“But interest rates are expected to hold steady in 2024, with the first cuts coming in the second half of the year. This would ease pressure on homebuyers and lower the debt burden on South Africans, re-energising the real estate sales market while also making it easier for tenants to meet their obligations,” Payprop said.
“SARB will make its next interest rate decision on 25 January, which will set the tone for the rest of the year. As to what that might look like, SA’s central bankers tend to take their cue from the US Federal Reserve, which expects to make three 0.25% cuts in 2024.”
Investec’s Chief Economist Annabel Bishop said South Africa will probably see two 25bp interest rate cuts in the year’s second half.
Although the drop in interest rates will likely be a relief for homeowners, it probably won’t be enough to increase sales.
It will also not seriously impact rental demand, leading to further rent increases.
The 4.6% rise in year-on-year rent in Q3 was also close to the inflation rate, meaning that real-terms rental growth is possible this year, which was last seen during the Covid-19 pandemic.
Possible red flags
Despite the positive signs for 2024, rental practitioners have to keep their wits about them.
Transcend Residential Property Fund CEO Myles Kritzinger said that affordability remains a huge issue.
Although strong demand could offer room to raise rents, the increasing cost of living may make it harder to do so quickly.
“At the end of the day, you’ve got to be cognizant of what people can afford,” Kritzinger said.
Read: 2 Major new shopping malls coming to South Africa in 2024
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