Constrained economic and household income growth, political uncertainty, flexibility and mobility are reasons for the growing demand for rental properties in South Africa.

According to the recent StatsSA Household Survey, the number of households renting has increased from 17.7% in 2020 to 23.9%.

Waldo Marcus, industry principal at TPN commented: “Well-located properties supported by engaged landlords have seen an improvement in rental yields in both sectional and full-title properties. Overall, demand remains strong while new supply is slower to come online.”

Speaking at the recent Residential Investment & Development (Reside) Summit, Marcus said data from TPN Vacancy Survey for the first quarter of 2024 shows that vacancies have dropped to lowest levels last seen in 2016 – recording 4.42%.

Reasonable rental escalations have seen more investors enter the market lately. In 2023, investors were cautious as they were affected by the higher cost of capital as rental growth was still under the consumer price inflation average of 6%.

The Western Cape, which continues to benefit from semigration, experiences lower rental returns but is supported by decent capital growth. Gauteng and KwaZulu-Natal offer lower capital growth but properties deliver higher yields, according to Marcus.

Marcus said gross rental yields for sectional-title properties sit at 10.62% and are expected to increase. Gross rental yields for full-title properties which fell below 7% in 2022 recorded 7.44% during the first quarter of 2024.

According to Miguel Martins, market analyst and property investor, a reduction in vacancies and growing rental yields indicate a strong rental market. Vacancies were 8.2% a year ago and 7.5% pre-Covid.

“Market strength – the measure of supply versus demand, is currently sitting at 59.7% - the highest point in the last seven years,” said Martins. A reading of 50 and above indicates a strong rental market.

He said the best time to buy property is when interest rates are highest and just before they reduce which is where we are at currently. Investors looking to enter the market or grow their portfolios will be able to purchase properties at lower than market values given the number of homeowners under financial pressure.

“Investing in a one-bedroom, one-bathroom apartment is a always a good decision,” said Jonathan Kohler, chief executive officer of Landsdowne Property Group.

A 42m² apartment purchased for about R680,000 commands R7,000 monthly rental with a net rental yield of 10.27% in Johannesburg. Property prices in Johannesburg are sitting at levels last seen 14 years ago, and northern suburbs including Bryanston, Sunninghill and Paulshof offer good value for money.

Regional rental yields

In Cape Town, a 41m² apartment priced at R910,000 is rented out for R8,700 per month with 10.48% yields, while in Balitto in KwaZulu-Natal, a 57m² one-bedroom apartment priced at R1.3m is rented out for R8,750 per month and achieves 6.56% in net rental yield.

“Western Cape suburbs including Somerset West, Blouberg and Milnerton offer good rentals and capital growth, and they are situated 20 to 30 minutes outside of the CBD,” said Kohler.

Martins said rental returns differ significantly across various areas. A one-bedroom apartment in Randburg Johannesburg valued at R650,000 and rented for R6,500 per month offers 12% returns compared to a similar priced apartment in Pinetown in KwaZulu-Natal rented for R6,000 offering 11% returns.

In Cape Town’s Southern Suburbs, a one-bedroom apartment valued at R1.4m and rented for R8,000 offers 6.8% in returns. In terms of capital growth, Cape Town is a strong performer, said Martins.

According to Jaco Grobbelaar, managing director at Prosperity Enterprises, there are good reasons why one should buy residential property, namely; the ability to buy property using other people’s money, property is a low risk and volatility asset class, with more consistent price growth and rental escalations. Property delivers healthy capital growth on a long-term basis of say 10 to 20 years, and there are good chances to buy at discounted prices, especially when the market is depressed.

“Property is a long-term investment, and I believe the next 10 years look very promising with good capital growth and healthy rental yields,” said Grobbelaar.

Marcus said with the rental property sector enjoying a good run because of rising interest rates, the number of investors with small portfolios has increased. Data from TPN shows that the volume of micro portfolio owners with one to two properties has risen from 47.7% in 2010 to 57.47% in 2024. During the same period, those with more than 10 properties has seen a decline from 6.07% to 4.84%.

Well-located, managed and priced property investments will continue to outperform and attract tenants who pay rent on time and have good credit records,” added Marcus.

 

 

 

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