The rental market has suffered severe losses, with vacancy rates rising from 7.5 percent in the first quarter of 2020 to 13.2 percent in the second quarter of 2021 due to financial pressure, particularly on lower income households and higher demand for mortgages, says FNB economist Koketso Mano. Photo: Kent Weakley
The rental market has suffered severe losses, with vacancy rates rising from 7.5 percent in the first quarter of 2020 to 13.2 percent in the second quarter of 2021 due to financial pressure, particularly on lower income households and higher demand for mortgages, says FNB economist Koketso Mano. Photo: Kent Weakley

Financial pressure forces rise in vacancies for home rental market

By Edward West Time of article published Sep 21, 2021

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THE RENTAL market has suffered severe losses, with vacancy rates rising from 7.5 percent in the first quarter of 2020 to 13.2 percent in the second quarter of 2021 due to financial pressure, particularly on lower income households and higher demand for mortgages, says FNB economist Koketso Mano.

Job losses and income declines last year had put financial pressure on many households, driving some to share space to alleviate rental costs, he said in the latest FNB Residential Update.

For those with stronger financial positions the 300 basis point interest rate cuts in 2020, which settled rates at 50-year lows, resulted in pent-up demand for home ownership, reducing demand for rentals.

The second quarter TPN Residential Rental Monitor shows that tenants paying less than R3 000 per month in rent reflected the most financial strain, indicating how the impact of lockdowns had hurt low income earners more than other income earners, and the protracted recovery of the informal and hospitality-related industries.

More than 16 percent of tenants in this lower bracket were unable to pay rent versus 5 percent of tenants in the R7 000 to R25 000 rental range.

“The pandemic shock and lockdown restrictions resulted in SA’s real GDP contracting 6.4 percent in 2020, the loss of 2.2 million jobs at the height of the lockdown and earnings by employees being 2.9 percent lower than in 2019. To date, only 37 percent of jobs lost have been recovered and this will have a bearing on household finances and the property market,” Mano said.

“The low interest rates were also constraining rental inflation, which had bottomed in March 2021 and we expect a gradual normalisation,” he said.

Rent-to-own demand was slowing, but estate agents expected market conditions to remain robust in the near term. Together with new supply and elevated vacancy rates, this could keep rental inflation further contained, Mano said.

The TPN Vacancy Survey for the second quarter of 2021 showed that the rental market had been in disequilibrium since the onset of lockdowns, with supply outstriping demand and driving competition for tenants in the market.

Consumer Price Inflation data showed annual rental inflation fell to a record low of 0.6 percent in March 2021, having posted 2.7 percent in March 2020. Rental escalations since recovered to 0.9 percent year-on-year in June 2021, but remained well below the average of 3.9 percent from January 2018 to March 2020.

The PayProp Rental Index for the second quarter estimated the national average rental to have increased from R7 746 to R7 778, an annual escalation of 0.4 percent.

This was consistent with a period of high vacancy rates and financial strain.

The proportion of households able to keep up with rental payments fell from over 80 percent in the first quarter of 2020 to 74 percent in the second quarter of that year and had since partially recovered to 78 percent in the first quarter of 2021.

“Our current expectation is for the rental market to continue its gradual normalisation, with inflation just below 1 percent year-on-ear in 2021, as the economy recovers and the labour market improves,” he said.

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