Rental growth has plummeted for two consecutive quarters, with Q2 and Q3 following the same general downward trend seen over the course of the previous year. The market recorded new lows in September 2020, with growth measuring just 1% over the same month in 2019. It’s not surprising to see low rental growth continuing and high levels of arrears being reported. We’re hoping that the worst is over, but it’s important to note that it’s going to take a considerable amount of time for the market to recover. Lackluster growth continued even after most South Africans returned to work following the period of lockdown. With a large number of households suffering a partial or total loss of income this year, many are worse off financially compared to the beginning of the year when economic pressures were already taking their toll.
Short-term rental properties previously listed on platforms like Airbnb have been reallocated to the long-term market to avoid standing empty with tourism substantially reduced – and hence the market has essentially been flooded with supply, adding to the existing downward pressure on rental growth. The index reports that quarterly growth (measured year on year) was halved from Q1 to Q2, a direct indicator of the effects of the lockdown in the country. In the third quarter, it measured just 1.5% – the lowest quarterly YoY growth rates since the index was launched in 2012. Rental growth has mostly trended ‘sideways’ since January 2018, with no movement up or down. Since Q1 2020, the moving average trendline, which shows the underlying growth trend more clearly, has pointed downwards and we don’t expect to see growth rates recover for at least another year. Lower interest rates may encourage tenants with sufficient income to exit the rental market and buy a property instead, making it harder for rental agents to find good replacement tenants. After starting the year at 10%, the prime rate is currently at 7%, making the decision to buy a little more attractive.