After the ups and downs of 2023, what can residential rental professionals expect this year?
In 2023, the industry welcomed eight consecutive quarters of rental growth and a surprise drop in the share of tenants in arrears, despite ongoing cost-of-living pressures. However, high interest rates slowed down the sales market while inflation ate into agents’ real-terms returns.
Interest rates the key factor
The biggest factor affecting rental market performance this year should be the South African Reserve Bank (SARB) interest rate. The current prime lending rate of 11.75% is the highest since 2009, and has more than doubled since the start of 2022, putting off buyers and encouraging them to rent instead. According to Lightstone Property, transactions are down nearly a third over 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.
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.
Following suit would take interest rates to 7.75%, the same as in April and May last year, which would be a relief for homeowners, but probably not enough to perk up sales.
It would also not significantly affect rental demand, prompting further rent increases. The latest PayProp Rental Index measured accelerating rental growth for eight straight quarters. Just as important, the 4.6% year on year rent rise in Q3 was close to the inflation rate, making real-terms rental growth a real possibility this year – something not seen since before the COVID-19 pandemic.
Red flags to watch out for in 2024
There are plenty of positive signs for the year, but rental practitioners must stay sharp. At the 2023 PayProp Roadshow, Transcend Residential Property Fund CEO Myles Kritzinger teamed up with Just Property Prosper principal Pieter van den Berg to highlight major risks facing the residential rental sector.
For Kritzinger, affordability remains a big issue. While strong demand offers room to raise rents, the rising cost of living could make it difficult to do so quickly. “At the end of the day, you’ve got to be cognisant of what people can afford,” he said.
Meanwhile, Van den Berg warned that higher demand could prompt more landlords to make do without an agent. To attract and retain clients, agents will have to showcase the value they bring at all stages of the tenancy – including streamlined invoicing, payments, maintenance management and more.
