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Massacre for buy-to-let landlords

More than one in five properties in Sandton and along the Atlantic Seaboard is standing vacant.
The worst-performing area in TPN’s survey is the Atlantic Seaboard, where 24.4% of properties are vacant. Image: Supplied

The fourth quarter Vacancy Survey from credit bureau TPN makes for sombre reading. Overall vacancies have rocketed to 12.91% nationally, from 8.97% in the fourth quarter (Q4) of 2019. This means that more than one in 10 rental properties is currently vacant. The survey points to its market strength index of 43 in Q4, which clearly indicates excess rental stock.

Vacancies are elevated at the low- as well as the luxury end of the market. In the sub-R4 500 a month range, vacancies are as high as 16%.

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TPN MD Michelle Dickens says the “BankservAfrica Take-home Pay Index noted that the low end of workers, weekly wage earners and casual workers, were most affected by loss of income”.

Read:
“The demand for housing is significant in this segment of the market, and for landlords the quality of tenant application is weak, and this impacts the vacancy rate.”

Source: TPN Vacancy Survey, Q4 2020

But it is the luxury market where the real pain is being felt.

According to the survey, one in five (20.65%) rentals above R25 000 per month sit vacant. In Q1 of last year, this figure was 16%.

Vacancies in the affordable and mid-market rental segments (between R7 000 and R25 000) are between 10% and 11%, below the national average.

The worst-performing area in the survey is the Atlantic Seaboard, where 24.4% of properties are vacant. This is double the number from Q3. Dickens says this is “not surprising” as this luxury end of the market “has been affected by limited international travel and affordability”.

Not faring much better is (greater) Sandton, with a vacancy rate of 22.4%. This is a deterioration of 17% (or 3.2 percentage points) from Q3. Dickens says this is also “hardly unexpected as tenants continue to downscale looking for more affordable rentals”.

Vacancies in Soweto are “also noticeable at 18.6%”, as tenants who are low earners and casual workers have been most affected by loss of earnings. Encouragingly, she points to the fact that this is basically flat quarter-on-quarter.

Area Vacancy Q3 2020 Vacancy Q4 2020
Atlantic Seaboard 12.4% 24.4%
Sandton 19.2% 22.4%
Soweto 19.4% 18.6%
Cape Town 11.5% 17%
Midrand 13.4% 16.7%
Johannesburg 11.3% 16.4%
Centurion 5.7% 15.8%
Southern Suburbs (CT) 13.4% 15.2%
Gauteng 11.3% 14.6%
Randburg 18.3% 13.3%
National average 11.4% 12.9%
Tshwane 9.4% 12.6%
West Rand 7.5% 10.1%
Ekurhuleni 8.8% 9.8%
Western Cape 10% 9%
KwaZulu-Natal 13% 7.9%
North Coast (KZN) 7.5% 7.4%
Winelands 13.6% 7.1%
Pietermaritzburg 9.8% 6.8%
Eastern Cape 10.4% 6.3%
Northern Suburbs (CT) 6.6% 5.1%
eThekwini 19.4% 4.2%

Some areas have shown wild swings (both negative and positive) between the third and fourth quarters. Examples include the Winelands, Centurion and Randburg. This could be the result of a higher or lower amount of properties in a specific area that are processed by TPN in any given quarter. First quarter data for 2021 will be very useful to establish trends in these areas.

TPN says a recovery in Gauteng (which is home to half of all tenants) is “hampered” by both a deteriorating Demand Rating, which at 51 is the lowest on record, as well as a sharp upward shift in the Supply Rating to 76, which is the highest on record.

It cites Statistics SA data which shows an astonishing 25 500 residential buildings were completed in 2019, the highest in a decade.

‘Gloomy outcome’

TPN says the “gloomy outcome” using the demand and supply ratings produces “a Market Strength Index of 38, also the worst on record, pointing to a market of extreme excess supply”.

The bureau says the Western Cape’s “market adjustment” in 2018 “probably helped soften” the impact of the lockdown last year.

“From mid-2018, demand started deteriorating and supply slowly [started] increasing, spurred on by the fallout of the short-term rentals at the time”.

TPN says the KZN market is “stable with a market strength index of 49, almost back to equilibrium”. The demand rating is at 54, and the supply rating at 56.

Listen to Nompu Siziba’s discussion with Ben Shaw of digital rental platform HouseME about how deposit-free leases are changing the rental property game (or read the transcript here):

COMMENTS   26

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A new term perhaps…..BUY-TO-BLED?

When one looks at that 2020 Q3 vs Q4 rankings…two things I pick up (in the WC at least):

ATLANTIC SEABOARD: vacancies increased from 12% to 24%

WINELANDS: vacancies IMPROVED from 13% down to 7%.

Conclusion thus:

The Clifton / Sea Point /Camps Bay/ Bantry Bay weather-beaten crowd living on top of each other, at last seeing the light by relocating to more serine & peaceful surroundings of mountains & vineyards and ‘kultuur’ 😉

And they bring along their city traffic jams, crime and grime and not to mention, over-development. There are traffic jams in the winelands, a wonderful “improvement” on the rustic lifestyle…

Agree with both of you. The GP, NW, EC, FS cars I now see here in the winelands, have increased significantly.

A “serine” surrounding would be very Acidic !!!

The problem with Clifton/Camps Bay/Bantry Bay is at least 15 people per day press your intercom buzzer and say the following sentence: “Madam, I am hungry….”

And that’s just the Buy-to-let suckers…

The massacre was well underway long before Covid-19, thanks to the recession caused by ANC corruption and mismanagement. Covid just made it a bit more patent.

There is an irresponsibility on the side of Municipalities, like in the CT, where they have allowed the distortion of the market through the over-provision of residential in the City Bowl.

Not only the city bowl, it is all over CT and especially the ex-leafy southern suburbs. Take a drive (if you can handle the 24/7 traffic logjams) through the southern suburbs and see the huge grey 7-floor monoliths which took the place of once-happy family homes.

It was all part of the Grand DAZille plan of “integrating” the city and allowing previously separated people living side by side in humongous blocks of flats. The irony of course, is that the occupants of said flats happen to not be from SA, but from North of the SA border.

you must see the real areas around Durbanville!!! absolute a comedy-setup-in waiting… even the vineyards are making way to cut out erwen… one after the other… these CT control freaks collecting billions/trillions to screw us on water .. & the INFLATED RATES valuations .. and watch the sewers… outrageous!!! ALL WELCOME in the ouden Kaap!!!

So the low interest rate hype , caused a temporary “boom” in property.

The patient investors with foresight , will buy for cents in the Rand.

Once these buy to let homeowners wake up to te reality of managing an empty property , they will very quickly sell.

Good paying Tenants will also pick a choose where they can stay .

Wait 10 – 15 months when the newly unemployed start losing their houses.

Its rough out there but to be fair in CT its been pretty good the last two decades. A bit of a correction is healthy to separate the wheat from the chaff. Building costs have sky rocketed – time to buy is coming soon!

10 years ago this was still the thing to do.

A huge amount of Cape Town property made income form tourists via Air BnB etc. A large part of this “correction” is attributable to that pool of properties now competing for a finite pool of local long-term tenants. Covid will pass, the tourists will stream back, and those properties will be in high demand again. In the mean time there’s great opportunities for first time buyers and those who can ride-out the low rental yields.

Covid will pass just as all viruses have.

Areas like the Atlantic Seaboard and City Bowl have been struggling since late 2016. Looking at apartment prices in Sea Point after in and out transaction costs you are looking at about 3% gain on the capital value compounded per annum over 15 years which is about -1% real. Your rental return net of levies and maintenance is around 3% so one is still showing 2% real which isn’t terrible.
There is a big overhang of stock in the pipeline (think Harbour Arch in the City Bowl). I think there may be a bump in late 2020 / early 2021 when tourists come back and then perhaps a flattening out again.
Anecdotally the student areas also seem to be struggling – Rondebosch, Obs etc. Also lots of new stock aimed at that market came on stream.

Buy to let investors that bought in the last three years with large mortgages are at higher risk.

IMHO: Liquidity is King. Apart from your business and premises and your home do not invest a cent in SA. Why struggle to swim against the outgoing tide. You can get a risk free average 7% pa return just for keeping your money in US$ without making any investments.

Depends on your time horizon. It seems crazy – but over 5 years the Rand has APPRECIATED against the US$. And you could earn a much higher return in low risk assets in SA. Equities would of course have been a different story and mitigated some of the loss on investing in US$.

While you are technically correct with the USD/ZAR appreciation over the last 5 years, it has to be noted that 5 years ago we were in the aftermath of Nenegate which had a massive spike in the exchange rate. The ZAR to USD over the long term is a story of depreciation and I see no reason why the long term in the future will not be the same, especially considering the myriad of problems our economy will face in the coming years.

NR Not true for the 5 year period to end December 2020.

It’s the ANC’s way of equalizing things to the point where only the ANC elite are allowed to create wealth in South Africa.

I feel bad for those whose bread and butter is leasing out houses and apartments. More so the pensioners.

But the 30 something year olds who took out a 2nd and 3rd bond to squeeze the rest who can’t afford their own houses deserve this.

Anyone trying to profit from lodging and people’s health deserves all they are getting. Same group of people as the current crop of GameSpot hedge funds going kaput.

A bit of inside info:-
The recent sales boom (post 1st lockdown)were 80-90% middle, lower end of market. The majority were grade A tenants, who may as well buy due to affordability, good credit, and are in a bracket that cannot realistically look at leaving the land of milk and honey. So what quality tenants are now left swimming in the rental pool? Upper end of the market, loads of supply, very very little pen to paper.
So now, big pockets of oversupply in the market where buy to let buyers are competing with the developers, who are holding and letting the stock that they can’t sell,(at a discount), and of course managing these massive developments, where the levies and admin fees are more of a money spinner than the poor buy to let owner can realistically achieve, and the rub is they are the ones paying the levies, tenanted or not.
So stay away from the lemmings, there are good returns to be made, over time, especially at these interest rates.

Hardly

I own several properties and not a single vacancy

Rent has remained unchanged

It really depends on what you consider to be a good buy-to-let investment

Atlantic Seaboard could not be further from being a good buy-to-let investment

End of comments.

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