SA flat vacancies surge into the double digits

Rode Report warns of more vacancies to come, forcing rentals to decline.
Cape Town’s apartment vacancies more than doubled in the third quarter. Image: Shutterstock

Residential buy-to-let investors beware: South Africa’s flat vacancy rates spiked to 11% in the third quarter of 2020, from 7% in the prior quarter.

“All the major cities now have vacancy rates in the double digits, with Durban and Cape Town the worst off,” according to the latest Rode Report on the South African Property Market (Q3,  2020).

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The report, released on Tuesday by Cape Town-based property economists Rode & Associates, warns that flat vacancy rates will rise further in the short term as more tenants run into financial trouble.

Read: SA office property sector faces ‘work from home’ threat

Durban’s flat vacancy rate is up from 12.1% in the second quarter of 2020 to 19.1% in the third. Cape Town’s apartment vacancies have more than doubled, from 8.3% to 16.7% in the same period.

Financial pressures

“We are sitting with a large number of vacant flats and an even bigger list of tenants in arrears with rental payments,” Rode quotes one of its Cape Town survey respondents as saying.

Joburg’s flat vacancies have also more than doubled to 11.3%, but this is more in line with the national average. Pretoria’s apartment vacancy rate also worsened quarter-on-quarter, but at a slower rate, up 2% to 16.5%.

“High and rising flat vacancy rates have led to weaker rentals,” Kobus Lamprecht, head of research at Rode & Associates, notes in the report.

“Official data from Stats SA show that nominal flat rental growth in the second quarter of 2020 slowed to 2.8%, compared to a year earlier … [This is] the weakest growth since at least 2009. Third quarter rental data are not yet available from Stats SA, but we expect rentals to show a decline soon,” he says.

“Rentals are heading south due to the oversupply of flats, linked to huge increases in new rental stock in 2018 and 2019 and weakening demand as the weak economy hit tenant finances,” he adds.

Source: Rode Report Q3 2020/ Stats SA

The previous Rode Report (Q2, 2020) warned of a further rise in vacancies as tenants opt for more affordable apartments or move in with family or friends to cut costs in the face of the Covid-19 economic fallout.

“Job losses are at record highs, and many South Africans have also experienced salary cuts. But it’s not only about Covid‐19. Let’s not forget the economy was already in a recession before the virus emerged in South Africa in March,” Lamprecht points out.

Ownership becoming more attractive

Citing similar sentiments expressed by FNB, he notes that “some financially sound tenants” are opting to purchase residential flats or houses, as the “monthly cost of owning versus renting is now closer to equilibrium”. This comes as a result of the sharp decline in interest rates.

“Preliminary data from the Deeds Office obtained from FNB shows a strong increase in transaction volumes by younger buyers [below 35 years], from 38% of the total in 2019 to around 43% in 2020. This age group forms the core of the ‘renting age’ in the country,” says Lamprecht.

Speaking to Moneyweb on Wednesday, FNB’s property economist Siphamandla Mkhwanazi highlighted that while massive job losses have taken place, most of these jobs have been cut among lower skilled workers.

Read: ‘W-shaped’ recovery for residential property market, predicts FNB

“Higher skilled and educated people have been relatively insulated in the first wave of job losses, which has seen many of them take advantage of the much lower interest rates and opt to buy investment properties or their first homes, instead of renting,” he says.

“With many corporates picking up the pieces [due to the Covid-19 crunch], we may see a second wave of job losses in South Africa extending to professionals … If this happens, it will have an impact on both the property and buy-to-let markets,” he adds.

Mkhwanazi reiterated that the current move from renting to buying a home is “a contributing factor” to the rise in flat vacancies.

“I see apartment vacancies continuing to increase, while rental escalations are expected to be subdued,” he notes.

Listen to Nompu Siziba’s interview with Erwin Rode of the Rode Report:

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The general property sector and the Cape Town residential letting sector in particular is shot.

Yes, indeed. But landlords are greedy as well. They brought this on themselves in many cases.

And the Mooikloof project aims to build 50 000 units East of Pretoria? Is Pretoria immune to this?

Else it could be a questionable endeavor in the short term.

It’s like apartheid style dormitory towns all over again.

This is a global phenomenon brought on by COVID-19 and is not unique to Saffa or Slaapstad. This situation will change and is already changing as countries open their borders, people return to work, and confidence increases.

All those people who vacated apartments are staying somewhere now? Where? Township 1 rooms, communes and cottages are booming at the moment. So for future developers they need to think outside the box for cheaper accomodation. People will ALWAYS need a place to sleep, its like food. There will ALWAYS be a demand for it.

They have moved back with their families, sharing their homes and maybe expanding their homes to accommodate.

Major shift in society is occurring, and has caught the property “entrepreneurs” with their pants down.

I wonder what all those property “speculators” are feeling??Next comes selling. Whether by necessity or foreclosure the market is about to dump. 10 year Bear Market already.

Remember those heady days way back in 2016/17 when “entrepreneurs” were “snapping up” overpriced Cape Town widgets by the dozen?

These poeples now sitting with very expensive empty properties with very high monthly costs…

The Smart Money moved offshore….

Smart money geared the rental properties, remitted the funds offshore at R10 – R12 to the USD, invested in global equities, used the interest costs locally as a tax deduction and are now able to settle those bonds at R17 to the USD whilst still having capital offshore.

Well those who would listen.

@Charles- “gearing” properties is a theoretical myth and for sure does not work in Africa. Financially Overexposed and too much debt would be better words.

Remember the tourist from miserable climate countries. Coming from one, S.A climate is the crown jewel. Selling that properly will require accommodation unlimited. It all require a bit of above IQ planning. Sadly the only missing part in a otherwise beautiful/perfect country.

I need to notify my rental agency of my intention to renew at the end of October. Thanks for this article. I’ll use the link as the subject of my email.

Knock the rental right down. Tell them take it or leave it. If you have been a “good” tenant, they will come running after you to keep your business, rather than take a risk on extended vacancy or a nightmare tenant.

In this economic condition we have a frog boiling president who dreams of building a whole city .

Work from home changed many of the selection issues. In 2018 you would pay R4k extra to be 45min closer each way commute whether for cost or sanity. Now, you can stay in 2 bedroom townhouse with garden in Winelands for R8k less than a 1 bed CBD apartment costs.

End of comments.

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