Rental market boom as homeowners forced to sell

BY BONNY FOURIE bronwyn.fourie@inl.co.za

WITH THE cost of living spiralling upwards and another interest rate hike a possibility this month, more homeowners are giving up their homes and many buyers putting aside their dreams of owning property.

This is resulting in a growing demand for rental property.

The rising cost of living, says Richard Gray, the chief executive of Harcourts South Africa, is coming at the general public “from all angles” and most people are struggling.

Another interest rate increase may therefore push some homeowners “over the edge of affordability”, forcing them to sell. Increasing numbers of homeowners are selling their properties because of financial stress.

The situation, he says, fuels the rental market, with more people having to rent instead of owning property.

“We have seen an increased demand in rental properties across the board over the past 12 months and this pushes monthly rentals up substantially.”

Chris Tyson, the chairperson of Tyson Properties, says the rental market is “booming” as many people choose to rent rather than buy. The agency’s Johannesburg branch has seen its rental book grow by 100% in just six months.

The growth spurt is expected to continue, with rentals predicted to increase by another 100% over the next year.

“Current economic constraints are impacting first-time buyers and middlemarket buyers, making it difficult to enter and remain in the property market.

“Many are choosing to rent whilst they ride out this period of uncertainty. Those who are budget conscious are opting for a fixed rental cost rather than a fluctuating bond repayment.”

Of course, there are still many people, especially younger South Africans in their twenties, who choose to rent due to the flexibility it offers, particularly as they start their careers.

Empty nesters who no longer need large homes but have yet to decide where they wish to retire, are also selling up and renting while they make up their minds.

Others, however, like to live close to where they work and can rent a “far better and more suitable” property than one for which they would get a home loan approval, says Sharon Kayise, a Tyson Properties’ rental agent in Johannesburg.

Furthermore, she says, there is “a hangover” from the pandemic period as people attempt to recover from the longstanding economic impacts that have been compounded by present-day issues such as load shedding and high fuel prices.

“This has had a domino effect on South Africa’s property market, turning the sellers’ market of the pandemic period into a buyers’ market.”

The situation has also presented “exciting opportunities” for those in the invest-to-let market, which has increased considerably to keep up with demand.

“This is a good investor-buyer market because some homeowners are under pressure. There is an uptick in investor properties and this trend will continue.”

Echoing this, Andrea Tucker, a director of MortgageMe, says high unemployment figures, high inflation, rising interest rates and uncertainty before next year’s general election, have contributed to the flattening of the economy and the home-rental market’s ability to bounce back to preCoved levels.

“The cost of buying and owning a house has become prohibitive for many South Africans, creating a challenging housebuying and selling environment. This has had the effect of strengthening the rental market which, for existing homeowners and investors, can be a reliable source of additional income.”

With as many as 54% of South Africans across all age groups saying they are renting because they cannot afford to buy, she says that turning what may seem like an unsellable liability into an incomegenerating asset is an attractive option for homeowners. In addition, a strong buyers’ market can provide new, prospective purchasers with good opportunities in the buy-to-rent property market.

“If a homeowner is struggling to sell and doesn’t want or need to let the property go when prices are low like they are in many areas at the moment, renting that property out can add an income stream to cover bond repayments and possibly more if one is lucky,” Tucker says.

Kayise says the situation presents “exciting opportunities” for those in the invest-to-let market, which has increased considerably to keep up with demand.

“This is a good investor-buyer market because some homeowners are under pressure. There is an uptick in investor properties and this trend will continue.”

She recommends that would-be investors focus on properties priced up to R1.5 million.

“The lower the price of the property, the better the return for the landlord/investor. There are more tenants in this price range and it is easier to sell this sort of home down the line.”