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Constrained economic and household income growth, political uncertainty, flexibility and mobility are reasons for the growing demand for rental properties in South Africa.
According to the recent StatsSA Household Survey, the number of households renting has increased from 17.7% in 2020 to 23.9%.
Waldo Marcus, industry principal at TPN commented: “Well-located properties supported by engaged landlords have seen an improvement in rental yields in both sectional and full-title properties. Overall, demand remains strong while new supply is slower to come online.”
Speaking at the recent Residential Investment & Development (Reside) Summit, Marcus said data from TPN Vacancy Survey for the first quarter of 2024 shows that vacancies have dropped to lowest levels last seen in 2016 – recording 4.42%.
Reasonable rental escalations have seen more investors enter the market lately. In 2023, investors were cautious as they were affected by the higher cost of capital as rental growth was still under the consumer price inflation average of 6%.
The Western Cape, which continues to benefit from semigration, experiences lower rental returns but is supported by decent capital growth. Gauteng and KwaZulu-Natal offer lower capital growth but properties deliver higher yields, according to Marcus.
Marcus said gross rental yields for sectional-title properties sit at 10.62% and are expected to increase. Gross rental yields for full-title properties which fell below 7% in 2022 recorded 7.44% during the first quarter of 2024.
According to Miguel Martins, market analyst and property investor, a reduction in vacancies and growing rental yields indicate a strong rental market. Vacancies were 8.2% a year ago and 7.5% pre-Covid.
A 42m² apartment purchased for about R680,000 commands R7,000 monthly rental with a net rental yield of 10.27% in Johannesburg. Property prices in Johannesburg are sitting at levels last seen 14 years ago, and northern suburbs including Bryanston, Sunninghill and Paulshof offer good value for money.
In Cape Town, a 41m² apartment priced at R910,000 is rented out for R8,700 per month with 10.48% yields, while in Balitto in KwaZulu-Natal, a 57m² one-bedroom apartment priced at R1.3m is rented out for R8,750 per month and achieves 6.56% in net rental yield.
In Cape Town’s Southern Suburbs, a one-bedroom apartment valued at R1.4m and rented for R8,000 offers 6.8% in returns. In terms of capital growth, Cape Town is a strong performer, said Martins.
