For current property investors, interest rate hikes put pressure on their current cash flow, but should soon be negated by the annual rental increase. Picture: Henk Kruger/ANA/African News Agency
The rise and fall of dynamics in the property industry may start coming to an end as the interest rate begins to stabilise.
The most recent interest rate hike by 50 basis points brings the prime interest rate to 11.75%. Economists say that there is a slight chance that there could be one more this year but another large leap is unlikely.
For property investors, this may put pressure on their cash flow, but should soon be negated by the annual rental increase.
For future investors, while this may seem nonsensical, the time to purchase investment property cannot be more golden. With a large number of homeowners who purchased at the lower interest rates who need to re-enter the rental market having needed to sell, as well as a fairly stable interest rate for purchases.
The TPN Residential Rental Monitor shows that the rental market shows that the top end payment performance has slipped, but the upper to mid-level payment bracket remains in good standing.
According to the report, “The rental bracket R12 000 to R25 000 has recorded its best ever good standing to date with a healthy 87% in good standing. Those paying between R7 000 and R12 000 are even more committed to maintaining their good standing with 88% up to date with their rental payment, exceeding pre-pandemic levels in both 2018 and 2019. It is safe to assume that this rental category has fully recovered from the pandemic”.
With information secured from the National Credit Regulator, the report also shows that the rental payments are the second highest priority for consumers.
According to the report, “Rental payments are considered the second most important household budget credit priority, second only to mortgages or bond repayments which have a good standing of 90.57%, followed by credit cards with a good standing of 75.3% and secured credit at 74.7%. Short term credit is still struggling to recover from the pandemic with a good standing of 67.3% while unsecured credit has a good standing of 70.4%”.
“Gauteng continued to struggle to achieve higher escalations with rentals only growing 1.69% year-on-year. At 6.67%, Gauteng’s vacancies are the second lowest of all the major provinces, but vacancies are expected to increase as supply is added. Landlords have been easing rentals to ensure higher occupancies and this strategy is starting to pay off as reflected in the data. However, Gauteng still struggles to collect rental payments on time with only 80.96% of tenants in good standing,” says TPN.
But, the Western Cape is still holding strong. According to the report, “The Western Cape’s steep rental increases of 4.17% in the second quarter have not dented landlords’ ability to collect rentals, with the province’s good standing figure at 86.61%. The province’s vacancy rate remains stable as demand strengthens. This is not surprising as the province has the lowest unemployment rate even according to the expanded definition of all provinces at just 31.3% (source: Stats SA).
The high unemployment rate (provinces) the Free State (40.3%) and North West (49.2%), are still both struggling with rental payments.
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Grobbelaar is a Property Portfolio Manager at Destinata Holdings
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