Inflation, stagnant salary growth, and high interest rates have made homeownership unaffordable for many South Africans, resulting in rent escalations as demand grows—which is good news for landlords.

On 30 May, The South African Reserve Bank’s (SARB’s) Monetary Policy Committee voted to hold rates, keeping the repo rate at 8.25% and the prime lending rate at 11.75%.

The decision was unanimous. Since the start of the rate hike cycle in November 2021, rates have been hiked by 475bps to the highest levels in 15 years.

Several property experts have called the unanimous decision to hold interest rates as disappointing but expected.

However, what wasn’t expected was Reserve Bank Governor Lesetja Kganyago’s strong indication that the repo rate probably wouldn’t come down at all this year, pointing instead to the second quarter of 2025.

“The stance of the Reserve Bank has been too hawkish. While inflation has moderated, the reality is that keeping the interest rate so high for so long has done little to bring down inflation, largely as it is not demand-driven but rather ‘imported’ into the economy,” said chairman of the Seeff Property Group, Samuel Seeff.

Even Standard Bank recently signalled concern that the level of home loan distress is rising.

This means homeowners will remain under strain for at least the next six months, making it unaffordable for many prospective buyers.

Evidence of this was noted in the latest TPN Tenant Survey Report 2024, which showed that 58% of respondents stated that financial obstacles are the main reason they choose to rent, with 48.1% explaining that they cannot afford to buy a property.

This proves consumers are struggling to deal with high interest rates, inflation, and limited job prospects.

For 9.9% of respondents, a poor credit record is a barrier to purchasing a property.

Additionally, due to the high expenses associated with homeownership, 11.4% of renters believe it is cheaper to rent, while 2.2% do not want to take on the debt of owning a property.

Good news for landlords

While being tough for tenants and wannabe homebuyers, the current market is a good news story for landlords.

The unaffordability of houses has meant that the demand for rentals has increased substantially since 2021, similar to when the SARB’s MPC started the rate hike cycle.

According to the latest Rode’s Report on the South African property market, flat vacancy rates nationally in South Africa have continually dropped from over 10% in 2020 to 7.9% as of Q1 2024.

This, in turn, has resulted in escalating rentals for landlords, with PayProp’s Rental Index Annual Market Report—2024 Edition noting that the average rent in South Africa sits at R8,598—an increase of R368 year on year and R147 above the previous quarter (Q3).

This trend doesn’t seem to be going away anytime soon, as TPN’s survey shows the majority of tenants aren’t looking to own property in the near future.

The survey showed that only 29.2% of tenants are considering taking the property plunge within five years.

However, the report warned that landlords must be mindful of the prevailing economic conditions.

TPN suggests that the current constrained economy requires property investors and practitioners to carefully navigate stressed consumers by implementing reasonable escalations, ensuring good payment behaviour.