There is a potential for significant growth in SA's rental property market

Makhosini Ndlovu, Product Head at FNB Commercial Property Finance says this upward interest rate cycle is no different, and there is evidence of a recovery in demand for rental properties across South Africa.

"Rentals took a fairly severe hit as a result of the double whammy delivered by Covid-19, as many landlords were required to hold rentals steady or even decrease them over the past two years due to tenant income pressures, and at the same time, a large number of people who would have been renters became first-time homeowners, taking advantage of the massive drop in interest rates as government worked to cushion the economic blow of the pandemic," says Ndlovu.

However, she says demand for rental properties recovered during the first half of 2022 as rising interest rates put landlords back in a favourable position. He predicts that demand for rentals will continue growing into 2023, particularly in the rent affordability 'sweet spot', which ranges between R6 000 and R12 000 per month, depending on the province.

Ndlovu is confident that this growth in demand will be equally evident in all parts of the country, thanks in large part to the shift towards work from home and hybrid work arrangements.

"While the expectations of a full-scale work from home workplace culture that were evident during the lockdowns have not fully materialised, there has been a significant move towards remote working arrangements," he explains, "and that has resulted in a more even spread of rental demand across the country - even in smaller towns that would never previously have been attractive to long-term tenants."

As a result of these shifts, Ndlovu says that FNB has seen a significant spike in demand for rental properties outside of major centres, particularly in coastal towns. But he emphasises that demand is not only rising in these small towns that were historically just holiday destinations; there are also pockets of rising demand in the cities. And the good news is that this is being driven primarily by younger tenants."

"As the workforce becomes younger, it's likely that a more vibrant and sustainable residential property market will continue to emerge, and much of that demand by younger tenants is for smaller, affordable properties that meet their lifestyle aspirations."

Ndlovu says that, currently, supply of rental stock is still largely sufficient to meet the gradually growing demand as the impact of increasing interest rates is still filtering through to consumer budgets, but that may change soon.

"We expect demand to gradually outstrip supply in the coming months, which presents a real opportunity for residential property investors and developers," he says.

In fact, Ndlovu says that FNB Commercial Property is so bullish on rental stock that it recently became the first bank in the country to introduce a 15-year term loan which is helping to create new opportunities for growth in participation in the rental property sector.

"FNB's broad range of property funding solutions means it is relatively easy for someone who starts out using a retail home loan to finance a single buy-to-rent property to quickly expand their rental property portfolio and then seamlessly progress to a partnership with FNB Commercial Property Finance to become a property investor or developer.  The current shift in supply and demand in the residential property sector is making it increasingly viable for more individuals to work with FNB to evolve into commercial property business owners."

Article Courtesy Property24