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Jul 19, 2019 9:02:10 PM

Rental market gains momentum as financial pressure property sales increase

Topics: Selling, Richard Gray, Financial Advice, Harcourts Real Estate 0

According to the latest FNB Property Barometer Survey data shows that “Downscaling because of life stage” dominates as the most prominent reason for selling a property in SA, with such sales accounting for 23% of all sales in 2Q19, the same as in 1Q19.  However, what is most concerning is that “Downscaling due to financial pressure” has become increasingly prominent in the past year; the estimated proportion of such sales jumped to 19% in 2Q19 from 16% in 1Q19.

FNB Economist, Siphamandla Mkhwanazi, explains that this is consistent with their view that household finances are under pressure. Of those who sell due to financial pressure, around 60% now opt for the rental market, as opposed to a cheaper property. However, these trends do not appear to have benefited the rental market yet, as flat vacancies have continued rising and rental inflation is still muted.

This is supported by recent data released which shows that the proportion of new flats and townhouses (as % of total new housing units) is trending significantly above its long-term average of around 30%. Year-to-date, these units have accounted for approximately 60% of new stock, up from 29% in 2015 and 13% in 2000. This could be explained by the increasingly urbanising population, rising densification in the metros, as well as the changing consumer preferences (e.g. buyers are now more security conscious in their buying decisions).

Consumers remain under pressure as recent data showcases that many South Africans are having to tighten their belts even with regards to basic necessities. The trend to downscale from buyer activity to rental properties has risen largely due to the financial implications originating from the economic instability of the country. Unfortunately, the periodical reduction in the petrol price does not come into play when consumers are making long term decisions as the fluctuation occurs too often.

Another major reason for the rise in demand for flats and townhouses are the advantages of safety.  Crime remains a major issue in South Africa and this uncomfortable truth undoubtedly plays a part when tenants select property options. Many complexes and estates have state-of-the-art security systems as well as armed response. In addition, the sense of community and the close proximity of neighbours makes many people feel much safer.

Taking these factors into consideration and the advantage of affordability there is no doubt why the demand for rental properties is rising so sharply. However, we feel there is certainly a change in sentiment and that the outlook for the second half of the year looks far more promising.

Statement by
Richard Gray

Harcourts Africa Chief Executive Officer