Demand exceeds supply in rental market

VACANCIES in the residential property market increased to 6.62 percent in the fourth quarter of last year from 6.53 percent in the previous quarter, despite demand for rental properties still exceeding supply.

However, TPN credit bureau said it was interesting that vacancies declined to 3.02 percent in the below R3 000 a month rental price band and to 9.77 percent in the R12 000 to R25 000 a month rental bracket.

In its latest residential sector vacancy survey report, TPN said oversupply and quality of demand were two major factors affecting vacancies.

It added that a vacant property was defined as a property that was unoccupied and on the market for immediate occupation and not held back for maintenance or other reasons.

With regard to oversupply, TPN said its market strength index pointed to a demand rating of 76.37 percent versus a supply rating of 59.54 percent.

TPN said this pointed to a market where demand for rental property was still greater than the supply of rental property and therefore vacancies were expected to decline.

Turning to the quality of demand, TPN said its tenant credex score data pointed to an improvement in tenant applications in the fourth quarter, because of the availability of better quality tenants.

“It therefore makes sense that vacancies would also decline in this period.

“But it is important to note the change in trend where the number of quality tenant applications have started to deteriorate, but the number of quality tenants actually placed continued to improve, which begs the question: will vacancy rates increase in 2017?”

TPN said to quantify the rental market strength, respondents to the TPN estate agent and landlord survey were asked to rate supply and demand in their area.

It said respondents simply had to indicate whether demand was strong (100), average (50) or weak (0).

TPN said nationally the TPN rental market strength index was at 59.48 percent and continued to ease closer to equilibrium following a small shift from 61.47 percent in the previous quarter.

But TPN said the demand rating continued to decline yearon-year to 76.37 percent in the fourth quarter from 85.41 percent. It said this could probably be attributed to tenants choosing to remain in longer leases to cut back on costs associated with moving properties and landlords holding on to quality tenants even at an opportunity cost of mutual rental escalation of 5.62 percent in the fourth quarter.

TPN said the Western Cape was the “best paying province” and Cape Town’s demand rating of 93.58 percent and more muted supply rating of 38.53 percent was stoking frustration as properties became more unaffordable in the province.