Higher interest rates are fueling growth in South Africa’s rental market. The two- to three-bedroom apartment or townhouse is quickly becoming the preferred property, which is great news for property investors like us! The property market remains a sound investment, as current trends show, but a careful evaluation of risk and reward, and diversifying a portfolio, is well-heeded counsel. Emile Grobbelaar of Destinata Holdings says that, ‘Higher interest rates are fueling growth in South Africa’s rental market which has started making a strong comeback. According to an industry review by research firm Mordor Intelligence, the compound annual growth rate (CAGR) from 2020 – 2027 in South Africa’s residential property market is expected to exceed 9%.

Grobbelaar refers to the report that highlights the effect of “low-interest rates, the rise of working-from-home trends, the appeal of working-from-home trends and the appeal of more space in the event of lockdowns are among them”.

In addition, the report does state that, “The slow recovery in the labour market, combined with rising interest rates, suggests a less supportive medium-term environment for home-buying activity”.

But, since the publishing of this report the prime lending rate has leapt from 7% to yet another 25 basis point increase that took the rate to 10.75% in January this year. This follows three 75 basis point hikes in 2022, with more expected to follow.

Many current homeowners are expected to exit the market and are in search of rental properties with the two- to three-bedroom apartment or townhouse becoming the preferred property, which is great news for property investors.

The report confirms by noting the decrease in demand for freestanding homes. ‘Purchase of freehold homes by South Africans has been steadily decreasing, with buyers opting for sectional title and estate homes instead. Increased security, affordability, and the communal lifestyle are attractive aspects when considering sectional title properties’, says Grobbelaar.

While rental market showed a decrease in demand, with the new entrants in the market – this is currently changing. Certain areas in South Africa are still garnering a higher rental income than other areas.

Western Cape market

“The average rent in Western Cape surpassed the ZAR 9,185 mark in Q2 2021, making it the most expensive province to live in. This rent has an average price differential of nearly ZAR 1,000 compared to the second-most costly region.

Property has also held its market value. The repots says, ‘the Western Cape is still showing steady growth in its market and currently, is still the best place to consider investing in property. The capital growth value is two to three times the national average, and rental demand allows for good occupancy’.

Gauteng market

Gauteng, the average rent reached ZAR 8,292 for the first time in 2021, 4.84% more than the 2020 rent and the third-highest growth rate in the country for the quarter. While this rate was lower than the previous year, it was the province’s first increase in quarterly growth in two years, implying the beginning of a recovering rental market in the area.

While Gauteng experienced strong rental growth, investors need to be aware that estate agents in Johannesburg are disputing the current valuation of property in the City of Gold. Confirmed by a report in Business Day recently, ‘real estate companies are weathering a depressed market in SA’s richest metro, Johannesburg, are disputing the general valuation roll for 2023, which shows the property base rose 12% to R1.59-trillion in the past five years’. The increase in value is a contradictory proposition, given the region’s slow economic growth rate and increasing unemployment rates.

Hayley Ivins-Downes, Head of Digital for Lightstone says City of Johannesburg property owners have until end March 2023 to inspect and object to their property values. She says, ‘There should be no discrepancy between your municipal property valuation and your property’s actual value. Failure to object to discrepancies between these two values may not only affect your rates and taxes but can also affect future sales values. It is up to you, the homeowner, to identify and object to any discrepancies, not the municipality, so be sure to ascertain both values and ensure that no issues are present.’

This is why property owners are urged to ensure that the municipal valuations are correct by checking the current valuations as listed by the municipality. Should owners feel that their property has been overvalued, or incorrectly categorised, they may lodge an objection.

In cases like these City of Johannesburg Metropolitan Municipality property owners can, in accordance with Section 49(1)(a)(ii) of the Local Government Property Rates Act, 2004, make objections to the municipality in person if the municipal value differs substantially from the market value.

Despite both positives and negatives property remains a sound investment and trends are showing that this is set to continue, however, at this juncture, a careful evaluation of risk and reward and diversifying a portfolio is well-heeded counsel.

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