Western Cape property outshines Gauteng

South Africa’s property market recovery is slow, with high vacancies nationally, but rental prices are rising, and vacancy rates are improving, particularly in the Western Cape.

This was revealed in Rode’s Report on the SA Property Market for the first quarter of 2024.

South Africa’s property market is still recovering from the effects of the Covid-19 pandemic, with the industry still seeing high vacancies.

Flat vacancy rates on a national level edged down to 7.9% in the first quarter of 2024 from 8.1% in the fourth quarter of 2023. 

The report said the Western Cape continues to stand out with its low flat vacancy rate of 2.3% in the first quarter of 2024, well below the national average. 

In contrast, vacancy rates in Gauteng and KwaZulu-Natal were much higher. 

Interestingly, flats were less empty in Johannesburg in Q1 2024 than at the end of 2023, while the trend was the opposite in Pretoria.

The decline in national vacancy rates since their Covid peak has supported rental growth.

Official data from Stats SA shows that in the first quarter of 2024, nominal flat rentals in South Africa increased by 3.6% compared to a year earlier.

The latest PayProp growth figure was for the fourth quarter of 2023 when rentals for housing grew by 4.6%. ‘Housing’ includes flats.

“It is also important to look at the historical annual trend in rents as the bigger picture can get lost in the quarterly data,” the report said. 

The nominal growth rate of rentals in South Africa was on a slowing path between 2015 and 2021, in line with a stalling economy. 

A tiny recovery was seen in 2022, with growth picking up further to 2.4% in 2023 versus 2022. 

However, rentals are still declining in real terms. This suggests that property owners or their managers have generally kept rental increases below inflation to prevent losing tenants.

The improvement in vacancy rates from their Covid-19 high of above 10% and the resultant better rental growth can be partially explained by the improvement in tenant finances. 

The chart shows the number of tenants in arrears as a percentage of the total number of tenants on the PayProp system. Encouragingly, this number declined to 17% in the fourth quarter of 2023 from 17.5% in the third quarter. 

Vacancy rates in South Africa’s provinces and cities have generally improved in the first quarter of 2024 compared to the fourth quarter of 2023.

Growth in residential rentals, which includes flat rents, was achieved in all provinces in nominal terms. 

However, in real terms, rentals were mostly in negative territory after deducting consumer inflation of 5.4%.

The Western Cape shone again with a low flat vacancy rate of 2.3% in the first quarter of 2024, down from 2.8% in the fourth quarter of 2023. 

This is well below the national average of 7.9% and has led to a pickup in residential rental growth to 4.2% in the first quarter of 2024.

The report said semigration is boosting the demand for renting and buying properties in the Western Cape, which also has the lowest unemployment rate in the country.

Cape Town’s vacancy rate averaged 2.5% in the first quarter of 2024, with vacancies even less in Stellenbosch and George. 

The Western Cape also has the best tenants of all nine provinces based on fourth-quarter 2023

PayProp data, with only 14.3% of tenants in arrears − well below the national average of 17%.

Surprisingly, nominal rental growth in KwaZulu-Natal was measured at 4.4% in the first quarter of 2024, in line with Cape Town’s growth. 

Flat vacancy rates are still in double digits in Durban, a city where service delivery and decaying

infrastructure are major issues. 

“This makes us believe that such solid rental growth is not sustainable,” the report said.

In Gauteng, market-rental growth improved further to 2% at the start of 2024 but was still the slowest growth rate of all nine provinces.

“This is not surprising as flat vacancy rates remain high at 9.3%, albeit better than the 10.9% recorded in the fourth quarter of 2023.”

“Gauteng is the economic hub of South Africa, and households there are clearly also under duress.”