South Africa

Rental investment strengthening despite slow sales market

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A group of houses forming an upwards arrow

Rental investment is going from strength to strength in South Africa despite a sluggish sales market, according to real estate experts.

According to statistics from the ooba Group mortgage lenders, overall sales volume in 2023 was lower than in 2022, with Q4 coming in 0.4% below the same quarter the previous year.

But investors don’t seem to have been scared off. ooba says property investors now make up 11.8% of all home loan applications compared to a normal level of 4-5%. That’s partly due to the lower overall sales volume as first-time buyers and home movers wait for interest rates to come down – but according to the Seeff Property Group, many regional rental books have grown by 17 to 19%, with some experiencing even faster growth.

Rental growth supports the residential rental sector

Investors getting into the market right now can expect solid rental growth. The latest PayProp Rental Index Annual Market Report shows that rents grew by 4.6% year on year in Q4 2023.

ooba identified Mpumalanga, the Eastern Cape, the Free State and Limpopo as markets with above-average rental investment, and all four of these provinces recorded above-average rental growth in Q4.

However, the standout market was the Western Cape, where 28.5% of all home loan applications were made by investors. The Western Cape had the third lowest rental growth in the country in Q4 at a below-average 3.9%, but still has the highest rents at an average of over R10 000.

Looking more locally, Seeff says it’s smaller centres that are really driving growth while investment in larger cities is slower. The golden opportunities for investors tend to be areas with lower house prices, but close to workplaces or transport networks.

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