Please note that you are using an outdated version of Internet Explorer which is not compatible with some elements of the site. We strongly urge you to update to a newer version for optimal browsing experience.

Significant shifts in subdued Johannesburg rental market

22 Dec 2016

Numerous economic and geographic dynamics have created a year-on-year downturn in Johannesburg’s property rental market in 2016, taking its toll on the province’s economy and precipitating notable market shifts.

Numerous economic and geographic dynamics have created a year-on-year downturn in Johannesburg’s property rental market in 2016, taking its toll on the province’s economy and precipitating notable market shifts, says Groves.
The major causes of the slump in earnings derived from investment properties have been spiralling consumer inflation resulting in ever-shrinking household budgets, a gloomy national economic outlook, and the highest unemployment levels in more than a decade, exacerbated by unabated semigration to the Western Cape.

This is according to Shaun Groves, Gauteng Rental Manager for Lew Geffen Sotheby’s International Realty, who says the most notable market adjustment has been the abrupt about-turn in consumer property preferences, with a sharp decline in demand for homes that previously enjoyed centre stage and offered the best returns.

“The seemingly insatiable appetite for apartments in Sandton’s CBD has dwindled as a result of rampant development and oversupply, which is being echoed in other northern suburbs, particularly, as last year’s considerable demand for high-end apartments has cooled,” says Groves.

“And in some suburbs that have traditionally been affordable and family oriented, freestanding homes are now proving increasingly difficult to let.”

He says correctly-priced homes in cluster developments and security estates have seen the least decline in demand.

The rental markets in the Parks, however, Groves says appear to be operating independently from the general Gauteng market, with a continued status quo of high demand and low stock in these conveniently situated, sought-after suburbs.

“The key factor to successful property rentals remains the quality of the tenant you place, and in the current economic climate it is crucial to do the necessary due diligence to minimise the risks,” says Groves.
“Parkhurst, especially, is somewhat of an anomaly with its unwavering gross yield of around 9%, which is largely due to the suburbs distinctive cachet and lifestyle appeal that has long been recognised across multiple demographics,” he says.

“In fact, it is one of very few suburbs that even buyers who are downsizing from stately homes on generous grounds in neighbouring areas still perceive as exclusive and well matched to their lifestyles.”

Payprop’s Rental Index Report at the end of the third quarter of 2016 reflects a meagre growth of 4.8% for the Gauteng rental market since the beginning of the year - considerably lower than the 6.4% national average, and disheartening for a province that has historically provided stable growth of around 8%.

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, cautions that while the national statistics are skewed by the almost excessively buoyant Western Cape rental market that’s running at year-on-year growth of 9.32%, there is still a rocky road ahead for beleaguered investors in Gauteng, especially those who haven’t geographically diversified their portfolios.

“I predict that the current socio-economic climate will not only continue to influence a depressed market well into 2017, but also tighten its grip on already cash-strapped consumers who will be increasingly susceptible to defaulting on payments as their limited financial wiggle room shrinks even further,” says Geffen.

The major causes of the slump in earnings derived from investment properties have been spiralling consumer inflation resulting in ever-shrinking household budgets, a gloomy national economic outlook, and the highest unemployment levels in more than a decade, says Groves.
“This is clearly evidenced by Payprop data, which reveals that Gauteng tenants currently owe on average 40% of their pre-tax income to credit providers, compared to 33% in March last year. The increased debt load is largely due to the fact that they have more store accounts and credit cards than their counterparts in other provinces.”

However, while the immediate forecast may not inspire confidence, Groves says it’s certainly not all doom and gloom, and investors who realistically adjust their expectations and make a concerted effort to meet tenants’ needs should be able to weather the current slump without taking too much of a knock on returns.

“The fact remains that everyone needs a home to call their own, and correctly-priced properties will therefore always have a market, even if it takes a little longer to find a tenant,” he says.

“And in the current market, savvy landlords realise that in order to find reliable tenants it’s essential to cater to their priorities.”

To this end, he says homes with excellent security will always be favoured, as will pet-friendly properties that are an increasingly scarce commodity.

“The key factor to successful property rentals remains the quality of the tenant you place, and in the current economic climate it is crucial to do the necessary due diligence to minimise the risks,” says Groves.

“An established agency will perform thorough credit checks on all prospective tenants, as well as monitor successful applicants’ long-term credit profiles. And with a comprehensive understanding of the numerous layers of legislation governing the industry, agencies will always be best qualified to deal with any tenant issues that may arise.”

Print Print
Top Articles
From seaside eco estates to bushveld reserves, if you want to be closer to nature but still enjoy all the perks of modern living, take a peek at these homes…

Umhlanga offers deluxe beachfront property options, but you don’t need a frontline home to enjoy coastal living and excellent capital appreciation.

The MPC announced today that interest rates will be lowered by 25 basis points. The prime lending rate is now 10%, making it a great time to buy property.

Loading

Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.


Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724