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Rent or buy? Residential property market shifts as rate hikes continue

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Rental vacancy rates have slowed from 13% during the pandemic to 7.8% in the third quarter of 2022.


Rental vacancy rates have slowed from 13% during the pandemic to 7.8% in the third quarter of 2022.

  • On Thursday, SARB’s Monetary Policy Committee increased the repo rate by a further 75 basis points to 7% – the seventh consecutive hike in the repo rate.
  • Signs of a shift in the local housing market due to these interest rate hikes are already reflected in the FNB Residential Property Barometer and enquiries at RE/MAX.
  • One such sign is improved rental vacancy rates.
  • For more financial news, go to the News24 Business front page.

Property data shows a shift in the local housing market as rising interest rates are impacting affordability and, therefore, forcing more prospective homeowners to opt for renting instead.

On Thursday, the SA Reserve Bank’s Monetary Policy Committee (MPC) increased the repo rate by a further 75 basis points to 7%. This is the seventh consecutive hike, and interest rates are now at their highest level since 2016. The prime rate is now 10.5%.

“The effects of these interest rate hikes usually only become evident a few months after consumers adjust to paying the higher debt instalments. However, we have already started to see signs that the property market activity is shifting,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

“Over the last two months, our digital marketing agency has noted a rise in rental-related search terms and a decline in buying search terms. This points to a coming shift in the local housing market [as] affordability becomes an increasing concern for homeowners over time.”

The latest FNB Residential Property Barometer indicates that rising borrowing costs likely diverted some homeownership demand to rentals. It shows the rental market has continued on a gradual recovery path. Rental vacancy rates have slowed from 13% during the pandemic to 7.8% in the third quarter of 2022. However, vacancy rates remain above the pre-pandemic average of 5.3% between 2017 and 2019. 

Rental inflation increased by 2.8% year-on-year in the third quarter of 2022, up from what FNB calls “a trough” of 0.6% in the first quarter of 2021. 

“The pace of [rental] recovery is still constrained by weak employment growth and a rising cost of living. While demand is improving, there is still excess supply in the market. This is reflected by the declining average real rental rate, as well as above-average vacancy rates,” states the FNB barometer report.

According to Samuel Seeff, chair of the Seeff Property Group, semigration and a return of tourism have also boosted rental demand.

House prices 

Annual growth in the FNB House Price Index moved marginally lower in October, averaging 3% from 3.1% in September. According to FNB, slower price growth reflects softer demand due to increased financial pressure on consumers, especially in the lower-priced housing segments.

Seeff foresees that in 2023 the strongest residential property market is likely to be the Western Cape, boosted by semigration and a return of international buyers. 

“We have already seen a notable uptick in sales above the R10 million to R15 million mark for the first time since 2017 in the Cape,” says Seeff.

Given the increased affordability challenge due to the interest rate hikes, Lew Geffen Sotheby’s International Realty CEO Yael Geffen, says first prize always is to hang on to your home.

“So, if you’re battling with bond repayments, be proactive and speak to your financial institution. There isn’t a bank in the world that wants to repossess a home if it can be avoided,” says Geffen. 

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