Massacre for buy-to-let landlords

Massacre for buy-to-let landlords

More than one in five properties in Sandton as well as along the Atlantic Seaboard is standing vacant.
The worst-performing area in TPN’s survey is the Atlantic Seaboard, where 24.4% of properties are vacant. Image: Supplied

The fourth quarter Vacancy Survey from credit bureau TPN makes for sombre reading. Overall vacancies have rocketed to 12.91% nationally as well as from 8.97% in the fourth quarter (Q4) of 2019. This means that more than one in 10 rental properties is currently vacant. The survey points to its market strength index of 43 in Q4, which clearly indicates excess rental stock.

Vacancies are elevated at the low- as well as the luxury end of the market. In the sub-R4 500 a month range, vacancies are as high as 16%.

TPN MD Michelle Dickens says the “BankservAfrica Take-home Pay Index noted that the low end of workers, weekly wage earners as well as casual workers, were most affected by loss of income”.

A third of residential tenants won’t pay full rent this year (May 2020)
Residential rental arrears above 25%, vacancies top 11% (Sep 2020)
“The demand for housing is significant in this segment of the market, as well as for landlords the quality of tenant application is weak, and this impacts the vacancy rate.”

Source: TPN Vacancy Survey, Q4 2020

But it is the luxury market where the real pain is being felt.

According to the survey, one in five (20.65%) rentals above R25 000 per month sit vacant. In Q1 of last year, this figure was 16%.

Vacancies in the affordable as well as mid-market rental segments (between R7 000 and R25 000) are between 10% as well as 11%, below the national average.

The worst-performing area in the survey is the Atlantic Seaboard, where 24.4% of properties are vacant. This is double the number from Q3. Dickens says this is “not surprising” as this luxury end of the market “has been affected by limited international travel and affordability”.

Not faring much better is (greater) Sandton, with a vacancy rate of 22.4%. This is a deterioration of 17% (or 3.2 percentage points) from Q3. Dickens says this is also “hardly unexpected as tenants continue to downscale looking for more affordable rentals”.

Vacancies in Soweto are “also noticeable at 18.6%”, as tenants who are low earners as well as casual workers have been most affected by loss of earnings. Encouragingly, she points to the fact that this is basically flat quarter-on-quarter.

Area Vacancy Q3 2020 Vacancy Q4 2020
Atlantic Seaboard 12.4% 24.4%
Sandton 19.2% 22.4%
Soweto 19.4% 18.6%
Cape Town 11.5% 17%
Midrand 13.4% 16.7%
Johannesburg 11.3% 16.4%
Centurion 5.7% 15.8%
Southern Suburbs (CT) 13.4% 15.2%
Gauteng 11.3% 14.6%
Randburg 18.3% 13.3%
National average 11.4% 12.9%
Tshwane 9.4% 12.6%
West Rand 7.5% 10.1%
Ekurhuleni 8.8% 9.8%
Western Cape 10% 9%
KwaZulu-Natal 13% 7.9%
North Coast (KZN) 7.5% 7.4%
Winelands 13.6% 7.1%
Pietermaritzburg 9.8% 6.8%
Eastern Cape 10.4% 6.3%
Northern Suburbs (CT) 6.6% 5.1%
eThekwini 19.4% 4.2%

Some areas have shown wild swings (both negative as well as positive) between the third as well as fourth quarters. Examples include the Winelands, Centurion and Randburg. This could be the result of a higher or lower amount of properties in a specific area that are processed by TPN in any given quarter. First quarter data for 2021 will be very useful to establish trends in these areas.

TPN says a recovery in Gauteng (which is home to half of all tenants) is “hampered” by both a deteriorating Demand Rating. At 51 is the lowest on record, as well as a sharp upward shift in the Supply Rating to 76, which is the highest on record.

It cites Statistics SA data which shows an astonishing 25 500 residential buildings were completed in 2019, the highest in a decade.

‘Gloomy outcome’

TPN says the “gloomy outcome” using the demand as well as supply ratings produces. “ A Market Strength Index of 38, also the worst on record, pointing to a market of extreme excess supply”.

The bureau says the Western Cape’s “market adjustment” in 2018 “probably helped soften the impact of the lockdown last year.

“From mid-2018, demand started deteriorating as well as supply slowly [started] increasing, spurred on by the fallout of the short-term rentals at the time”.

TPN says the KZN market is “stable with a market strength index of 49, almost back to equilibrium”. The demand rating is at 54 as well as the supply rating at 56.

Listen to Nompu Siziba’s discussion with Ben Shaw of digital rental platform HouseME about how deposit-free leases are changing the rental property game