Grant Smee
Only Realty Property Group
CEO
Despite economic headwinds and high inflation, South Africa’s rental market showed resilience throughout 2024. However, a quick succession of interest rate cuts has caused many to speculate about whether more tenants will finally move to homeownership.
“2024 was another big year for South Africa’s property rental market, with all major regions registering positive growth,” shares Grant Smee, CEO of Only Realty Property Group, pointing to June 2024 when rental growth outpaced inflation for the first time in nearly five years, increasing by 5.2% year-on-year.
“The country’s most expensive province, the Western Cape, saw a rental growth rate of 9.7%, narrowly outperformed by the country’s front runner, the North West by just 0.1%. Conversely, Gauteng and KwaZulu Natal registered some of the lowest growth rates.”
StatsSA’s Household Survey revealed a notable increase in households opting to rent, climbing from 17.7% in 2020 to 23.9% in 2022. Building on this trend, TPN reported a slowdown in rental escalations to 4.29% in Q2 2024, further reinforcing the growing shift toward renting.
“Rental properties provide flexibility, lower overhead costs, and give tenants access to areas and homes that might otherwise be unaffordable if purchased. This is especially true in gated estates, where monthly levies can reach tens of thousands of rands,” explains Smee.
Will Rate Cuts Impact the Performance of the Buoyant Rental Market?
“While the rate cuts coming into play are notable, we are still a long way off the multi-decade lows of 2020,” he says. “Also, many potential homebuyers are grappling with the high cost of living and reduced savings.”
Smee adds that financial stability and savings are critical considerations for any lender approving a home loan. “There is also generally a requirement to put down a deposit, and without ample savings, this is not always possible.”
However, he adds that for those with some liquidity, lowered interest rates may draw in buy-to-let investors waiting in the wings. “Buy-to-let investors are on the rise – particularly in the Western Cape – where there is high demand. For those who have been waiting, now is a good time to secure a property that covers the bills and can potentially yield additional income,” says Smee.
“It’s also an opportune time for investors wanting to expand their portfolios and for property owners wanting to upscale.”
Overall, Smee believes that the advantages of interest rate cuts far outweigh any potential downfalls. “While areas privy to high levels of rental property vacancies such as Gauteng may feel the impact more than others, it will certainly offer some benefits too.”
Smee highlights one potential drawback of the current climate for tenants: “For those who own a home, the benefits of rate cuts are immediate. For tenants, on the other hand, the financial benefits will most likely not be felt at all.”
Tips to Go from Renting to Buying
For those looking to capitalise on a year of interest rate cuts, Smee offers four tips:
Know Your Credit Score: “Your credit score tells the bank whether you can repay your debts on time, and without a good credit score, you will not be approved for a home loan. A number over 610 is generally acceptable, and nothing less will suffice.”
Research: Once you know your credit score and what you can afford, understand what’s available. “Set some alerts so that you know property prices in your desired area (and within your range of requirements) and become more knowledgeable on the market. Understanding the market will provide you with better leverage when you need to negotiate.”
Start Saving: “Home loans are expensive, and paying them down quickly will make you more financially resilient in times of high interest rates. Remember, interest rates fluctuate, so you need to understand best and worst-case scenarios regarding your repayments.” Smee recommends that potential buyers set up a separate account for savings, preferably a fixed, interest-earning account. “This way, you can’t touch the money, and it starts to grow as interest is earned. I would also advise that you set up an automatic debit order so that it becomes routine,” he concludes.