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A slowing trend for the residential rental market

Residential rental market still pressured by weak economy and low interest rates, the result being further slowing in CPI rental inflation in the September CPI.

Unlike the strong home buying market, the rental market still languishes in the doldrums.

The September release of the CPI (Consumer Price Index) inflation data gave confirmation of ongoing residential rental market weakness, with the CPI for residential rentals seeing its year-on-year inflation rate slow further from 1.8% in the June CPI survey to a lowly 1.4%. This continues a slowing trend from a multi-year high of 5.7% back in 2017.

The ongoing slowdown in rental inflation is reflective of weakening rental market fundamentals that have been witnessed in various other rental market data such as TPN's vacancy rate data showing a national increase in vacancies, and in its tenant payment performance data which has shown a multi-year weakening.

A long run stagnation in economic growth in SA has gradually applied greater financial pressure to the tenant population, and thus its ability to pay rent, with the COVID-19 lockdown period greatly intensifying this pressure.

However, more recently the rental market weakness is perhaps more than just about a weak economy. Sharp SARB interest rate cuts earlier in 2020, a response to the COVID-19 crisis, has made home buying significantly more appealing to credit-dependent aspirant home buyers. The resultant surge in home buying demand has probably then meant a departure from the rental market of a portion of tenants that are converting to being home owners.

Thus appears a tale of two very different markets, a strong home owner market, and a weak rental market.