The SA rental market is in a phase where more people rent for longer due to their inability to save up to buy a home.
Rising interest rates are eroding the prospects of potential homeowners, pushing a trend of longer-term rentals, according to the latest report by property consultancy and research firm Rode & Associates.
On top of increasing interest rates, homeowners must deal with the typical costs of owning a property, such as insurance, rates and taxes, and maintenance, as well as a rising cost of living.
“When it is cheaper to rent rather than to buy, it would make sense – purely from a financial point of view – to rent and religiously save the difference between rent and what the bond instalments would have been. After a few years of saving, a buyer could use the savings for a higher deposit to buy a home, which will by then probably be lower priced in real terms than now,” states the Rode report.
In November, 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%.
Consumer price inflation cooled slightly in November to 7.4%, from 7.6% in October, while food prices continued to climb – reaching 12.5% in November from 12.0% in October. The SA Reserve Bank only expects inflation to “sustainably” move back to its targeted level of 4.5% by the second quarter of 2024.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, says the last few months, the company’s digital marketing agency has noted a rise in rental-related search terms and a decline in buying search terms.
The FNB Residential Property Barometer also indicates that rising borrowing costs likely diverted some homeownership demand to rentals.
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