Has the Western Cape rental market bubble officially burst?

The TPN Market Strength Index aims to reflect the impact of the demand rating compared to the supply rating and even though the supply rating has increased significantly from 45% in Q1 of 2018 to 57% in Q2 of 2018, it was the weakening in demand from 87% in Q1 2018 to 69% in Q2 2018 which had the more severe impact on the TPN Market Strength Index.

Providing the perfect echo to the Market Strength Index, the vacancy rate in the Western Cape nearly doubled from just below 4% in Q1 to 7.5% in Q2, with the national average at 8%. Another dramatic indication of the major shift that has rattled the status quo in the Western Cape in the space of four months.

So what happened in Q1 to set us up for the fall in Q2?

“The province over-heated to such a degree in terms of the escalation of rent that tenants could simply no longer afford to rent in the Western Cape in comparison to the national rental escalation,” said Michelle Dickens, MD of TPN. “TPN clients report a drop in rental prices of up to 20% in Cape Town in order to keep tenants interested in vacant properties, most predominantly occurring in the Southern Suburbs. The question emerges then: Is this an indicator of higher tenant delinquencies and a decline in tenant payment behaviour in the months to come?”

It would seem that multiple factors congregated in the Western Cape to cause the dramatic downturn. To what extent the drought influenced property prices and therefore rental prices is too soon to say, but it may very well have put a hold on potential inward migration to Cape Town. All in all, the strongest indicators point toward economic factors being behind tenants’ inability to maintain the Western Cape rental market on the peak that it was perched.