Tenants still calling the shots
Rental market recovery loses steam
EXPECTATIONS THAT THE residential rental market would stage a strong rebound this year now appear somewhat premature. Data emerging from more than one industry player shows the market has been flooded with rental stock over recent months, forcing landlords to lower their asking rentals. Statistics from online rental portal Rentproperty.co.za show that asking rentals for units of all sizes throughout South Africa dropped by an average 9% in second quarter 2008.
Pierre Fourie, CEO of Rentproperty.co.za, says while there was still double-digit growth in asking rentals in the six months to end-March this year, the market seems to have run out of steam in the second quarter. That saw the average asking rentals for all properties fall from R6 854 in the first quarter to R6 295 in the second. Fourie says the dip experienced by the rental market over the past few months for to two reasons: tenants starting to feel the financial squeeze and the slowdown in housing sales, causing unsold properties to be moved to sale houses in oversupply usually find their way back on to the rental market. “In Britain a sales bust is always followed by a rental bust. It’s happening again now. We could see the same trend emerge in SA.”
Rentproperty.co.za isn’t the only source to report the rental market is cooling. FNB’s latest rental property barometer shows demand for rental accommodation took an unexpected the rental market.
Rentproperty.co.za is a database for agents, private landlords and tenants. Around 6 700 rental properties are currently listed on the site. Fourie says information exchanged between stakeholders happens in real time, which allows the site to track rental trends on a daily basis. Fourie says unless there’s a sudden recovery in the general housing market, the trend of negative growth in asking rentals may well continue into second half 2008. He notes that contrary to popular belief, the rental market doesn’t necessarily benefit from a downturn in housing sales. In fact, Fourie says, the opposite is true, as dip in the second quarter. FNB Home Loans property strategist John Loos says a reason for the decline in rental market activity is that tenants’ disposable income is coming under increasing pressure. Says Loos: “There appears to be a limit to what the market is prepared to pay – despite renting still being a cheaper option than buying.” Further evidence that the rental market experienced a lull in second quarter 2008 is that it’s taking longer to fill rental units. Rental agents interviewed in the FNB survey showed only 59% of rental properties were snapped up in less than a month in the second quarter, down from 75% in the first. Most rental agents also agree it’s becoming more difficult for landlords to pass further interest rate hikes and surging inflation on to tenants. FNB’s data shows gross income yields (annual rent as a percentage of market value) earned by buy-to-let investors remain in the 7% to 9% range – further evidence that the market still favours tenants. That compares poorly to income yields of more than 10% currently available on bonds and cash.
Rentproperty.co.za tracks a number of trends that provide interesting insight to both buy-to-let investors and tenants. For example, it shows the most expensive SA suburb in which to rent property in terms of rental/sq m currently is Sandhurst, north of Johannesburg, where landlords are now asking an average R206/sq m. Bantry Bay and Granger Bay in Cape Town and Hurlingham and Dunkeld in Johannesburg are other suburbs that rank among SA’s priciest rental areas (see table).