Ten­ants still call­ing the shots

Rental mar­ket re­cov­ery loses steam

Finweek English Edition - - Property - JOAN MULLER joanm@fin­week.co.za

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).

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