Res­i­den­tial rental re­vival

House price growth is slow­ing, and this is ex­pected to boost rental yields.

Finweek English Edition - - THE WEEK - By Glenda Wil­liams edi­to­rial@fin­

aslow­down in eco­nomic growth, com­bined with an in­ter­est rate hik­ing cy­cle, has be­gun to ex­ert down­ward pres­sure on the coun­try’s house price growth, which is ex­pected to av­er­age around 3% in 2017, down from 5% in 2016, ac­cord­ing to FNB.

But slower house price in­fla­tion that un­der­per­forms rental in­fla­tion is ex­actly what is needed in or­der to lift rental yields, says John Loos, FNB’s house­hold and prop­erty sec­tor strate­gist.

The av­er­age rental es­ca­la­tion showed a mod­er­ate in­crease to 4.25% by the third quar­ter of 2016, up from a low of 2.8% year-on-year in the fi­nal quar­ter of 2015, ac­cord­ing to FNBTPN Av­er­age Res­i­den­tial Yield data (see graph).

There is an ex­pec­ta­tion that 2017 will be a year in which av­er­age gross rental yields could rise more no­tice­ably from 9.1% in 2016 to 9.3% by the end of 2017, boost­ing de­mand for rental prop­erty as well as creat­ing an at­trac­tive buyto-let buy­ing op­por­tu­nity.

“The chal­leng­ing eco­nomic en­vi­ron­ment of the last few years has boosted the de­mand for rentals,” Se­eff chair­man, Samuel Se­eff, tells fin­week.

Ris­ing prop­erty prices af­fect­ing af­ford­abil­ity and more stringent vet­ting cri­te­ria for home loans have fur­ther aided the rental mar­ket, he says, ad­ding that rates have climbed at above in­fla­tion rates, so that in many ar­eas there are rental stock short­ages.

Apart­ments in prime ur­ban hubs like Sand­ton and Cape Town’s At­lantic Seaboard, while of­ten ex­pen­sive to pur­chase (thus gen­er­at­ing lower rental yields), are hot in­vest­ments and high on the rental de­mand list.

As it is sit­u­ated in the hub of the coun­try’s eco­nomic cap­i­tal, gross rental yields of up to 8% in Sand­ton are cur­rently pos­si­ble, es­pe­cially in rental stock at lower price lev­els, says Charles Vin­ing, man­ag­ing di­rec­tor of Se­eff Sand­ton.

“A bach­e­lor or stu­dio apart­ment in Sand­ton cen­tral will cost around R7 500/month. A one-be­d­room apart­ment can be picked up for the same price or even less in sub­urbs like Bryanston or Houghton.”

Two-be­d­room, two-bath­room gar­den units in se­cure com­plexes rent­ing for be­tween R8 500 and R10 500 a month can be found in sub­urbs like Bryanston and Houghton, al­though the same units will cost around R15 000 a month in Hyde Park or Sand­hurst, he adds.

Fam­ily homes with gar­dens and good se­cu­rity can fetch any­thing from R20 000 a month in Houghton to R25 000 a month in Hyde Park and R30 000 a month in Sand­hurst and Bryanston, says Vin­ing.

The rental price range most in de­mand along the At­lantic Seaboard and City Bowl is be­tween R20 000 and R30 000 a month, for two- to three-be­d­room units, says Di­nis Martins, chief op­er­at­ing of­fi­cer of Se­eff At­lantic Seaboard & City Bowl.

But he says there is a surge in “next level” rentals – R40 000 to R55 000 a month – such as those paid for large premium se­cu­rity com­plexes.

Gross yields of be­tween 6% and 7% are achiev­able in the ac­tive, buoy­ant mar­ket of the At­lantic Seaboard and Cape Town’s City Bowl, says Martins. He ex­pects the same to hold true in 2017. Gross rental yields of up to 8% cur­rent­lyin Sand­ton pos­si­ble.are

Charles Vin­ing Man­ag­ing di­rec­tor of Se­eff Sand­ton

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