RENTAL MARKET ABOUT TO STRENGTHEN
While many buy-to-let investors may battle to convince tenants to increase monthly rentals by the traditional 10% when leases come up for renewal this year, the rental market is expected to strengthen over the next 12 months.
Latest rental data from residential letting group Trafalgar as well as property valuators Rode & Associates confirm that rental growth is still lagging house price growth. Trafalgar's rental index for June shows that residential rentals increased by an average 6% over the past 12 months across major South African cities. This compares to average house price growth of 12% (Absa figures) in the year to May.
Latest flat rental data from Rode & Associates show a similar trend with Johannesburg, Cape Town and Durban reporting average rental growth of between 6% and 10% over the past 12 months. Pretoria was the only exception with rentals rising by 12%.
But Trafalgar chairman Neville Schaefer expects rentals to start rising faster than house prices in the next year or so as the property boom subsides and renting becomes more attractive than buying. This means that investors could see rental yields slowly but surely rising above the current norm of around 6% (net), says Schaefer. Most buy-to-let investors have seen income yields halve over the past two years as house price growth surged ahead of rental growth.
Schaefer says the biggest growth in demand for rental properties will no doubt be at the lower, more affordable end of the market up to R4 000 per month. But Schaefer says investors should nevertheless not expect rental yields to return to double-digit levels any-time soon. Those days are over, says Schaefer.
FNB property strategist John Loos agrees that higher rental growth should start kicking-in towards 2007. This will be driven by the recent half percentage point interest rate hike, coupled to the possibility of further increases over the coming months, which should see less rental stock come onto the market.
Loos believes investors will see the strongest rental growth flowing from the smaller and cheaper end of the market as affordability issues continue to drive housing demand – for both buyers and tenants. - Joan Muller
- 2006/07/04
Source: Property 24
