Grim Outlook for Investors with Property to Let

Private Property South Africa
Private Property Reporter

The rental market is continuing to suffer from an oversupply of stock, a legacy from the buy-to-let boom a few years ago, First National Bank says in its latest House Price Index. In addition, a significant portion of tenants and potential tenants remain financially stressed, painting a bleak picture for the prospects of investors with property to let. Rents in the “flats” category showed the strongest increase, reflecting stronger demand in this property to let segment. This can arguably be seen as proof that tenants remain under financial pressure, therefore the higher demand for property in this more affordable segment. The low consumer price index (CPI) numbers over the past few months is also a poor reflection on the strength of the rental market, FNB says. Housing has the biggest weighting on the index, and the forecast of low CPI numbers for the near term indicates that there will not be significant improvements in the rental market. FNB recorded rental inflation of 6,2% year-on-year in April in the “flats” category – which is certainly more optimistic news for investors with property to let in this segment of the market. Rentals for houses recorded a mere 4,1% growth year-on-year, while the smaller townhouses achieved rental growth of 4,4%. Overall, rental inflation of 4,9% year-on-year was recorded in April. The weak rental inflation also means that the residential property market should not expect too much support from the buy-to-let component, as the “mediocre rental market” will continue to limit buy-to-let buying, FNB warns. There will also be a lack of further interest rate cuts going forward, while economic growth is expected to peak soon. The huge cost increases for utilities and other property rates and taxes will slow down house price growth, with a peak expected in the next few months, FNB says. House price growth is expected to reach 9,6% this year, and slow down to 4,7% in 2011.

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