Buy-to-let investors may well be in the position to make a packet by renting out their properties to tourists during the FIFA 2010 World Cup, but the general outlook for the residential rental market remains bleak.

Data released by property economists Rode & Associates earlier this week show that flat rentals in Johannesburg and Cape Town were up by a meagre 2% in 2009. In Pretoria and Port Elizabeth rentals actually dropped by -0,4% and -0,1% respectively last year. Durban managed growth of only 4,9%. Rentals for freestanding houses showed equally poor growth in 2009.

This is in stark contrast to the 10% plus rental growth that many buy-to-let investors were typically fetching 18 to 24 months ago. Rode & Associates economist John Lottering says there has been an alarming increase in flat vacancies in both Pretoria and Durban, which has no doubt placed pressure on rentals.

Lottering notes that although the economy is technically out of the recession, the large number of rental flats standing empty in Pretoria and Durban clearly indicates the level of financial stress consumers in these cities are experiencing.

He says rising flat vacancies and lacklustre rental growth rates do not auger well for landlords. Not only have landlords been hit by capital growth losses through falling house prices, but they are now also being squeezed by lower income growth. Lottering says the only upside to weak rental growth is that it will help curb inflation, as residential rentals have a heavy weighting of 16,4% in the Consumer Price Index (CPI).

However, there are some areas where buy-to-let investors continue to see healthy rental growth, with the Johannesburg inner city being a particular case in point. Rode & Associates' figures show that rentals for one bedroom flats in the Hillbrow/Braamfontein/Joubert Park/Berea/Parktown area surged by a whopping 25% over the past 12 months.

It now costs an average R2 833/month to rent a one bedroom flat in Jozi's inner city compared to R2 300/month a year ago. Interestingly, tenants are now paying only R192/month on average more for a one bedroom flat in Johannesburg's northwestern suburbs of Melville, Auckland Park and Westdene than in the inner city. - Joan Muller

Readers' Comments
Have a comment about this article? Email us now.