Please note that you are using an outdated version of Internet Explorer which is not compatible with some elements of the site. We strongly urge you to update to a newer version for optimal browsing experience.

Flats record strong rental growth

22 Apr 2014

With an overall rental index increase of 8.01 percent for the year, residential rentals increased in every major city in the country, but dipped well below the standard 10 percent annual escalations of the past, according to the Trafalgar Residential Rental Index.

With an overall rental index increase of 8.01 percent for the year, residential rentals increased in every major city in the country, but dipped well below the standard 10 percent annual escalations of the past, according to the Trafalgar Residential Rental Index.

Johannesburg leads the pack with a 9.74 percent average annual increase up to January 2014, followed by Port Elizabeth at 8.63 percent in stark contrast to sister-city East London, which lagged with the lowest rental growth in the country at 5.78 percent.

The index is based on a comparison of the rentals for unfurnished two bedroom flats in Trafalgar’s residential letting portfolio, which comprises over 10 000 rental units countrywide.

“It would appear the days of standard 10 percent rental increases are now past with soaring utility increases imposing significant pressure on tenants and constraining affordable rental increases,” comments Andrew Schaefer, managing director of Trafalgar.

Schaefer says underlying national trends of urbanisation, particularly towards Gauteng, is driving very strong rental demand accompanied by very low vacancies and growing shortages of rental accommodation in many areas.

Strong rental demand across all major cities is renewing interest for buy-to-let purchases mostly around the R500 000 mark, and despite this, he warns that this is not a signal for gung-ho buy-to-let investment.

“Landlords are under increased risk with the majority of consumers resisting increases above the 8 percent mark - the exception being the corporate market where rentals in prime areas can still achieve prior norms of 10 percent.”

There is also a shortage of quality tenants with good credit ratings, coupled with concerns about screening tenant applications as credit amnesty commences this month.

He says there are already early warnings that over-extended tenants are battling to make their monthly payments in full and on time.

Rental Index for June 2013 and January 2014

Area December 2012 June 2013 January 2014
Cape Town 100 101.53 108.35
Durban 100 103.45 107.87
East London 100 102.11 105.78
Inner City 100 103.54 108.14
Johannesburg 100 103.08 109.74
Port Elizabeth 100 104.83 109.63
Pretoria 100 103.18 107.90
South Africa 100 102.98 108.01

Source: Trafalgar Properties

The upward trend in the interest rate cycle with two to three hikes anticipated this year, is expected to place buying a home out of the reach of a growing numbers of consumers, according to Schafer.

“The resultant growth in rental demand - plus the pressure imposed on landlords to increase rentals to cover bond payments - will undoubtedly push rentals up.

“However, increases will be softened by landlords' need to retain quality tenants, recognising the risks of a difficult economic climate, rising unemployment and steep increases in municipal service costs.”

According to recent calculations the component of total rental made up of services recoveries has rocketed from less than 25 percent 5 years ago to around 60 percent.

Schaefer says municipalities’ ongoing inefficiencies around billing accuracy is imposing a significant administrative burden on landlords and owners as well as cash flow shortages when actual meter readings and adjustments are processed.

Given this challenging business environment, Trafalgar is expecting growth in their rental insurance products to safeguard rental collections, to build momentum.

Now outside the January-February seasonal rental peak and with a waning uptake in student accommodation in nodes such as Cape Town’s Rondebosch and Johannesburg’s Braamfontein, the next critical rental demand period is expected in July.

Print Print
Top Articles
For wealthy South Africans an investment from $500k is often less than the cost of a second property, and with this minimum amount set to rise, the rush is on...

Those hoping to sell in the current market should be patient, but pricing your property right and working with a good agent can speed things up. Here's what to expect...

With rentals so high in Cape Town’s prime coastal strip, buying property often makes more financial sense than renting, with good buy-to-let opportunities for investors...

Loading

Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.


Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724