Johannesburg - The demand for residential rental property is still rising but has not yet begun to put upward pressure on rents.
These days many households are forced to rent accommodation because their financial position does not permit them access to finance to buy a house. But, despite overall rising demand, it appears that only the flat rental market is improving.
Property experts reckon this is largely because there is still a considerable oversupply of rental property in the market – specifically of houses and townhouses.
They expect it to take some time before the oversupply is mopped up.
Over the past year the flat rental market has done slightly better than the house and townhouse rental market.
Nominal flat rents increased by 2% countrywide in the first quarter compared with the corresponding quarter last year, as seen from the latest Rode property report.
In contrast, house rents rose by a mere 1% while townhouse rents were 1% down.
Apart from the oversupply of property, rents are under pressure because consumers are still experiencing financial stress, meaning that they cannot afford higher rents, said Erwin Rode
, a property valuer and economist at Rode & Associates.
In the medium term, he said, residential rents would not rise faster than inflation.
Analysis of the flat rental market in the respective metropolitan areas shows that Pretoria, with its 6% growth in the first quarter of this year, and Cape Town, with 4% growth, were able to beat the rate of rising consumer inflation.
Rental in Durban grew 3% and Bloemfontein, also with 3%, matched inflation, while Johannesburg's 2% underperformed inflation.
Rode said the market for flat rental was doing slightly better because in the past 40 years very few new blocks of flats have been built exclusively for rental. In general they have been sectional title units purchased by individuals for investment, and which have landed in the rental market,.
There are generally townhouses leading to the large oversupply in this segment.
He said that around the country the net income yield for flats was considerably higher than that for both townhouses and houses.
In run-down central Port Elizabeth the net income yield for two-bedroom flats is currently 13% of market value, in Verwoerdpark in Alberton it is 8.1%, and in Witbank 7.9%, but in the up-and-coming Strand in the Western Cape it's only 3%.
In contrast, the average net income yield for houses and townhouses in prime locations is between 4.5% and 5% of their market value.
Against this background of uninspiring rental yield, and also the dismal prospects for capital growth, the significant decline in investor appetite for the residential rental market is hardly surprising.
For business news in Afrikaans, go to www.sake24.com.