Home rentals remain sluggish

Johannesburg – While house prices are on the rise, new data show the buy-to-let market will continue to lag a revival in the residential property market.

FNB's House Price Index and Property Economic Review, released on Tuesday, showed annual house price growth increased to 11.9% in May from April's 10.1%. This comes on the back of lower interest rates and a growing economy, which translated into higher wages.

However, FNB's Home Loans strategist John Loos said the sector will be hit by new affordability challenges. As a result, house prices are expected to show single-digit growth this year.

"The cost of running the home is fast becoming a key challenge," said Loos. "No surprises for guessing that it is overwhelmingly the electricity component which exerts upward pressure on housing inflation."

Eskom piled a 24.3% electricity increase on consumers in April, while water rates showed a 9.4% annual increase, according to Statistics SA's consumer price inflation figures for April.

Weak rental inflation has shown the buy-to-let market's recovery remains fragile. Rent increases in the largest house category were 4.1% year-on-year in April. Smaller townhouses recorded rental growth of 4.4%, with flats posting rental growth figures of 6.2%.

According to Loos, the rental market will continue to underperform the residential property sector due to an oversupply of stock and the general financial pressure consumers are experiencing.

Standard Bank's Residential Property Gauge for April, also released on Tuesday, said despite improved affordability, the housing market remains constrained by high household indebtedness and high unemployment.

According to Standard Bank, the median property price financed for May rose by 2.3% year-in-year to R579 000. "At this juncture, growth between 3% and 5% seems more likely [for the year]," said Standard Bank.

 - Fin24.com