Rental demand for flats on the mend

Johannesburg - There are tentative signs that the residential rental market is on the mend.

But the improvement is visible only in the flat-rental market and not in the housing and townhouse markets, as shown by figures from Rode & Associates for the third quarter of last year.

Analysts reckon the buy-to-let market will therefore probably take a number of years to get back on its feet.

Investors in the rental market have for some time been giving this market a wide berth as income yields have shrunk significantly over the past couple of years.

The average net income yield obtained for residential rental properties in urban areas is currently around 4.5% of market value, said Erwin Rode, property valuer and economist at Rode & Associates. This means that the annual gross income yield is about 1.5 percentage points higher, at 6%.

For buy-to-let investors this is an uninspiring figure and they are not falling over one another to get involved in the market, especially when one considers that 10 years ago the gross return was about 10%.

Rode says one could argue that house prices are too high or that rentals are too low, but is probably a case of house prices being too high.

Investors’ absence from the buy-to-let market is also reflected in the First National Bank (FNB) agent research report for the fourth quarter of last year.

During this quarter the proportion of properties bought with a view to letting them was a mere 7% of total sales for the second successive quarter. FNB property analyst John Loos said this was light years removed from the estimated 25% early in 2004.

- Sake24

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