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Demand pushes up property rentals

Cape Town - Tenants can expect to dig deeper into their pockets over the next 12 to 18 months, with rentals on the rise and a shortage of rental stock developing in many areas.

This is according to Trafalgar property group MD Andrew Schaefer.

This is particularly true in gated communities and sectional title complexes, says Schaefer.

The strongest demand nationally is for two-bedroom units around the R4 500.00 to R5 500.00 per month bracket, and insufficient stock is providing further support for rental growth.

Schaefer also notes resistance to rentals above R6 500 per month in this market.

He predicts that the return to pre-recession rental increase levels of around 10% last year will continue.

The rise in demand is being driven by a number of factors, says Schaefer.

As the country's population gets younger, it is increasingly joining the European mindset towards flexibility and liquidity, which enables young people to travel and follow job opportunities rather than be tied down by mortgages.

“In a few cases we are witnessing younger people renting in the more expensive, trendy areas, and buying in areas where they can afford as an investment.” 

Schaefer identifies areas such as Pretoria West, the West Rand, Midrand and Illovo in Gauteng and the Berea in KZN as receiving the highest level of enquiries.

Research bears this out by showing that the age of first-time homebuyers has risen. This means people are waiting longer to move into the home ownership market, and renting is the preferred option for younger families and individuals.

The slowdown in supply of new affordable homes onto the market, rising building costs and a 13% drop in the number of new plans being passed this year can only contribute to this trend.

There is a silver lining for tenants, however, as some areas will always buck the trend.

Crime and grime

Johannesburg's inner city is an interesting exception, says Schaefer, where office block conversions and buy-to-let stock has been flooding the market with stock over the last two years.

“Here we have seen rentals decrease; for example, bachelor flats are achieving around R650 less rental per month, and increases of only 5% to 8% are realistic.

"This is beginning to stabilise, however, and vacancies have halved over the last 12 months."

Student accommodation in the Durban inner city, Albert Park and Berea area has also been overtraded with signs of supply exceeding demand, which will lead to softer returns and better opportunities for students.

Another pitfall in this market is the holiday exodus of students and low vacancies over the holiday periods, particularly the Christmas season, must be factored into any feasibility, cautions Schaefer.

Sunnyside and the Pretoria CBD are also seeing soft demand translating into low rental increases and even decreases due to crime and grime factors.

“Generally, however, the shortage of affordable houses to buy is a definite driver for the rental market,” says Schaefer.

“Current low interest rates and the move of mortgage lenders into the sector will have a positive impact on affordability.

"However, as prices inevitably rise, the pressure on rentals will continue and in my opinion is here to stay.”       



 
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