2009/02/02

Despite softer residential rental demand appearing in 2008, the Trafalgar index rose by nearly 13% from January to December.

Regional increases ranged from 9% in Johannesburg to 21% in Port Elizabeth, says Trafalgar managing director Andrew Schaefer.

"The market is a bit schizophrenic. We got increased demand late in the year compared with earlier, possibly from people unable to finance home ownership, while supply of new stock is drying up. At the same time many tenants are struggling to pay their rents on time.

"Right now we can't predict whether rents will rise or fall this year. My guess is that broader demand will leave prices higher in December than they are in January."

The index is built from the like-for-like rental differences in two-bedroom flats in the Trafalgar portfolio to avoid distortion caused by new trends, for instance, to rent cheaper or more expensive homes.

Cape Town rents rose a relatively modest 11%, Kwa-Zulu Natal rose 14,5% and rents in East London were 15% higher than December 2007. Pretoria rents are up 16%. Pretoria's index at 146 has risen from the index's December 2003 base far slower than the national average of 158. Cape Town at 151 continues to lag but Johannesburg, despite its single digit below-inflation gain, is ahead of the national average at 166.

Schaefer says the very conservative lending policies of the banks will seriously restrain home buying in 2009 and 2010. "But this is very good news for established buy-to-let investors," says Schaefer.

"They will have very little buying competition from owner-occupiers and will have a wide choice of bargains, particularly later this year. They will have the equity to finance their purchases at low loans to value. We also expect them to find stronger rental demand. Though affordability might keep rental rises in single digits, correctly priced properties will be rented quickly."

Schaefer warned investors to be wary of increasing rents too fast in difficult times for many households. "Cash flow is far more valuable than profit in this market. The financial and economic future of the world and South Africa is too uncertain to take risks. Investors seem to be aware of this because current increases seem to be averaging about 8%," he says.