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PROPERTY: Rental Index Reveals Positive Indicators for the Market

 





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Louw Liebenberg, CEO of PayProp, the largest processor of rental payments for the residential letting industry, says that tentative signs of recovery in the rental market during the fourth quarter of 2012 are vindicated by a first quarter of largely positive indicators in 2013.

“Currently the national weighted average rental stands at R5 473 per month - up from a high of R5 384 in the previous quarter. Better yet, this figure was above R5 400 in all three months of Q1, solidifying the gains made after a worrying decline in the latter half of 2012.”

The results also show significant growth in the Northern Cape rental market. “The three month average increase of 13% in the Northern Cape is an extremely positive development and can be attributed to the increasing industrial development in the region, which in turn is creating a demand for accommodation in areas where rental stock is usually limited.” The Index indicates that Gauteng rental growth remains flat and the Eastern Cape decline that has been evident over the past year continues.

The PayProp quarterly Rental Index is seen as the leading source of rental information in the industry, with the company using the actual transactional data of 55 000 active rental properties.

Other trends the Index has revealed in the first quarter of 2013:

Auxiliary costs

Liebenberg says an unexpected development has been the 9% increase in body corporate levies over the past year. “This is not only the highest auxiliary cost, currently averaging R764 per property, but also the fastest growing area.” Also evident was the steady increase in the cost of water and electricity, rose by 10% over the past 12 months

Rental yield

The rental yield* before costs is currently 6.2% and has stayed flat this past quarter. “This is promising as it is the first time we have seen net rental yields exceed the 5% level in a year. We are seeing buy-to-let investors being lured back into the market as a result of the yield potential.” The average number of properties per owner has increased from 1.34 to just below 1.4 over the past 18 months.

The market is experiencing a narrowing gap between gross and net returns. This is as a result of the cost categories experiencing the most dramatic growth and these are traditionally borne by the tenant. He warns that at the moment this may provide some relief for the landlord, however over time this may change as tenants find it difficult to absorb the higher rental increase levels.

Agents

“For agents the Index shows a positive outlook,” says Liebenberg. “The steady rise in the average properties per owner is evidence that the sales market is returning. We are also seeing a slight uptick in actual commissions paid to owners - contrary to the last Index’s declining level of agent commissions”

Middle class rentals

The Index shows that middle class rentals are growing the fastest with the R7 500 – R10 000 category expanding and promising sustained growth at a national level. “It will be interesting to see if this trend continues into the next quarter and if so, at what rate‘” The interest in the R2 500 – R5 000 price category has leveled off and rentals exceeding R10 000 have seen a decline.

 
 
 
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