At least 25% of houses sold in the second quarter of this year were the result of financial pressure on the household. According to John Loos, property strategist at FNB Home Loans, financial stress and pessimism about the future had contributed to the rising stock levels for estate agents.
He says that in the first quarter, low interest rates had been cited by estate agents as a key factor that influenced the outlook for home sales but in the second quarter this changed and houses are available on the market because the owners want to reduce their monthly costs.
Loos says that when interest rates rise – expected later this year or early next year – the financial strain will be even greater for homeowners who are already hard-pressed to meet their monthly commitments.
He says that regional property demand tends to be seasonal and that generally the outlook among estate agents remains rather low in winter.
In a separate development, Saul Geffen chief executive of ooba, one of the country’s mortgage originators, says that banks are continuing to relax their lending criteria and this is having an impact on sales figures.
He says the initial decline ratio fell by 5,8% in the second quarter of the year but remained high at 47,1%.
Loos says that fewer agents see the low interest rates as being a significant factor in boosting house sales and emphasised that agents point out that there has been a significant rise in the number of people seeking to downscale their living costs.
Meanwhile credit bureau and property rental management company, TPN says that 81% of tenants are currently in good standing with their landlords. According to TPN this is a sign that residential tenants are managing their credit better than in previous years.
The rental price bracket of between R3k and R7k proved to be performing particularly well with 84% of tenants in good standing and paying their rent on time.
However, in the price bracket below R3k as well as those above R12k had deteriorated and it says that this is further evidence of the financial strains that are currently facing many consumers. Only 75% of tenants living in homes costing less that R3k a month were in good standing while the percentage of paying more than R12k had fallen to 74%.
Non-payment of rental in both these brackets was 14%. Furthermore in the R12k-plus bracket only 67% of people paid on time while those who pay late was also at 14%.
It says the residential property markets in the Eastern and Western Cape continue to out-perform the markets in Gauteng and KwaZulu-Natal.
We offer property investment opportunities throughout South Africa and Europe
Showing posts with label rental market. Show all posts
Showing posts with label rental market. Show all posts
Friday, 24 June 2011
Friday, 15 April 2011
Rental Property to improve this year
While data availability for the South African rental market is somewhat sparse, available indicators suggest some improvement in the fundamentals driving the rental market, the FNB property barometer indicates.
"It is difficult to determine the level of rental demand, but we believe that the current economic and financial times may have led to some improvement in the demand side of the rental market too," said FNB property strategist John Loos.
He said household sector financial pressure could be a positive factor for the rental market, because it could increase the short-term appeal of renting for a certain group of financially stretched households.
The risks of interest rate hikes later in 2011 were also believed to be a positive for rental demand, as this could lead to some more cautious would-be home buyers adopting a "wait and see" approach, remaining in the rental market for longer and supporting rental demand.
"Our home-buying survey respondents suggest that, although having declined significantly since 2008-09, the percentage of home sellers selling in order to downscale due to financial pressure remains high at about 22%, and many of these sellers move into the rental market," Loos said.
As to how much of the rental market's performance was due to supply factors and how much due to demand-side forces was debatable, Loos said. "We believe that there are elements of both, particularly on the supply side due to weak buy-to-let buying in recent times. The net result, though, appears to be one of mild rental market strengthening through 2010."
Using data from Rode and Associates regarding flat rentals, it would appear that at least the flats component of the rental market had responded, Loos said.
"By major city, while one saw no fireworks yet, our calculations of flat rental averages per major city showed a broad increase in market rental inflation rates since the 2009 slump. The two-quarter moving average for Johannesburg showed the most impressive increase of 16.2% year on year as at the fourth quarter of 2010, while Pretoria showed the slowest rate of increase of 5.5%," he said.
"It is difficult to determine the level of rental demand, but we believe that the current economic and financial times may have led to some improvement in the demand side of the rental market too," said FNB property strategist John Loos.
He said household sector financial pressure could be a positive factor for the rental market, because it could increase the short-term appeal of renting for a certain group of financially stretched households.
The risks of interest rate hikes later in 2011 were also believed to be a positive for rental demand, as this could lead to some more cautious would-be home buyers adopting a "wait and see" approach, remaining in the rental market for longer and supporting rental demand.
"Our home-buying survey respondents suggest that, although having declined significantly since 2008-09, the percentage of home sellers selling in order to downscale due to financial pressure remains high at about 22%, and many of these sellers move into the rental market," Loos said.
As to how much of the rental market's performance was due to supply factors and how much due to demand-side forces was debatable, Loos said. "We believe that there are elements of both, particularly on the supply side due to weak buy-to-let buying in recent times. The net result, though, appears to be one of mild rental market strengthening through 2010."
Using data from Rode and Associates regarding flat rentals, it would appear that at least the flats component of the rental market had responded, Loos said.
"By major city, while one saw no fireworks yet, our calculations of flat rental averages per major city showed a broad increase in market rental inflation rates since the 2009 slump. The two-quarter moving average for Johannesburg showed the most impressive increase of 16.2% year on year as at the fourth quarter of 2010, while Pretoria showed the slowest rate of increase of 5.5%," he said.
Friday, 14 January 2011
Rising from the Rental Market grave.....
Data availability for the rental market is far less comprehensive than for the home buying market in South Africa. However, with what data we have it would appear that the fundamentals of the rental market may be improving, and this may lead to rental market strengthening in 2011.
During the property boom years, buy-to-let buying of residential property was taking place at a far greater pace, implying that the supply of rental stock coming onto the market was growing rapidly. This appears to no longer be the case. In the fourth quarter FNB Estate Agent Buy-to-Let Survey, buy-to-let buying remained at a lowly estimated seven percent of total buying, unchanged for the second successive quarter and a far cry from the estimated 25 percent back early in 2004.
This buy-to-let weakness comes as little surprise, with the household sector still under very significant financial pressure as well as being highly-indebted, while banks’ credit criteria remain conservative by the standards of a few years ago. This not only constrains the supply growth in rental stock, but also keeps a greater number of would-be first time home buyers in the rental market for longer than would otherwise be the case, thereby supporting rental demand.
In addition, very low house price inflation means that our property-related real prime rate (i.e. adjusting prime rate for house price inflation) remains positive (+5.4 percent in December 2010). This curtails the short term speculative component of buy-to-let buying, where buy-to-let buyers are more focused on profiting through short term capital growth on property outstripping interest rates. This form of buying is believed to have been far more significant during the boom years when at one stage during 2005 the property-related measure of the real prime rate was negative to the tune of -25.3 percent, a speculator’s paradise.
Low interest rates and growing economy = better quality of tenant
According to credit bureau TPN, there has been a broad improvement in the quality of tenants since early-2009. As at the first quarter of 2009, only 71 percent of tenants on TPN’s records were "in good standing". During the second and third quarters of 2010, this percentage has risen to 82 percent and 81 percent respectively, the highest percentages since back in the first half of 2008 prior to the national recession. Yes, many tenants, like home owners, were also affected by recession and high interest rates back then. The more recent apparent improvement in tenant quality also bodes well for an improvement in the rental market.
Rental inflation accelerating
Given the lack of supply growth in rental stock, and reason to believe that significant financial barriers to entry to home ownership exist at present, it came as little surprise that we started to see an upward turn in StatsSA’s CPI home rental inflation survey numbers. Done on a three-monthly basis, inflation in actual residential rentals rose from 4.5 percent in June to 5.6 percent year-on-year in the September survey. This represents a turnaround from a steadily decelerating rental inflation rate since back early in 2009.
The initial rental inflation rise nevertheless points to a still financially pressured household sector, with "smaller being better", and thus the fastest rental inflation acceleration took place in the flats category (8.6 percent, up from six percent). By comparison, townhouse rental inflation measured 4.4 percent, moderately up from four percent in the previous quarter’s survey while house rental inflation was virtually unchanged from the previous survey.
2011's rental inflation important for buy-to-let recovery
A lack of buy-to-let demand in recent years, especially through 2010, implying slow growth in rental stock, is crucial to our belief that we will see some acceleration in rental inflation through 2011. In addition, given our expectation that consumer price inflation will gradually rise further through 2011, after two successive months of increase late in 2010, it looks increasingly unlikely that the SARB will cut interest rates any further for the time being at least, and sideways movement in rates through 2011 is anticipated. This may put the brakes on first time home buying, keeping more would-be home buyers in the rental market and thereby supporting rental demand.
An expected rise in rental inflation in turn has two possible effects. Firstly, given very low expected house price inflation, we believe that gross yields on residential property will rise through 2011, and this is a key pre-requisite to larger numbers of investors returning to the market at some future stage. Secondly, however, it can have the shorter term effect of contributing to rising consumer price inflation which could ultimately mean rising interest rates (although Firstrand only expects interest rate hikes to commence early in 2012).
In the fourth quarter 2010 FNB Estate Agent Survey an increased portion of the sample of agents expected an improvement in first quarter 2011 buy-to-let buying. This drove the FNB Buy-to-Let Confidence Indicator slightly higher to 0.065 (scale +1 to -1) from a previous quarter’s low point of 0.045.
This is an interesting turn in estate agent sentiment after five previous quarters of deterioration. In our own opinion, any noticeable improvement in buy-to-let buying may take somewhat longer. However, we do believe that the fundamentals that ultimately drive the buy-to-let market (i.e. a stronger rental market and higher yields on residential property) should improve significantly through the course of 2011, setting the buy-to-let market up for strengthening at a later stage.
During the property boom years, buy-to-let buying of residential property was taking place at a far greater pace, implying that the supply of rental stock coming onto the market was growing rapidly. This appears to no longer be the case. In the fourth quarter FNB Estate Agent Buy-to-Let Survey, buy-to-let buying remained at a lowly estimated seven percent of total buying, unchanged for the second successive quarter and a far cry from the estimated 25 percent back early in 2004.
This buy-to-let weakness comes as little surprise, with the household sector still under very significant financial pressure as well as being highly-indebted, while banks’ credit criteria remain conservative by the standards of a few years ago. This not only constrains the supply growth in rental stock, but also keeps a greater number of would-be first time home buyers in the rental market for longer than would otherwise be the case, thereby supporting rental demand.
In addition, very low house price inflation means that our property-related real prime rate (i.e. adjusting prime rate for house price inflation) remains positive (+5.4 percent in December 2010). This curtails the short term speculative component of buy-to-let buying, where buy-to-let buyers are more focused on profiting through short term capital growth on property outstripping interest rates. This form of buying is believed to have been far more significant during the boom years when at one stage during 2005 the property-related measure of the real prime rate was negative to the tune of -25.3 percent, a speculator’s paradise.
Low interest rates and growing economy = better quality of tenant
According to credit bureau TPN, there has been a broad improvement in the quality of tenants since early-2009. As at the first quarter of 2009, only 71 percent of tenants on TPN’s records were "in good standing". During the second and third quarters of 2010, this percentage has risen to 82 percent and 81 percent respectively, the highest percentages since back in the first half of 2008 prior to the national recession. Yes, many tenants, like home owners, were also affected by recession and high interest rates back then. The more recent apparent improvement in tenant quality also bodes well for an improvement in the rental market.
Rental inflation accelerating
Given the lack of supply growth in rental stock, and reason to believe that significant financial barriers to entry to home ownership exist at present, it came as little surprise that we started to see an upward turn in StatsSA’s CPI home rental inflation survey numbers. Done on a three-monthly basis, inflation in actual residential rentals rose from 4.5 percent in June to 5.6 percent year-on-year in the September survey. This represents a turnaround from a steadily decelerating rental inflation rate since back early in 2009.
The initial rental inflation rise nevertheless points to a still financially pressured household sector, with "smaller being better", and thus the fastest rental inflation acceleration took place in the flats category (8.6 percent, up from six percent). By comparison, townhouse rental inflation measured 4.4 percent, moderately up from four percent in the previous quarter’s survey while house rental inflation was virtually unchanged from the previous survey.
2011's rental inflation important for buy-to-let recovery
A lack of buy-to-let demand in recent years, especially through 2010, implying slow growth in rental stock, is crucial to our belief that we will see some acceleration in rental inflation through 2011. In addition, given our expectation that consumer price inflation will gradually rise further through 2011, after two successive months of increase late in 2010, it looks increasingly unlikely that the SARB will cut interest rates any further for the time being at least, and sideways movement in rates through 2011 is anticipated. This may put the brakes on first time home buying, keeping more would-be home buyers in the rental market and thereby supporting rental demand.
An expected rise in rental inflation in turn has two possible effects. Firstly, given very low expected house price inflation, we believe that gross yields on residential property will rise through 2011, and this is a key pre-requisite to larger numbers of investors returning to the market at some future stage. Secondly, however, it can have the shorter term effect of contributing to rising consumer price inflation which could ultimately mean rising interest rates (although Firstrand only expects interest rate hikes to commence early in 2012).
In the fourth quarter 2010 FNB Estate Agent Survey an increased portion of the sample of agents expected an improvement in first quarter 2011 buy-to-let buying. This drove the FNB Buy-to-Let Confidence Indicator slightly higher to 0.065 (scale +1 to -1) from a previous quarter’s low point of 0.045.
This is an interesting turn in estate agent sentiment after five previous quarters of deterioration. In our own opinion, any noticeable improvement in buy-to-let buying may take somewhat longer. However, we do believe that the fundamentals that ultimately drive the buy-to-let market (i.e. a stronger rental market and higher yields on residential property) should improve significantly through the course of 2011, setting the buy-to-let market up for strengthening at a later stage.
Subscribe to:
Posts (Atom)