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Rental Stock Shortage Coming
That's good news for landlords, who in recent years have struggled to pass rental increases on to tenants when leases came up for renewal. In many cases, landlords were happy to forfeit the annual rental increase as long as they could retain the tenant. Over the past five years little or no rental growth - coupled to surging house prices and, more recently, higher interest rates - steadily eroded income yields for investors.
However, FNB Home Loans CEO Ed Grondel says the fortunes of the buy-to-let market seem to have changed for the better as affordability issues force more potential first-time buyers to rent rather than buy.
So rental properties, particularly in the lower and middle price ranges, are being snapped up quickly when leases come up for renewal.
Grondel says anecdotal evidence even suggests that rentals are being pushed higher as tenants begin fighting over available properties.
FNB's latest quarterly Residential Property Barometer also shows that less rental stock is coming on to the market. In first quarter 2007 the proportion of properties bought for buy-to-let purposes dropped to 16%, down from 19% in fourth quarter 2006.
FNB property strategist John Loos expects further residential supply pressure to develop as building costs continue to rise. The boom in major infrastructure projects and commercial property development over the next few years will also take capacity away from the residential sector. "That will make it difficult to create an oversupply of buy-to-let stock.
"And that's a great recipe for good returns on residential property."
Neville Schaefer, MD of property management group Trafalgar, which has more than 70 000 rental units on its books, confirms that residential vacancies are dropping. Though they aren't yet seeing significant rental increases coming through on renewals, Schaefer says he wouldn't be surprised by double-digit rental growth over the next nine to 12 months.
That applies even to higher priced properties above the R1m mark - the sector where investors have had to take the hardest knock in recent years.
Schaefer says rental yields have dropped from an average 12% (gross) five years ago to no more than 5% on middle and higher priced properties. In higher risk CBDs investors have seen returns slide to less than 10%. |
Posted on Tuesday, May 29, 2007 (Archive on Thursday, May 31, 2007)
Posted by hayleym Contributed by hayleym
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