Buy-to-let property still a letdown for market

The buy-to-let residential property market, in contrast to the overall housing market, is still in the doldrums.

The recovery of this market segment would be long and slow, largely because a significant portion of the household sector was still under financial pressure following the economic recession and had high levels of indebtedness, FNB Home Loans property strategist John Loos said yesterday.

Loos said buy-to-let purchases expressed as a percentage of total property buying reached a new low of 7 percent, according to FNB's estate agent survey for the second quarter. It was at 9 percent in the first quarter and 25 percent in 2004.

Peter Gilmour, the chairman of estate agency group Re/max of Southern Africa, predicted last month the ratio of buy-to-let properties to total sales would drop further "going into 2011 as consumers increasingly come under more financial strain".

Gilmour said experts were predicting a flood of rental stock would hit the market next month. He said an oversupply of buy-to-let stock was one of the legacies from the property boom. He said many believed this would get worse in the short term, as many buy-to-let owners cancelled leases with long-term tenants in the hope of cashing in during the World Cup by earning high short-term rent from soccer fans.

Gilmour said many landlords would be left "holding the can" when they returned their properties to this already oversupplied market.

However, mortgage originator ooba said yesterday that the outlook for the residential property market continued to be positive. Its price index revealed that the average house price rose 6.8 percent year on year last month to R837 599 from R784 427 in June last year.

But Saul Geffen, the chief executive of ooba, admitted that house prices were increasing at a slower pace than in the previous few months.

Absa said last week the average nominal value of houses in the small, medium and large segments increased by a weighted 14.8 percent year on year last month to about R1 083 700, compared with a 14.7 percent increase in May.

The bank is forecasting house price growth of about 10.5 percent for this year and about 8 percent next year.

Loos said the confidence of estate agents in the near term prospects of the buy-to-let segment of the property market had also deteriorated in the second quarter although they pointed towards some improvement in rental market fundamentals this year.

Business Report

Posted at 09:12AM Jul 15, 2010 by Editor in Residential  |  Comments[1]