Property rentals hard hit across SA

Property markets across the board are still in hibernation mode, according to the latest Rode's Report on the state of the property market.

The lagged impact of the business cycle on the market is especially evident in the offices segment. Only the Durban decentralised areas attained growth on a year ago - a nominal 5% that exceeds the expected growth rate in building cost inflation (at 2.6%).

For Cape Town, Joburg and Pretoria, growth was, on average, below that of building cost inflation, and real rentals were lower than a year ago.

Erwin Rode, of property economists Rode & Associates, says: "Even in the industrial property market, where manufacturing activity and retail sales are said to be in recovery mode, the overall strength and stability of this recovery is uncertain, particularly against the backdrop of an economy that continues to shed jobs and a still-wobbly world economy."

Such uncertainty in the industrial property market extends to prospects for market rentals, with these rentals contracting across the country, especially in the central Witwatersrand, Durban, Port Elizabeth and the Cape Peninsula.

Likewise, flat rentals in Durban and Cape Town only achieved a 1% growth in the first quarter, while Johannesburg and Pretoria rentals were at the same level of a year ago.

An interesting phenomenon over the past few months has been the recovery in nominal house prices. "After reaching its lowest point in the first half of 2009, yearly growth accelerated to almost 14% in April, up from 12% in March, possibly due to easing credit standards," says Rode. "But, once the base effects have played themselves out, one can again expect house prices to show more moderate growth rates. The reasons are household coffers that are still under pressure, job insecurity and house prices that remain high in real terms."

Capitalisation rates have remained at roughly the same levels at which they were at the end of last year. The adjective that best describes this situation is "stable", says Rode.

"Nevertheless, considering that market rentals of offices, industrials and malls are shrinking in real terms, this situation could lead to investors requiring higher minimum income returns to invest in property, and this would depress market values.

"However, because of low loan-to-value ratios traditionally enforced by South African banks, landlords are generally under little duress to sell. This explains the extraordinary stability of the premium property market," says Rode.

Weekend Property supplement (Saturday Argus)

Posted at 09:24AM Aug 02, 2010 by Editor in Residential  |