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Monday Mar 26, 2012

Property rentals at mercy of stuttering economy

Residential rental income is slowing in some provinces because of affordability issues while limited rental stock in other provinces is pushing rentals up by almost double the inflation rate, according to the findings of the latest rental index released by PayProp.

It attributed both the affordability brake and steep rental increases to the downward trend in the economy.

The index, which tracks a series of indices from real time transaction data to provide a comprehensive view of the state of the residential rental market, revealed that average rentals last month based on a four-month moving average reached R5 172, up 6.8 percent from the same period last year.

PayProp administers more than 47 000 monthly rentals and the income from these properties is weighted by population and gross domestic product (GDP) weights in provinces to produce the results.

Average rental income has exceeded R5 000 a month for the past six months.

However, the index also revealed that the average increase had slowed marginally from 6.9 percent in January to 6.8 percent last month.

PayProp said although this meant rent was increased by only about R7 last month, this was higher than the overall inflation rate and showed that rents were rising faster than house prices.

Mpumalanga recorded the highest average monthly rental at more than R6 100, followed by Limpopo at R5 892 and Gauteng at R5 504.

The Free State had the lowest rental income at an average of only R3 830 a month. chief economist Mike Schüssler said the PayProp data showed that the northern provinces boasting major civil construction projects, such as the Gauteng Freeway Improvement Project, Eskom power stations and mining or business expansions, had higher rental price hikes.

"Along with KwaZulu-Natal, they are showing above-inflation increases. In the rest of the country rent increases are lower than the inflation rate, with some areas actually showing a decline," he said.

However, Schüssler said increases in Limpopo were driven by small towns, such as Lephalale, where demand exceeded supply and pushed up the provincial average.

He said the situation in the Free State reflected the decline in the gold industry and the difficulty experienced in attracting a significant portion of the rental market to rural towns with no mining activities or new industrial investment.

The recent troubles in the Rustenburg area had shown up in North West, where average rentals had declined by almost 4.8 percent.

Affordability was the main reason for average rentals in the Eastern Cape falling by about 5 percent, while Northern Cape rentals were the second-lowest at R4 420 a month, Schüssler added.

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