No sooner have we recovered from the latest increase in the interest rate, than the Reserve Bank hinted that yet another increase might be on its way much sooner than we expected. Given the increase in interest rates during the last year or two, the oil price spiraling out of control causing local fuel prices to reach all-time highs, food prices rocketing, inflation exceeding the targets set by the Reserve Bank and the electricity crisis having a major impact on all South Africans, it comes as no surprise that the property market has been adversely influenced.
Sales in the residential property market have slowed down enormously over the past few months as the abovementioned factors have contributed to restricting prospective buyers’ borrowing ability. It is becoming increasingly more difficult for first-time home buyers to buy property, and those people who were already struggling to make ends meet prior to the recent interest rate hikes, simply cannot afford the repayments on their properties.
But the downfall of one is certainly set to be the success of the other. In the wake of the stagnant housing market, the rental market is expected to improve significantly. According to the latest FNB Property Barometer, yields in the rental market have increased. Yields of upto 9% are no longer un attainable.
Rental properties are in huge demand as many would-be buyers shy away from taking up mortgage bonds with the possibilities of even more interest rate hikes. As a result of this upsurge in demand for rental properties, rental prices charged by landlords are set to increase drastically over the next year. Furthermore, as landlords negotiate a higher rent for their properties, the demand for available rental properties will increase. Therefore, it is expected that the higher demand for properties in the lower price sector will stimulate the current slow-down of property value growth. According to FNB, the rental market has strengthened to a point where it could promote an overall sector recovery.
Many experts believe opportunities to buy properties with the intention of selling them in a relatively short period of time for a huge profit will become increasingly scarce. However, property investors might be lured back by the upsurge in demand for rental properties.
- Theuns Hanekom - SAMO Newsletter May 2008
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