The South African Residential Rental Market

Interest rates have also played a significant role in the price of bond repayments, particularly recently with interest rates going up. But what property solutions are on offer from financial institutions that lessen the knock of interest rates, and manage to put money back into your pocket?

There is currently a lot of uncertainty in the market among investors who see the interest rate going up and are concerned that the affordability of their portfolios is at stake. The first thing that comes to mind is to cash in and cut the losses on one’s existing bond. But all the alternatives must first be evaluated before a decision is made.

The positive news is that the higher interest rate brings with it an increase in rental demand and rental income. Where previously, landlords’ prices were pushed down, we can now see asking prices for rental units stabilising – even more so after the recently announced interest rate increase of another 50 basis points.

This is where supply and demand plays a vital role – the larger the demand, the higher the increase in prices. Based on information from letting agents working in Tygerberg, the average rental price range is currently between R3 500 and R4 000 per month. The majority of tenants are between 22 and 30 years old, and affordability plays a huge role in the decision to rent.

These letting agents predict a stabilising rental market, where volumes will pick up. Keeping this in mind, we might see the rental market on the back of interest rate increases returning to between 8% and 10% per annum.

Clients are advised to shop around for the best deal in the market. Getting the best interest rate on offer is not negotiable, and one can then add the best homeowners’ insurance and short term insurance rates to this saving as well. This can lighten the burden of the shortfall on the investor, and create a chance for him to hold on until the next period of increase in property value. This period of increase will possibly be starting in late 2007, and will lead up to the 2010 World Cup.

It is interesting to note that according to research done by the Platinum Planet, cities that hosted similar events to the World Cup increased their property prices positively over a five-year period. In Paris, the property prices escalated by 55% over a year-on-year period before and after the 2002 World Cup, with apartments close to the stadiums rocketing over 100%. The influx of tourists might just be what South Africa’s GDP needs to increase growth to 6%.

My advice in the current market is to hold on to your property as long as possible without getting into trouble with bond repayments. Try to avoid extra costs on your home loan and seek professional advice to help limit these costs.

With good counsel on your side, you will stand a far better chance of making effective and profitable decisions on property investments. It is important to know how interest rates will affect you, how you can absorb the impact of interest rate hikes, and position yourself to profit from movement in the property market. Property – like any other investment – needs to be managed on an ongoing basis and a good partner who can guide you through this is crucial.

For more information contact AJ Smith: aj@bondsafrica.co.za