Renting - the "real deal"

Staggering rentals for family homes. Prices, trends for rental property: Joburg, Cape Town, Durbs.

The past five years of economic prosperity saw a large number of people becoming homeowners. Interest rates bottomed out, inflation was low and the economy was booming.

But all good things must come to an end, and no sooner had we bought our sprawling homes when spiralling food and oil prices caused a rapid increase in worldwide inflation, leaving the SA Reserve Bank little choice but to increase interest rates. On the back of the stagnant housing market, the rental market is showing a remarkable upswing. Yields are up from as little as 0.5% in the past, to a staggering 9% (FNB Property Barometer, March).

Shortage of stock

The recently published FNB Property Barometer which focused solely on Rental Markets indicated a strong demand for residential rental properties which was set to continue to grow.  The survey found that nationwide, agents have increased stock compared to six months ago, but that there is a shortage relative to the demand.

This is especially the case in the coastal areas of South Africa, where property prices outstripped the national average during the boom. Whilst Gauteng may show less activity, the levels still indicate a positive increase.

Renting is the norm in many European cities, where buying property simply doesn't cross the mind of the average person because of the cost involved. The benefits of renting are obvious. For a reasonable price, you can be situated in the heart of any number of desirable areas which otherwise you couldn't afford to live in. Similarly, you can rent a much larger space than you could afford a bond on.

So where are South Africans renting, and what kind of returns can landlords expect?

City of Lights: Johannesburg

The heart of commerce in South Africa, Johannesburg is fast paced and lucrative. Usha Singh of Seeff Rentals says Sandton CBD is the place to be in JHB.

 "Ideally you want to be close to the business hub - Sandton City, the JSE, Nedbank, Rand Merchant Bank, Discovery and so on.  Living near work means dealing with less traffic, which in Joburg is a major consideration, unless you want to relinquish half your life to the drudgery of sitting in your car''.

Singh suggests areas such as Sandown, Morningside and Hyde Park for greatest lifestyle benefits and comparative best affordability. "A really amazing one bed unit will set you back around R10 000 per month, unfurnished," she says, "while the average-Joe one bedroom apartment is about R5 500".

Further out in Fourways you can expect more for your money. The area has shopping malls, large entertainment complexes such as Monte Casino, and many restaurants. There are a lot of new developments, which fuel supply, therefore keeping rentals in check.

Properties consist mainly of cluster homes and town house developments, and rentals range from R3 500 for a one bedroom apartment to R35 000 for larger upmarket homes in security developments. Fashionable pockets within Fourways are Pine Slopes, Lone Hill, Craighavon, Douglasdale and Dainfern Valley.

One with the Mountain: Cape Town

Cape Town is renowned for its quality of lifestyle. It's big enough to have many great areas to choose from, all of which come with excellent benefits but are distinctly different. Karen Koen of www.rentproperty.co.za, a centralised rental portal, believes that lifestyle considerations are important when deciding what area to rent in Cape Town.

She adds:"Is access to the beach important ? or would you prefer a view of the mountain? What about a city views and instantaneous access to the city?"

Koen indicates that the Western Cape suburbs on www.rentproperty.co.za which indicated the highest demand in February were in the low to medium market and included areas such as: Claremont, Durbanville, Sea Point and Parklands, with two-bed flats and three-bed houses the properties of choice.

These stats support the findings of the FNB property barometer which intimated that properties priced in the lower end of the market were experiencing even higher demand, which may be an indication of the financial strain the lower income groups are experiencing with high consumer price inflation and the obstacles they face with fulfilling the NCA requirements.

Cape Town's central business district and surrounding city bowl are also extremely popular areas for tenants.

Located round the corner from picturesque beaches such as Clifton and Camps Bay and right underneath the mountain for those outdoor enthusiasts who like to run, cycle and hike. ‘The numerous top quality restaurants, trendy bars and happening nightclubs virtually on their doorstep is just the cherry on the top, says Koen.  Apartments are well priced and rentals can be competitive since many of the developments in the CBD are brand new. http://www.rentproperty.co.za/ indicates that the current range of rentals charged within the City Bowl is from R22 000 to a whopping R60 000, with the average sitting around R7 630.

Koen also recommends renting along the Atlantic seaboard, where a vast array of homes and apartments are on offer (rentproperty.co.za currently has 3). Rentals along this prestigious seaboard range from R2 200 to R70 000 a month. Clifton, Bakoven and Fresnaye are the most expensive areas to rent along the Atlantic seaboard, but there is good value to be found in Green Point, Sea Point and Mouille Point.

Tropical paradise: Durbs

The Durban rental market has traditionally been slow because property prices historically lagged behind those of Cape Town and Gauteng and the barrier to purchase homes was not as high. However, during the past five years properties along the coastal regions of South Africa saw a dramatic increase in value, outstripping the national average. Home prices increased, the National Credit act was introduced and the low to middle market had little choice but to rent.  The recent FNB Property Barometer findings support this with estate agents in Durban and the Cape both indicating a shortage of rental homes for supply.

Accoding to Jo Thorpe of Seeff, Durban residential trends are significantly different to Cape Town and Johannesburg, ‘'because Durbanites don't commute".

The greater Durban area is not huge, and each area is self-sufficient, with great schools, shopping complexes and sports facilities.

Corporates have largely moved out of the City Centre and Office Parks dominate the skyline on Umhlanga Ridge, the Berea, Westville, Hillcrest, Durban North and La Lucia, all of which are close to popular residential areas.

There is therefore huge demand for centrally located residential property, especially in the middle rental market and a lack of supply is currently driving rentals up in these areas.

Thorpe recommends the Musgrave/Essenwood area, parts of Berea and Upper Morningside for their ‘prestige' appeal where townhouses and duplexes start from R7 000 per month, and houses from R14 000 per month. And because of the smaller distances in Durban, areas such as Westville, Hillcrest, Durban North, La Lucia and Umhlanga are all popular in terms of lifestyle benefits.

More modest rentals of around R8 000 for houses and R5 000 for townhouses are available in Glenwood, which has good schools and is also close to major shopping centres.

Thorpe adds that developments have become extremely popular for prospective tenants, especially around Gateway and Hillcrest as are complexes in security estates.

So what does this all mean?

The most recent FNB mortgage advances' report suggests a further slowdown in lending in the residential market. The positive of a slowing residential property market is that yields on rentals have been increasing and are set to continue to grow. Great news for landlords.

Article by: Hayley Upson - www.moneyweb.co.za