While the second quarter 2012 FNB Estate Agent Survey suggested slightly weaker overall residential market demand, it simultaneously points to a further mild rise in the significance of buy-to-let buying in the market.
This means that, as a percentage of total buying, buy-to-let purchases are estimated by survey respondents to have edged up further to 11%, from 10% in the previous quarter. The increase in the percentage of buy-to-let buying is now starting to become more significant when measured from its low point of 7% through much of 2010.
Nevertheless, this percentage remains weak in comparison to the estimated 25% back in early 2004 at the height of the property boom. Besides widespread household financial pressure still being in existence, and often only masked by very low interest rates currently, the mediocre performance of the rental market would also not appear to make buying to let an wonderfully attractive option at this stage.
CPI shows modest rental inflation
StatsSA provides some insights via its consumer price index (CPI) surveys. The most recent survey points to modest rental inflation which, given current house price inflation in the region of 8.9% year-on-year according to FNB data, would probably be doing little to increase average yields on residential rental properties.
The CPI for rentals in the May CPI showed 4.47% year-on-year inflation, slightly lower than the previous quarter's rate of 4.53%. After showing some promise of strengthening in 2010 and early 2011, the CPI for rentals has thereafter shown a weakening growth trend. Whilst this is good from a point of view of keeping overall CPI inflation under control, and thus interest rates low, it does little to make buying-to-let more attractive at present.
Tenant payment behaviour improves
With interest rates currently so low, one should probably not expect a very strong rental market. First time buyers are significantly more than a few years ago, and so they would be in these times of very low interest rates. That would imply a lower rate of retention of young tenants by the rental market compared with back in 2008/9 when interest rates were moving through a high part of the cycle and the economy was in recession.
Some aspects of the rental market have improved it would appear; referring to the levels of tenant payment behavior. According to tenant profile network, the percentage of tenants that are in good standing with regard to rental payments was 81% in the first quarter of 2012. While this percentage is unchanged from the previous quarter, it is up from 79% in the second quarter of 2011, and well up from the 71% low reached in the recession early in 2009.
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