Outlook For Property Market Remains Weak – Rode Report

The key drivers of house prices and residential rentals are showing no vigour, according to the latest Rode’s Report on the SA Property Market.

CEO of Rode & Associates, Erwin Rode, cites weak growth in employment, the cooling in the growth of disposable incomes, still-high levels of household debt, tighter credit standards, and contractions in the number of mortgage loans granted as the culprits that will continue to put strain on price inflation in this sector.
Flat rentals nationally also remain rather flat. “This is no surprise, in light of the persistent financial pressure that many households are under,” notes Rode.

In the second quarter of 2013, nominal market rentals on flats and houses grew by 5% and 4% respectively, whereas market rentals on townhouses posted growth of only 3%. With consumer inflation (excl. housing) of about 6%, this implies that in real terms residential rentals are still contracting. Regionally, flat rentals in Cape Town (+5%) showed the strongest growth. Durban followed with rental growth of 2% while in Johannesburg and Pretoria, rentals were marginally higher, rising by 1%.

Another key finding is the mediocre growth in the market rentals of office space.

In the second quarter of 2013, office rentals in Johannesburg and Cape Town decentralised were, on average, able to show growth of 6%, while in Pretoria decentralised rentals were up by 5%. Durban decentralised was able to muster growth of only 4%. Commenting on these rentals, Rode notes: “There is still no marked improvement in overall office vacancy rates, which should be expected given the lacklustre demand for office space in the wake of weak growth in the services sector of the economy, not to mention lack of business confidence. Naturally, the outcome of this has been mediocre growth in market rentals.”

Regarding the industrial property market, until there are sustained improvements in the manufacturing and retail sectors, no magic should be expected from the industrial property market, says Rode. During the quarter under review, rentals in the industrial agglomerations of Durban and Port Elizabeth were able to show the strongest growth (9%). On the Central Witwatersrand and the East Rand, industrial rentals were up by 5% and 0,4% respectively, while in the Cape Peninsula (-1%) rentals contracted. Over the same period, building costs are expected to have shown growth of roughly 11%, implying that in all of the mentioned areas rentals actually contracted in real terms.

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