FNB: Estate agents expect buy-to-let home buying to start to grow a little more rapidly in 2015, but we are not so sure

For the 3rd successive quarter, the FNB Estate Agent Survey returned a buy-to-let home buying estimate of 9% of total home buying, which probably reflects some moderate growth in total buy-to-let volumes as overall residential transaction volumes have crept higher.

Looking forward, however, perhaps we should not expect too much to change in the near term in terms of the buy-to-let part of the residential market. Disappointingly, the economy has started 2015 with another “soft patch”, it would appear. This would suggest mediocre capital growth in the housing market in the near term, and while the rental market is a relatively “comfortable” place for landlords to operate at present, there are few signs to suggest that it will “shoot the lights out” in the immediate future.


The 1st quarter 2015 FNB Estate Agent Survey once again pointed to no further increase in the significance of buy-to-let buying in the market compared with the previous quarter.
By this we mean that, as a percentage of total home buying, buy-to-let purchases are estimated by survey respondents to have remained unchanged on the previous quarter at 9%, the 3rd successive quarter of this estimated percentage.

We believe that this percentage is a healthy one, reflecting an absence of widespread “madness” in the property market at the current stage. The percentage remains mediocre in comparison to the estimated 25% back in the boom times of early-2004. Household Sector Real Disposable Income growth remains constrained by an economy seemingly destined for weak growth at best for the foreseeable future, while Government taxes and tariffs on the household sector continue to rise.

In addition, the rental market’s performance in recent years has remained moderate, with a strong preference for buying primary homes, rather than renting, in these times of low interest rates.
Nevertheless, a stable buy-to-let percentage of total home buying should imply a gradual rise absolute volume of buy-to-let purchases, given that we have seen gradually rising overall transaction volumes in the residential market in recent years..


Looking forward, the agents surveyed appear to be expecting stronger levels of buy-to-let home buying in the near term.

In our survey, we ask them to state whether they expect buy-to-let demand to increase (which gets a rating of +1), stay the same (rated as zero) or decline (rates as -1).
The FNB Buy-to-let Market Confidence Indicator is the average of these different ratings, and the 1st quarter survey came out more positive than the previous one at 0.085, slightly higher than the revised 0.078 of the 4th quarter of 2014 (scale of 1 to -1). This is the 3rd successive quarter of increase in this index.


How plausible is this agents’ expectation of stronger buy-to-let buying levels? It remains plausible that total buy-to-let volumes growth could be mildly positive in the near term, perhaps keeping the buy-to-let percentage stable in high single-digits. However, we are starting to doubt whether this source of buying could see its total transaction volumes strengthen at a stronger rate in the near term, as suggested by a rising Buy-to-Let Confidence Indicator.

The rental market at present remains a relatively comfortable place for a landlord to be, with TPN (Tenant Profile Network ) reporting an unchanged 86% of tenants being in “good standing” with regard to their rental payments at the end of 2014, a high percentage compared to that low of 71% back early in 2009 as recession hit.

However, the South African economy appears to have hit another “soft patch” early in 2015, and the result is a mediocre start to the year in terms of home capital growth, the FNB House Price Index recording 6% year-on-year growth in February. We had expected the 2015 start to be better for the economy and housing as a result of the benefits of sharply lower oil prices. But working against this has been some electricity supply disruption, and a drop in prices in SA’s export commodities too. So at present, it doesn’t appear that either the economy or our own housing market’s real capital growth is going places fast.

Then there is the rental market itself, which also shows moderate inflation at best, the most recent StatsSA CPI Rental survey showing 5.05% year-on-year rental inflation.

In short, therefore, we don’t believe that the current state of the rental market will suddenly make buy-to-let buying significantly more attractive than it currently is in the near term. Our expectation of sideways movement in interest rates for most of 2015 leads us to believe that the strong desire in people to buy their own homes will remain in place, working against any noticeable strengthening in the rental market until such time as interest rates begin to rise again.

Therefore, we expect that buy-to-let buying expressed as a percentage of total home buying will remain fairly stable in the near term, implying some moderate growth in total volume of buy-to-let buying in a housing market whose transaction volumes are expected to edge slightly higher in 2015 at best.