The Local Municipal Elections held on the 3rd of August have for the first time seen a significant and strong opposition party come to the fore. As a result, political competition has increased, prompting a renewed sense of responsibility and accountability from the ruling party. The nation is optimistic that the appointment of new mayors in the major metropolitan areas will further improve service delivery and the efficient running of Municipalities. This is positive news for the entire country and brings with it a new spirit of optimism.
Following Britain’s decision to exit the European Union (BREXIT) on the 23rd of June 2016, the Rand rallied strongly and regained more than 20% of the value against the British Pound -strengthening from more than R23 to R17.80 to a Pound. Similarly, the Rand strengthened significantly against the Euro (from a high of R17.80, down to around R15 to a Euro) and the US Dollar (from a high of R15.40, down to around R13,50).
A stronger Rand directly impacts our interest rates and inflation, which has a positive effect on our economy as a whole. This boosts tenants' ability to pay their rent on time and in full, and giving more tenants an opportunity to step into the buyers market as a result of a stronger and more stable economy.
The first half of 2016 has been tough, so good news in economic growth is most welcome!
According to TPN the average Gross Residential Yield has decreased slightly to 8.34%. This is a good indication of the attractiveness (or not) of residential property as an investment class. The average Gross Residential Yield has been decreasing since early-2014. According to Rode & Associates a good estimation of net yield is to deduct 1.5% off the gross yield; therefore the estimated net yield = 6.84% which is below cost of finance.
The weak economy to date has constrained tenants financially, thereby limiting their ability to absorb rental increases. This is shown in TPN’s Tenants in Good Standing figures, which have decreased to 84% in Gauteng as at the end of Q2 2016. FNB’s Property Barometer shows that Sales have also been tough, with the average number of visitors to Show Houses dropping, properties being on the market for longer before selling and sellers being more willing to drop their prices. Sellers in the price bracket of R3 Million and above seem to be the most affected.
The Good News:
Doom & gloom predictions over the last few years about property market crashes or disasters have not come to reality. Property is still seen as a solid investment and the market is active, albeit more difficult. Astute investors make money in property in times of economic growth and times of economic decline. If priced correctly, marketed properly and partnered with a reputable agent, sales will still be made!
Etchells & Young have seen a consistent demand in the rental market, and rental demand for August 2016 have been the highest since February 2016. We will always find good-quality tenants for well-priced, quality rentals in popular complexes and areas. TPN also agrees that demand for rental accommodation continues to outstrip supply. Michelle Etchells, of Etchells & Young, reports a dramatic increase in the number of fraudulent tenant applications received. She warns that unless Landlords have well trained and experienced admin staff, they could find themselves in serious trouble if they allow these fraudsters to gain access to their property.
Etchells & Young also offer a full management service and are currently managing their rental book with only a 2% arrears rate (vs Gauteng’s Tenants NOT in Good Standing of 16%). In conclusion, 98% of our rentals has been paid by month-end. Tenants prefer to rent properties that are professionally managed as they believe that the risk of an unscrupulous Landlord (for example holding onto their deposit at the end of the lease) is significantly reduced.