Investors smiling as rental keep rising

Residential rents are moving inexorably upwards with the Trafalgar national rental index for December 2007 at 136,5, a 9% increase on December 2006 which was 6,4% up on the year before.

"That may not look dramatic but a flat that rented for R2000/month in December 2003 is now renting for 36% more at R2731," says Andrew Schaefer, MD of national property management company Trafalgar.

"Indeed, tenants must prepare for big rent increases over the next decade. This increase happened during South Africa's most dramatic property boom even though the rental market usually sags when house prices boom and booms when the house sales market tops out as it's currently doing.

"So we can expect rents to start rising in steady double digits from now on."

The rental index for Johannesburg rose just under 11% to 145, raising the rent of a bachelor flat in the northern suburbs from R2000/month in 2003 when the index was at 100 to R2900/month.

"Now if rents rise by just 10% a year the rent on that flat would rise to R7250 a month in the next decade. But they are actually likely to rise fasterunless we can substantially increase the supply of rental stock," says Schaefer.

Urban KwaZulu-Natal's index rose 9.2% last year to 143 and that of Cape Town 8,5% to 133.

Pretoria lags the major centres with its index up 5% at 124, while East London showed the highest growth of all, up 13% to 159 - although this is off low base and actual rents are still below those of other major centres.

Schaefer says careful buy-to-let investors who have not overbought or over borrowed will start reaping the rewards of their patience over the next few years.

"The boom has obscured the fact that property is at its best as a long term, income investment, but their net monthly income will demonstrate the magical effect of compounding rentals."