The second quarter FNB survey of letting agents saw a surprise decline in activity levels from the first quarter, from 8,4 to 7,6.
FNB Homeloans property strategist John Loos says this may partly be explained by a seasonal factor, but it is also possible that a portion of the tenant and prospective tenant market is beginning to experience increasing financial pressure, delaying what we believe is the inevitable further strengthening of the rental market.
"Activity levels aside, certain other survey questions also pointed to something of a lull in the second quarter, with a lower percentage of vacant properties being snapped up within a month, and a lower percentage of agents reporting much higher activity levels compared to six months ago or extreme supply shortages."
He says there has been strong agreement by respondents with the statement that rental income is considerably less than owners' costs, and this level of agreement jumped in the second quarter, suggesting that further rate hiking and surging inflation has been difficult to pass on in its entirety to the tenant.
There has also been strong agreement with the statement that landlords are asking for too high rentals in order to cover their costs, suggesting that some may be "jumping the gun" at a time when demand has its limits.
"Despite the second quarter lull, however, activity levels at well above 7 remain strong, and we remain of the belief that the rental market has embarked on a broader strengthening trend, which should see significant yield widening. Yield widening should not only be helped on by stronger rental inflation, but also by declining house prices."
Meanwhile, the Trafalgar rental index shows that residential rents rose by an annualised 12,5% in the first half of 2008.
Significantly, the rise is 100% up on January to June 2007's 6,2% annualised rental increase.
"A pattern seems to be emerging of rents rising faster in the second half of the year," says Andrew Schaefer, MD of Trafalgar, the national property manager that produces the index. "It looks like tenants face substantial double digit annualised increases for the rest of this year."
Double-digit increase have already hit tenants in East London (with an annualised 18% rise), Port Elizabeth (12%), Pretoria (11,5%) and greater Durban (10,5%). Johannesburg rents rose an annualised 18% from June to December last year and so the trend even in Johannesburg is definitely up too."
Pretoria had a big turnaround from -3% to 11,5%. Cape Town nearly quadrupled its increase, from 4% to 14%. Schaefer says that national rents are rising faster than the price of sectional title units, the biggest rental sector, after nearly a decade of lagging price increases.
"The Lightstone average price for a sectional title property to date in 2008 is R669 000 with a current bond and levy ownership cost of about R140 000/year - a price to holding ratio of six," he says.
"The average rent for a two bed flat is about R60000/year almost half the cost of owning This makes the price to rent ratio 11. Working on long-term interest rate trends, my rough
guess is that the ratio should be between seven and eight. So rents still have a long way to go."