Despite softer residential rental demand appearing in 2008, the Trafalgar
national rental index rose by nearly 13% in the 12 months to end-December,
with regional increases ranging from 9% in Johannesburg to 21% in Port Elizabeth.

However Trafalgar MD director Andrew Schaefer says that the market is
currently confused and that “right now we can’t predict whether rents will
rise or fall this year, although my guess is that broader demand will leave prices higher in December 2009 than in January.”

The index is built from the like-for-like rental differences in two bedroom
flats in the Trafalgar portfolio to avoid distortion caused by new trends,
for instance to rent cheaper or more expensive homes. It also shows that in
the year to December 2008, Cape Town rents rose a relatively modest 11%,
KwaZulu-Natal rents rose 14,5%, those in East London rose 15% and those in
Pretoria 16%.

But Schaefer warns investors to be wary of increasing rents too fast this
year, in difficult times for many households. “Cash flow is far more
valuable than profit in this market. The financial and economic future of the world and
South Africa is too uncertain to take risks. Investors seem to be aware of
this because current increases seem to be averaging about 8%."

He also says well-managed rental properties will probably provide some of the most defensive and steady income returns over the next few years. Meanwhile, the very conservative lending policies of the banks that will seriously restrain home buying in 2009 and 2010 are "very good news" for established buy-to-let investors.

“They will have very little buying competition from owner-occupiers and will
have a wide choice of bargains, particularly later this year. They will have the equity to
finance their purchases at low loans to value. We also expect them to find
stronger rental demand. Though affordability might keep rental rises in
single digits, correctly priced properties will be rented quickly.”