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Buy-to-let home buying remains flat

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The 1st quarter FNB Estate Agent Survey indicates that estate agents expect buy-to-let home buying in South Africa to start growing a little more rapidly in 2015, but is this really the scenario that will unfold?

While estate agents surveyed were confident of stronger buy-to-let activity, the survey says we should perhaps "not expect too much to change in the near term" given the disappointing "soft start" to the economy this year.

While estate agents surveyed were confident of stronger buy-to-let activity, the survey says we should perhaps "not expect too much to change in the near term" given the disappointing "soft start" to the economy this year.

"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," say John Loos, Household and Property Sector Strategist and Theo Swanepoel, Property Market Analyst, at FNB Home Loans.

For the third quarter in a row, the buy-to-let percentage was 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, according to the survey.

It may be "mediocre" compared to the estimated 25% in the boom times of early-2004, but Loos and Swanepoel say they see this to be a "healthy" percentage reflecting an absence of widespread "madness" in the property market at this stage.

"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.

The rental market is still "relatively comfortable" for landlords 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 the low of 71% early in 2009 when the recession hit.

The FNB House Price Index recorded a 6% year-on-year growth in February, and while a better start was expected for 2015 after the dramatic drop in oil prices, working against this were electricity supply disruption, and a drop in prices in SA’s export commodities - and it "doesn't look like either the economy or our housing market’s real capital growth is going places fast", notes the survey. Then there is the rental market itself, which also shows moderate inflation at best, with 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," say Loos and Swanepoel. "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, they expect that buy-to-let buying 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 where transaction volumes are expected to edge slightly higher in 2015 at best.

Author: FNB

Submitted 27 Mar 15 / Views 2543