Second quarter FNB residential rental property barometer shows mild lull which may partly reflect some financial stress amoungst tenants

FNB released its second quarter Residential Rental Property Barometer survey of letting agents today. Surprisingly, perhaps, the second quarter survey saw a decline in activity levels from the first quarter, from 8.4 to 7.6.

FNB Home Loans Property Strategist John Loos said that this may partly be explained by a seasonal factor, but it is also possible that a portion of tenants and prospective tenants are beginning to experience increasing financial pressure, and that their ability to pay the monthly rent has its limits, despite monthly rental payments being lower than monthly 100% bond repayments. He does not believe that limits to what tenants can pay will prevent a further rental market strengthening, but merely delay or slow the pace of recovery that he believes is inevitable.

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 6 months ago” or extreme supply shortages, compared to the previous quarter.

There was 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. The further indicator that landlords are not yet having things all their way is the still-low level of gross yields reported in the survey.

Loos says that despite the second quarter lull, however, activity levels at well-above 7 remain strong, and he remains 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.

The FNB Rental barometer for the second quarter, however, does serve to show that, in these turbulent economic and interest rate times, there are few markets that will have a smooth ride.

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