CAPE TOWN, SOUTH AFRICA - MARCH 31: A billboard on
A billboard on an apartment building in Cape Town's CBD. (Nardus Engelbrecht/Gallo Images)
  • FNB expects that resident rental prices may come come under pressure, and that on average rent could end up being lower than a year ago.
  • With growing unemployment due to the coronavirus crisis, fewer people can afford to live on their own - they may merge households, or move back to their parents.
  • Low interest rates are also convincing more people to buy a home - which could dent rental demand further.
  • For more articles, go to www.BusinessInsider.co.za.

FNB expects that residential rental prices could start to head lower, as the coronavirus crisis wreaks havoc on demand in the rental market.

As recently as three years ago, rental prices rose by almost 6% a year. But this fell to only 1.8% year-on-year in June.

Source: FNB

Year-on-year deflation is now appearing a distinct possibility, says John Loos, property strategist at FNB Commercial Property Finance. This would mean that rental prices will be lower than a year ago.

This is due to the impact from the coronavirus crisis on employment and household finances. Fewer people will be able to rent, as the pressures pile up.

In June, fewer than 63% of tenants paid their rent on time, according to the property credit bureau TPN.

People losing jobs during this recession, and unable to cover the costs of living as a stand-alone household, could opt to either move back in with their parents, or to merge households with other households, expects Loos.

This will dent demand for rental properties.

Also, fewer young people will set up their own households as they can’t find employment. Those who do have jobs, may also choose to stay on with their parents “until the currently highly uncertain times pass, possibly out of fear of retrenchment or partial income loss”.

The number of households – which grew by almost 3% a year five years ago – is already expanding at a much weaker rate. A decade ago, the number of households grew by more than 6% a year.

Source: FNB
 

In addition, low interest rates may be working moderately in favour of home buying and against renting, further constraining rental demand growth, Loos says.

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