Trafalgar, Rode at odds over rentals

10-10-2001

South Africa’s only national residential rental company, Trafalgar, and its only residential research company, Rode & Associates, are at odds over what will happen to flat rents in the future.

Rode says nominal rents will rise by 8,7% (real 2,7%) this year and 9,3% (3,3%) through 2002. Rode says rents are accelerating again, after slowing to 8,2% last year from a compound annual growth since 1994 of around 12% a year.

But Trafalgar CEO Neville Schaefer, whose 70 000 flats make up much of Rode’s database, thinks Rode’s projections are too low.

“Rents will rise by between 10% and 15% next year,” he says. “Our portfolio managers around the country report that there are more flats than people wanting to rent in almost every category. Households are responding particularly well to upgraded and well-managed flats in the major cities.”

Schaefer says demand has not dropped although unemployment is rising and more tenants could afford to buy homes because of the dropping interest rates. Part of the reason could be that property prices had been rising by more than the saving in interest charges. This limits the increase in affordability.

“But the main issue is that the stock of rental flats in South Africa has been about the same for over a decade. It is hardly growing but the populations of cities are growing and so are real household incomes.

“Households are also getting smaller and younger people are becoming more mobile.”
Schaefer says rents in Johannesburg’s more expensive areas are at last reaching levels high enough to trigger the first rental developments since the early 1980s. But they must rise very substantially in some smaller towns before development spreads nationally.

“Real rents will continue rising until they return to their levels of the early 1970s; there is no way around it,” adds Schaefer.