Buy-to-let still in the depression

The percentage of buy-to-let in the total property buying sphere remains at its low. This is according to the findings of the FNB Estate Agent Survey done for the 3rd quarter of this year. In relation to the weak strength of the buy-to-let area, agent confidence has also lessened in the said quarter.

Although the past quarters have shown indicators of the progress in buy-to-let buying, recently, evidences show that such progress has come to a halt. Agents pointed to a virtually unchanged average gross yield on rental properties of 7.8% in the 3rd quarter, which is insignificantly lower than the 7.9% of the previous quarter. But the said condition came after the two preceding quarters of significant yield. Although the stall is brought about by the racketing cost of houses during the mid-year, the same can also be pointed from the rental market which remains middling.

Household sector indebtedness on the other hand remains high. The 2nd quarter confirms the information held for quite some time by the SARB Leading Indicator that the economic growth has now started to soften itself. This slow movement of the economic growth can put a pressure in the household’s power to dispose of their income. This affects their potential too of acquiring buy-to-let properties too. However, the TPN has rather positive reports about the buy-to-let market. It stated that the rental tenants have given significant improvements by the increased numbers of good standing ones. According to TPN, the percentage of 79% in the previous quarter rose to 82% in the 2nd quarter. The said improvement is said to have come from the lower interest rate environment of the year 2008.

But in the long run, the improvement of the percentage of good standing tenants proves to be insufficient to pull the rental market to progress. As a result, while the capital growth on property is not inspiring for those people who are prospects of buy-to-let, the produce are not alluring for investors too. This is why for the present period, many of the state agents appear to give it up and look for other options of earning.

The process of the survey by the FNB Estate Agent Survey goes like this. They asked agents for their expectations concerning the near term expectation for the buy-to-let market. These include questions on their expectation of strengthening, weakening or unchanged demand. The ratings are combined into an index, which runs on a scale from 1 (most optimistic) to -1 (most pessimistic).