Rental Income And Property Value Despite Interest Rate Hike
Category Market Insight
Rental income increase despite the 11.75% interest rate hike. A well positioned property should mean a substantial return on your property income. However, in the South African economy, property investors have struggled to obtain their desired income for their rental properties. This is because much of the South African rental demographic has been under significant financial strain.
The recent interest rate hike has threatened to slow down the property market, particularly the buyers market.
High Rental Bracket
Rising interest rates discourage home ownership, with more households opting to rent instead. TPN Credit Bureua's Residential Rental Monitor, showed rental escalations jumped from 3.02% to 3.56% during the third and fourth quarters of 2022. Property values and rental income in South Africa are generally correlated, meaning that they tend to move in the same direction. It is important to note that this correlation can vary depending on several factors, including location, property type, market conditions, and economic factors. When property values increase, landlords may adjust their rental prices to capitalise on the increased value of their properties.
Rental properties of R12 000 and more escalated by 4.38%, while properties priced between R7 000 and R12 000 grew by 4.16%, compared to the national average of 3.56%. Rental prices in the Western Cape grew the most in the third and fourth quarter of 2022 - 5.61%. Rental properties preferred by renters, particularly in the Western Cape, are homes. Previously, townhouses, flats, and sectional title schemes were preferred for their safety and security. However, renters feel their money is better spent on renting a home.
Rental Yields
As rental revenue and property value converge, rental yields are growing more favourably. When compared to freehold properties, which had a rental yield of just under 7% in the fourth quarter, sectional title properties had the highest yield at 10.18%. FMS Sales and Leasing is able to assist in making your property more desirable on the market and yield favourable rental income returns.
FMS Sales and Leasing can provide valuable insights into the current market conditions and rental trends in specific areas.
Author: FMS Sales and Leasing
