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Flat-rental growth rates converge in the long run

Thursday, May 10, 2007

Historically, some metros have produced better flat-rental growth than others — that is, in the short to medium-term at least. However, in the long run, growth tends to converge. This is according to data published in the latest Rode’s Report on the South African Property Market.

During the last two years, for example, Durban’s flat rentals grew by only 2,9% p.a., whereas the Pretoria and Cape Town metros grew by 7,2% and 5,4% respectively. However, over the last five years, Durban put on the best show, growing by 10,3% p.a., whereas Pretoria and Cape Town grew by a relatively poor 5,9% and 7,2% respectively.

It would appear that the latter two metros have recently started to play catch-up. This is eventually what happens, as can be seen from the performance of rentals over a 10-year period. During the last decade, rentals in all of the major metros grew by roughly 10,5%. This is basically double the growth in consumer inflation over the same period, which would have left many an investor smiling.

“It is also no coincidence that building-cost inflation over the last 10 years grew by more or less the same rate as flat rentals. Because supply in the property market is generally elastic over the medium- to long-term, building costs ultimately determine rentals and prices”, says Garth Johnson of Rode & Associates.

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