FNB Estate Agents Survey_Buy-to-Let

1. FNB Estate Agents
Survey
July 2019
Buy-to-Letvolumesstableatalowerlevel
The 2Q19 FNB Estate Agents Survey showed that Buy-to-Let home buying
is stabilising, albeit at lower levels. As a percentage of total sales, this was
estimated to have averaged 6.8% (two-quarter rolling average) in 2Q19; relatively
unchanged from the previous quarter, but significantly down from 9.7% in 2Q17.
Regional level estimates of the past 12 months show a steady recovery in the
coastal regions, and a continued decline in the inland regions. In particular,
Cape Town and Durban housing markets have shown the strongest buy-to-let
estimates in the first half of 2019, averaging 10.6% and 10.1% of total home
buying respectively. We suspect that pent-up demand in Cape Town may have
been catalysed by the recent price decline in the higher-end segments, which
would have presented attractive buying opportunities for investor-buyers.
Furthermore, new developments in the North Coast could have supported buy-
to-let demand in Durban in the last few quarters. Second-quarter estimates for
Johannesburg and Pretoria came in at 4.8% and 5.2% of total sales respectively.
Broadly, the recent weakness in the buy-to-let market could be attributed
to the slow house price growth in recent years (limiting prospects for capital
growth); relatively low rental escalations (limiting yield prospects), and the
persistently weak economic growth (weighing on potential rental demand
growth). Nonetheless, the improvements in purchasing activity in some upper-
end segments and coastal regions suggest that price incentives are beginning to
outweigh these ailments.
Investmentpropertyownersweatheringthestorm
Stats SA’s data shows that rental inflation has trended down over the past year
or so, recording just 4.0% y/y in 1Q19. This was below headline CPI. Furthermore,
estimations of flat vacancies continue to show a rising trend amid strong growth
in the supply of new flats and townhouses. Capital growth has also not given
much in the first half of the year, with the FNB HPI averaging just 3.4% y/y. This
signals some level of pressure in the property market.
In the survey, we ask agents to provide estimates of the percentage of total
home sales that are investment properties being returned to the market due to
“not obtaining a satisfactory rental income”. The 2Q19 estimated re-selling of
investment homes remained low at 2.8% of total sales, on a four-quarter rolling
average. These sales have been declining since the beginning of 2018, despite
weak growth in rental inflation and alongside slow growth in prices (limited capital
gains). Thus, investors appear to be favouring holding on to their investments,
presumably until demand fully recovers.
Analyst
Siphamandla Mkhwanazi
Zharina Francis (Statistician)
Contactus:
Website:www.fnb.co.za/economics-commentary
Email: Siphamandla.Mkhwanazi@fnb.co.za
Tel: 087 312 3280
Figure 1: Buy-to-Let demand
Source: FNB Estate Agents Survey
Figure 2: Buy-to-Let demand – Inland
vs Coastal
Source: FNB Estate Agents Survey
Figure 3: Buy-to-Let demand by major
cities
Source: FNB Estate Agents Survey
3
8
13
18
% Inland Coastal
3
8
13
% JHB PTA CPT DBN
6.8
5
9
13
17
21
25
29
% Buy-to-Let

2. Conclusion
The FNB Estate Agents Survey shows that Buy-to-Let demand remains low
relative to historical standards, but appears to be stabilising. The relatively
lower Buy-to-Let exuberance can be attributed to low house price growth,
which does not provide much encouragement for many buy-to-let buyers
who focus significantly on capital growth prospects and not only on rental
income prospects. Despite these unfavourable conditions, the estimated
pace of selling of investment properties remains low. This, combined with
pent-up demand in the coastal regions (and higher-price segments), suggests
that investors are weathering the storm by holding on to their properties,
while some are taking advantage of lower prices. Nevertheless, the FNB
Market Strength Index still gauges Flats and Townhouses to be moderately
oversupplied, which in our view has contributed to relatively high vacancies
and muted rental escalations. Overall, we expect excess supply in the property
market to persist a little longer, and thereby keep price growth and rental
escalations relatively subdued. However, a combination of lower interest rates
and price incentives could provide some support to purchasing activity.
Figure 4: Fewer owners are releasing
properties back to market
Source: FNB Estate Agents Survey
The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances.
Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by
Firstrand Group Limited and/or the authors of the material.
AdivisionofFirstRandBankLimited. An Authorised Financial Services provider. Reg No 1929/001225/06.
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