In spite of the technical emergence of the economy out of the recession, the latest Rode?s Report on the Property Market (quarter 2009:4) reveals that rental markets in particular continue to feel the pinch of weak economic conditions across the commercial, industrial and residential arenas?

Flat rentals continue to show lacklustre growth.

Durban managed what could be called the 'best' yearly growth at only five percent (declining by 0.8 percent in real (after inflation) terms), while rentals in Johannesburg and Cape Town were up by a meagre two percent (-3.8 percent in real terms). For Pretoria and Port Elizabeth, rentals remained roughly at the same level of a year ago (declining by roughly six percent in real terms).

Low rental growth also applies to houses

These low rental-growth rates also applied to house rentals. "As residential rentals have a heavy weighting of 16.4 percent in the Consumer Price Index, these figures naturally are good news for inflation, as measured by the CPI," says property economist Erwin Rode.

The outlook for building activity also looks bleak, as building-input costs and tender prices continue to decelerate. In the third quarter of 2009, real gross fixed capital formation in residential buildings contracted by eight percent (i.e. eight percent fewer 'bricks' were put in place), while growth in non-residential building activity decelerated to seven percent ? its lowest yearly growth rate in nearly four years.

"In fact," notes Rode, "contractors are currently being forced to trim their profit margins so much that the BER BCI is expected to have contracted by two percent in the third quarter of 2009, while the demand for labour materials, machinery and equipment has also faded to such an extent that building-input prices are expected to have contracted by about one percent."

Prices bottomed out in April

There is some good news, however, with housing prices seemingly having bottomed out in April.

But it is, according to Rode, too early to celebrate as it remains highly unlikely that the recovery in nominal house prices will result in a change in the direction of real house prices any time soon.

Reasons for this are:

  • The grim prospects for the country?s finances (which will put pressure on taxes)

  • Rising unemployment

  • House prices are in real terms very high

  • Households? high debt levels

  • Constraints on economic growth through the electricity debacle and the gloomy outlook for the world economy.