Is 2017 the year when residential yields rise again?
Audio PlayerSIKI MGABADELI: We are asking the question now whether 2017 is finally the year when we start to see residential yields rise again, taking the market gradually towards a more attractive buy-to-let opportunity.
Who better to ask than household and property sector strategist at FNB, John Loos? John, thanks for your time today. What do you look at in order to answer that question?
JOHN LOOS: Well, we use TPN rental data and our own automated valuation model and housing market data to try and match as many properties of TPN’s to FNB’s and determine a value and then a yield. And it’s a gross yield and not a net yield, so operating costs don’t come off.
And what we’ve found through the first three quarters of last year is an average gross yield for the housing market of around 9.1%. That has crept downwards ever so mildly from around a post-recession high of about 9.22% late in 2013. Before that yields were rising quite sharply as a result of the housing market slump back in 2009 or so.
So we had a period of rising yields up to 2013, then a stronger market actually took them down a bit. And now, with the weak housing markets or home-buying market and house-price inflation that by the end of last year went as low as about 1.6% according to our calculations, we could be getting into a period where house-price growth underperforms rental inflation and then leads to rising yields once again.
SIKI MGABADELI: Okay. And what are your expectations, then, for home-buying demand in 2017?
JOHN LOOS: For the year as a whole – I think slower than last year, and house-price inflation down. We project 3% average for the year as a whole, rental inflation nearer to 5% or so, and possibly even higher. And that could then start to take the yields higher. That’s what these mediocre periods of house-price growth do.
SIKI MGABADELI: So how do we know the point at which buy-to-let becomes an attractive option?
JOHN LOOS: Look, it’s tough to time the market and say now is the low point. If you look back, initially you could probably point to 1999 as being the last big buying opportunity before the boom. But I do think that over the next few years it’s likely that we could see that buy-to-let opportunity improving and the listeners must understand that when I say that I don’t mean a strengthening home-buying market. I mean a pretty mediocre home-buying market which takes real house prices lower and takes yields upwards. In other words, I think two or three years from now you may pay less for the same income stream. That’s to buy on the lows and sell on the highs – not the other way round.
SIKI MGABADELI: We’ll leave it there. Thanks for your time today. John Loos is household and property sector strategist at FNB.
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