Rising interest rates may put a temporary brake on house purchases, but they tend to give an upward kick to the rentals market, and the letting market is better than it has been for years, partly due to the inflow of foreign executives.

In the UK, for instance, demand for rented property is rising due to higher interest rates and high property prices. As a result, rents are rising at their fastest rate on record. Furthermore, the buy-to-let market is booming as investors try to cash in on the market.

According to the Association of Rental Letting Agents, the average weekly rental for a flat in prime central London is now the equivalent of R7350 — close to R30 000 a month.

Metro-centre boost

A similar rising trend is being experienced in South Africa's metro centres. For example, Pam Golding's Gauteng office has recently concluded a lease on an upmarket three-bedroom unfurnished apartment in Sandton for R50 000 a month.

"We have a client looking for a luxury house who will pay up to R100 000 a month," says Hyde Park Office Manager Ken Woolcott.

But it's not only the Gauteng powerhouse that is experiencing strong demand at the upper-end of the market.

PGP’s rentals director for the Western Cape metro area, Dexter Leite, has a gracious home in Constantia available for long term rental at R60 000 a month.

High foreign demand

The strong and open South African economy is contributing to the growing improvement in rentals, as is the government's infrastructural capital expenditure programme. Foreign companies have been opening up offices — bringing in key staff trained to manage new contracts and business opportunities.

Says Ken Woolcott: "There is a considerable degree of corporate demand for quality accommodation to rent in areas stretching from Hyde Park to Bedfordview. We have a huge number of corporate clients."

Location, location...

Luxury apartments in central areas are favoured — close to amenities such as shops, restaurants and banks — while offering good security.

"One realises that people from Europe, the US and Asia are used to living in apartments," Woolcott points out. For this reason, Sandton Central has an exceptionally good mix.

Schools too are important. Thus, the French involvement in the massive Gautrain development has boosted the area in and around Melrose Arch, in proximity to the International School.

Corporate families are also keen on Dainfern — not only for its attractive houses, golf course and security, but also because of the American School.

Rental returns improving

Peet Strauss, who heads up PGP's marketing at Melrose Arch, says investors are getting R16 000 to R19 000 a month for one-bedroom unfurnished and furnished units respectively.

Rentals range up to R25 000 a month for two bedrooms furnished to R40 000 a month for top-of-the-range fully furnished penthouse suites. A word of caution, however, furnishing and appliances must be world-class — granny’s old dining suite won't do!

Woolcott reports that rental returns in general are improving. He says good returns of eight to nine percent are being achieved for two-bedroom furnished apartments in, for example, the Morningside area where rentals vary from R12 000 to R15 000 a month.

The new central plan for the Sandton area has added considerable impetus to development. Depending on location one can now develop up to 40 storeys, Woolcott points out.

The availability of land, of course, is a problem — as it is in most metro areas — but huge blocks of existing structures are being bought up for redevelopment.

Traffic remains a serious problem and there are doubts as to whether the Gautrain will do much to alleviate the traffic headache.

"What the project is doing," adds Woolcott, "is creating a huge, positive vibe. Also, the nodes along its track are becoming the most sought after in Gauteng."

Impact of interest rates

Rising interest rates, and to a much lesser extent the new National Credit Act, have also impacted on the rentals market. First-time buyers in particular are baulking at monthly bond repayments and continuing to rent. Leite says he expects an increased demand in the months to come from first-time home buyers.

He says: "Their disposable income may simply not be sufficient to cover the required repayments. As a result, we expect to see an increasing demand for rentals in the short- to medium-term, which will in turn put upward pressure on rental prices."

"In Cape Town, the highest demand for long-term rentals is for good quality family homes with three or four bedrooms, as well as for two-bedroom flats. Location, accessibility to the workplace, good schools, leisure opportunities and security remain critical factors across all sizes of rental properties."

PGP's managing director for the region, Mick Joyce, points out that the Southern Suburbs are in demand among families due to the excellent schools and proximity to the university.

The City Bowl attracts a more cosmopolitan, younger crowd who want to live close to work and enjoy the vibey atmosphere. Close proximity to the V&A Waterfront and the Atlantic Seaboard appeals to foreigners.

"On the Western Seaboard," says Joyce, "rentals are lower, making properties more accessible to younger families and professionals, as well as those who enjoy the superb outdoor lifestyle or prefer the quieter areas for retirement. Value for money is a factor in the North".