High-end residential property boom is over

By Morris Aaron

It is not good news for high-end residential property investors, but rental yields are falling, and may not rise any time soon.

Hass Consult, a leading property firm, is warning those looking to buy high-end residential apartments with the intention of renting them out to earn income to go slow.

But even as it issued a profit warning, the property firm moved to allay fears of an imminent property crash, saying the current level of demand and supply mismatch for the high-end market will only herald a market correction and not a bubble burst.

Hass Property index report for the first quarter of this year — the period between January and March 2010 — indicates that rents for the high-end residential market have stagnated over the last three years, while property prices in the same market have more than doubled over the same period.

"It seems unlikely, at this stage, that the market will support the targeted profit taking," said Fatima Moledina, HassConsult sales and letting manager.

"It is clear that the market is solidly underpinned in holding its current price and rental levels, but ambitions to secure profits on apartments bought to as investments within two years are likely to remain thwarted for the time being."

Hass Letting Index — which tracks rental trends — indicates that residential apartment rents stagnated in the last three years, then dipped in the second quarter of last year and rose again marginally in the first quarter of this year.

Market is stabilising

The index also revealed a trend showing stagnation in the apartment market rental prices with asking rents — what property manages ask tenants to pay when they advertise — at the close of last year at the exact same level as they were at the beginning of 2007. "What these trend basically means is that returns from rent have halved over the last three years for this specific market," said Jenny Luesby, a consultant who is behind the Hass Property Index.

"In short, the high end residential apartment boom is over after a market correction that has lasted over three years since the height of the boom and the market is stabilising."

But as rentals take a beating, property sales have not been spared from the on-going market correction that is currently playing out due to over-valuation and demand-supply mismatch that started becoming evident in 2007. The Hass Property Index indicates that general property transaction trends for the high end of the market have continued on a sluggish demand path with closing prices indicating a rise of only 1.8 per cent compared to the previous quarter.

"The marginal first quarter rise in house prices saw them recover within 0.0015 per cent their levels a year earlier — that is in the first quarter of 2009 — confirming a continuing stasis in the market," read the report.