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High rentals make it tough to lower inflation

By unknown | Sep 17, 2008 | COMMENTS [ 0 ]

Tamlyn Stewart

Tamlyn Stewart

Accelerating rentals will not make it any easier for the Reserve Bank to bring inflation within the target range of three to six percent next year when StatsSA introduces its new Consumer Price Index basket in February.

The new basket will use owners' equivalent rent as a measure of housing costs.

Owners' equivalent rent is the cost to homeowners of rental "lost" by living in their own homes.

Patrick Kelly, executive manager for CPI at StatsSA explained the process: "We identify a selection of properties on the books of letting agents and track the rents of those properties back as far as we can, and we will track the rents each quarter."

It is not based on homeowners' perceptions. "We need to have a measure of the costs of living in and owning your own house. We used to use interest rates on mortgage bonds but that was a measurement of the cost of debt and depending on the financing of your house that may or may not be meaningful.

"We looked at international standards and what would be most suitable (for South Africa)," said Kelly.

"There is a strong upward trend in rentals at the moment," said Jaques du Toit, senior property analyst at Absa Home Loans.

"There is demand for rental property because people have found it much more difficult to buy property because of the higher interest rates, the National Credit Act and uncertainty about where interest rates will actually peak," said Du Toit.


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