The survey showed a sharp drop in the balance of surveyors reporting a rise in new lettings instructions. The balance fell from +21% in April to just +6% In July, well below the series average of +18%. But slower growth in new instructions was largely offset by slower growth in tenant demand. At just +12%, the tenant demand balance was also well below its long run average of +19%.
As such, it was perhaps not surprising that, the balance of surveyors expecting higher rents over the next three months remained in negative territory, at minus 6%, suggesting that the short term outlook for rents is weak.
Capital Economics agrees. Commenting on the survey, Capital Economics said: “With unemployment set to rise and average earnings under downward pressure we agree. We see little prospect of rental growth in the second half of this year, or in 2010.”
The RICS attributes the drop in new lettings growth to a fall in the number of ‘accidental landlords’ – sellers who, unable to sell, opt to let their property instead. Both weaker instructions and tenant demand growth seem consistent with other reports of stronger activity levels and firmer prices in the wider market. And it could be another sign that the current demand/supply imbalance in the wider market is easing.
However, the percentage of landlords seeking to sell at the end of a tenancy remained unchanged at 1.8% in July. Although up from a low of 0.2% in January, this is still well down on the 5% average seen in 2006/2007. That suggests that, as yet, relatively few sellers who went down the letting route last year are ready and willing to sell.
Capital Economics said: “The drop in both letting instructions and tenant demand growth could yet be reversed. But they seem consistent with other evidence of an improvement in housing market sentiment.”