While the rental market in Sandton has fluctuated in different price brackets and at different times over the past 18 to 24 months, the one consistent factor has been the steady oversupply of rental stock.
“This acceleration can be attributed to a time factor – units purchased off plan one to two years ago are now complete and ready for the market. Many developers like Summercon and Balwin for example are also currently launching developments on a scale we haven’t experienced in the past.
Complexes of hundreds of units are releasing, and thousands more are set to be released into the Johannesburg and Midrand suburbs over the next few years”.
Vining continues that even though buy-to-let investors are spoiled for choice in Sandton’s current buyer’s market (for the first time in almost 20 years), this also creates some challenges.
“Buyers - whether they are investors or buyers looking to purchase a primary residence - can easily feel overwhelmed by the plethora of options seen online, which is why it is so important to work with a reputable agency that has a good foothold in the suburbs a buyer is interested in.
Buyers should realise that while they may be perceived to have the upper hand in negotiating on purchase prices in this market, many sellers are not currently making massive capital gains if they’ve purchased their properties in the last three to four years.
This does not leave a lot of room to negotiate the price beyond five to 10 percent of the asking price, which seems to be the acceptable norm at this stage”.
Vining adds that banks are hungry for good business in the current bond market which means that buyers looking to buy their primary residences now will benefit from fair lending rates.
“If you are buying a primary residence buying now is a good decision, but it is crucial that you do your homework.
The same applies to investor buyers as long as they are not looking to turn a profit in the short term.
Pricing rental units correctly will be paramount in finding a tenant, so the return on investment over a five to seven year period must take conservative rent income pricing into account. Rental properties priced too highly will likely result in extended vacancy.
Property investment must be viewed with a minimum five to seven year maturity for buyers considering buy-to-let.
Short term losses may well be experienced, but property in Johannesburg’s northern suburbs has always performed well over the medium to long term”.
More South Africans choosing to rent
Vining says that while Johannesburg - and particularly the Sandton, Fourways and Midrand metros - has always had a large component of corporate tenants the pool of ordinary South Africans renting is growing at an interesting pace due to a number of contributing factors.
“Firstly, as the average age of first time home buyers rises above age 35 and closer to age 38 at present (as per statistics from OOBA), the natural effect is that people under 38 are renting for longer, as they aren’t buying.
Access to finance is a significant aspect – having 10 to 20% of a purchase price in cash as a deposit, as well as the costs of transfer fees and transfer duties requires years of saving.
Secondly, as general economic pressures mount for South African consumers, many remain in rental properties as it is both more affordable in the short term and not a long-term financial commitment.
Thirdly, there is a trend among Millennials to rent instead of buying – they free themselves up for life experience, travel, expat working contracts and general lifestyle flexibility.
Vining concludes that primary residence buyers who consider updating or renovating their property must be wary of over-capitalising if there is the possibility they may need to sell the home within the next three years.
“Fixer-upper costs can run into high numbers and when added to the original purchase price of a home, the transfer duties and taxes and interest paid on a bond, the numbers won’t make sense when looking to on-sell in the short to medium terms”.