Get Off The Fence And Invest

Private Property South Africa
Lea Jacobs

One would think that the fact that South Africa has the lowest interest rates in nearly 40 years would have boosted the buy-to-let sector to new heights. Unfortunately this doesn't seem to be the case at all and despite an increased interest in rental properties by tenants, growth in this area remains low.

Things have changed over the years. In the past, people married and settled down at a younger age. Buying a property to provide a nest for the family was a priority and something to which most middle class South Africans aspired.

These days young people are often weighed down by student loans and other debt, they are not ready to settle down and often choose to travel before making a decision to buy a property.

"The average age of first time South African buyers has shifted over the past 20 years," says Marsha Haupt Cooper from Links Living in St Francis Bay. "The average age of a first time buyer is now 35 compared to the previous average of 27 years. This helps explain the rising demand for rental accommodation."

This of course is excellent news for buy-to-let investors considering that the demand has been steadily rising since the 2008/9 economic crisis.

"Numerous homeowners had to sell their homes due to financial pressures and many remain reluctant or unable to re-enter the market. There are many telltale signs that demand is fast outstripping supply. This is largely due to there having been so little new housing development over the past five years. Stats SA figures indicate that only 43 000 new homes, flats and town houses were built in the whole of South Africa during this time - somewhat concerning considering that this country has a population of around 52-million people."

She says that although there is an obvious demand, buy-to-let purchases only account for around eight percent of the total number of housing transactions.

"During the boom years almost a quarter of all purchases were by buy-to-let investors, despite the fact that interest rates were way higher than they are now. As with many countries around the world, the over-supply of rental stock became a major problem and it became a struggle for landlords to find and keep tenants. On the other side of the coin, a great many investors who bought during this time had absolutely no intention of becoming long-term landlords. Known as 'flippers' in real estate circles, these buyers were intent only on making quick resales in order to profit from the rapid price appreciation that was the order of the day."

The economic downturn has had a dramatic effect on the property market in general and according to FNB reports, capital growth has only amounted to 14.9 percent. In addition to lower returns, many owners were faced with tenants who could not afford to pay a premium for renting a home. Thousands of landlords were in a catch- 22 situation and were forced to keep good tenants by lowering the rent or at least not increasing the amount on an annual basis. This, says Haupt Cooper, has played a major role in keeping the rental yields lower than expected.

Property has never been viewed as a short-term investment. Yes, there will always be times when investors will make a handsome profit over a short period of time. This however should be regarded as the exception rather than the rule.

Haupt Cooper believes that there should be far more excitement in the buy-to-let sector and anyone who can muster a 20 or 30 percent deposit should seriously consider taking advantage of the lower interest rates and the increasing need to house South Africa's growing population.

"Technically anyone who buys a rental property stands to make a really decent medium to long-term return. Perhaps this is part of the problem, we are just not used to thinking of property as a long-term investment. The time has come for us all to change our mindset and seize the amazing opportunities that the current market presents," concludes Haupt Cooper.

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