Mind the rents and the rands will take care of themselves

Private Property South Africa
RE/MAX

Current market conditions and the banks’ strict lending criteria have created a strong demand in the rental market in Fourways, says Dieter Harck, Broker/Owner of RE/MAX One Hundred which operates in the Johannesburg suburb of Fourways and surrounding areas.

“With one out of two bond finance applications being rejected, many would-be homeowners have little choice but to turn to property rental. Although there has been a marked increase in buyers’ interest in the property market, the high levels of debt-to-income ratios among consumers mean that many have been unable to meet the necessary lending requirements laid out by the National Credit Act. While this has affected property sales, it has also led to a healthy demand in the rental market,” says Harck.

Adrian Goslett, CEO of RE/MAX of Southern Africa, says: “Many leading economists are predicting another slight downturn in the market, which, coupled with an interest rate hike which is predicted during the first half of 2012, means that homeownership will become increasingly more difficult for many. However, opportunities will continue to present themselves to investors with buy-to-let portfolios or those who are able to enter the market now and invest in buy-to-let property.”

Harck notes that while the interest rates have remained low and steady since November 2010, if they do increase as predicted, the bond finance costs for many landlords would also increase. “This coupled with demand outstripping supply will inevitably lead to rental prices being hiked by the landlords in the near future,” he says.

Harck says that in the Fourways area the general rental demand is for properties that fall within the R5 000 to R8 000 per month range, with the greatest demand for those renting for between R5 000 and R6 500 per month, which are usually one or two-bedroom sectional title units. Harck predicts that the next six months will follow a very similar pattern as the previous six months in terms of rental market activity. However he notes that while not as prevalent as the R5 000 to R8 000 bracket, demand for houses in the R10 000 to R15 000 rental range has also grown, which he also attributes to buyers having problems obtaining the necessary finance to purchase their own home.

“The high demand for rental property within a specific range means we have seen a shortage of property that is available to meet the demand. There have also been no new developments in the area for a while, which has further contributed to the shortage,” he says. According to Harck, the high demand in the rental market has also led to a lack of movement as many tenants are holding onto their rental property and are not moving. “This has meant that even fewer properties are available, creating a lack of buoyancy in the rental market.”

He adds that there has been an interesting trend in the area, where a large amount of young professionals that work within the Sandton CBD are renting property in the Fourways region. “This is because Fourways is ideally placed in terms of location coupled with the fact that rental prices are lower than what one would expect to pay living close to Sandton’s financial hub,” Harck says.

RE/MAX One Hundred has concluded an average of over 100 rental deals per year over the past four years with an annual rental value of approximately R6,9 million on average. “Rental property is in demand and will continue to be that way for some time. Investors with buy-to-let portfolios will be able to capitalise on the current market conditions and see good returns on their investments,” Harck concludes.

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