With many economists predicting an interest rate hike in the next six months and possibly another downturn in the economy in the near future, we will see a marked increase in the rental market, says Mark Brickles, Broker/Owner of RE/MAX Ultra Select, which operates in regions Grassy Park, Strandfontein, Mitchells Plain, Lotus River, Ottery and Lansdowne.
“If the interest rate does increase and the market sees a double dip as predicted, more and more people will be unable to qualify for finance and in turn will look to rent. However, the hike in interest rate will also mean an increase in bond finance costs for the landlords. This combined with the increased costs of municipal services and the higher demand for rentals will mean that rental prices will increase as well. It's a simple principle of economics - if demand increases, prices increase too,” says Brickles.
Adrian Goslett, CEO of RE/MAX of Southern Africa, says: “Investors with buy-to-let portfolios have been able to capitalise on the current market conditions where rentals have seen continued growth due to the lack of finance available to many as those who are unable to qualify for bond finance have little choice but to enter the rental market.”
According to Brickles, although interest rates have been at the lowest we’ve seen in the last 38 years, many people are still not able to meet the necessary lending requirements of the National Credit Act. This coupled with the fact that many financial institutions are still reluctant to grant bond finance to at least half of the applicants they receive, has kept rental properties in high demand. He adds that demand in the rental market within the area has remained fairly steady over the last 12 month period with a slight increase of approximately 10% on the 2010 figures.
“The tenants in our areas typically fall within the gap housing market. This means that they are generally families that earn too much to qualify for low cost housing grants, but earn too little to qualify for a bond to buy a home that meets their requirements. These families usually earn a combined income of under R15 000 and would rather prefer to rent in an area such as Strandfontein than buying a property in a low cost area such as Tafelsig in Mitchells Plain for security reasons. While they may not be high income earners, they do have stable jobs and are usually very good tenants,” says Brickles.
He notes that about 95% of the residential properties in the region are freehold properties, while only about 5% are sectional-title units. Brickles explains that many of the tenants in the area are families with children and are therefore looking for freestanding homes with at least three bedrooms and a garden. In most instances both parents are working and have a reasonable disposable income. Many of the young professional people from the area who are unmarried or have no children opt to move to more affluent areas such as Kenilworth and Rondebosch, where they rent an apartment. Although they get less home for their money in these areas, they are willing to trade it for the lifestyle.
“Rental properties are sought after and there are many opportunities in our area for investors looking to grow their existing buy-to-let portfolios or to perhaps start one. The housing here is well priced and there are always tenants available,” Brickles concludes.