Related Articles
Top Stories
May 27 2012 11:21
There's a price war raging between South Africa's cellphone networks after Cell C lowered the rates of its prepaid calls by more than 34%.
May 27 2012 13:09
The oversupply of golf estates has claimed another victim.
May 28 2012 07:53
The City of Cape Town has spent R175m running the Myciti bus service since the Soccer World Cup compared to an income of R35m, a report says.
DATA RELEASED last week by a number of industry players offered little comfort for residential property investors. Not only do house prices face a long, slow recovery but rentals are also falling and more tenants defaulting. First National Bank property strategist John Loos said (at its quarterly housing presentation) although sales volumes are on the rise in the primary home market there's no improvement yet in demand for investment properties. FNB's figures show only 13% of all residential property sales in fourth quarter 2009 went to buy-to-let investors. That's down from around 25% at the height of the property boom.
Loos says owning rental properties has lost much of its appeal, given the unexciting prospects for both capital and income growth. He expects house prices to rise by no more than 5% to 8% a year for at least the next three years. In addition, FNB's research shows only 60% of monthly mortgage repayments on buy-to-let properties was covered by monthly rentals in fourth quarter 2009. "People simply don't have the cash lying around to finance the monthly shortfall between mortgage repayments and rentals."
Latest figures from property investment group YDL show buy-to-let investors currently have to be satisfied with initial net income yields (rental as a percentage of the buying price after deducting costs) of no more than 6% a year on average in Johannesburg's Sandton and 3,5% a year in Cape Town's Claremont. That leaves a substantial negative (or reverse) cash flow if the property is financed by a mortgage loan-to-value of 80% or higher.
YDL CEO Anton de Leeuw says it no longer makes financial sense to buy rental properties at yields of less than 8% to 10%. The bad news is that rentals may even fall in some areas this year, placing further pressure on negative cash flows. De Leeuw says a key challenge for buy-to-let investors will be to try to hold rentals steady. Managing the squeeze of rocketing electricity costs, rates and levies, as well as collecting rent from tenants on time, will add to investors' woes, he says.
Figures released last week by credit bureau Tenant Profile Network (TPN) show there's been a significant jump in the number of tenants in upmarket properties no longer paying their rent. Around one in every five tenants (21%) renting properties priced at more than R12 000 a month made no rental payments in fourth quarter 2009, up from 12% in third quarter 2009.
Michelle Dickens, MD of TPN, says though there are signs the rental payment profile may well be stabilising in the R3 000 to R12 000 a month bracket, the number of debt-stressed tenants in the upper end of the rental market has increased noticeably.
