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Cape Town – Only about 8% of buyers actually buy to let, according to the latest FNB Estate Agents Survey for the second quarter.
The survey, released on Wednesday, shows little change in the interest in residential property buying for buy-to-let purposes.
This figure has systematically dropped since the early part of the last decade when agents quoted a figure three times as high as today.
On a regional level, KwaZulu-Natal attracts the highest rate of buy-to-let investment, namely 11% of buyers. This is higher than the 6% recorded in Gauteng and 8% recorded in the Western Cape.
The low rate of investment in residential property for buy-to-let purposes is driven by a variety of factors, according to the FNB report.
“Assuming that more housing is needed for rental purposes, this lack of growth in supply could start creating a more lucrative opportunity for investors to enter the market in the near future,” it states.
The prolonged lack of capital growth in the residential property market has made investment in residential real estate fairly unattractive compared to the earlier part of the last decade, when house price growth was at much higher levels.
Yields are also driven down by financially strained tenants and rising maintenance costs.
However, as more young South Africans require housing there is a constant growth in demand for rental stock, according to the report.
“Should the Reserve Bank’s repo rate, and in turn the bank lending rates, rise, the argument quickly tips in favour of renting rather than buying and is expected to further increase the demand for rental properties in the short term,” states the report.
This rising demand for rental properties and slow growth in supply is expected to ultimately drive up yields to a point where buy-to-let property becomes a much more attractive investment.
Evaluating the longer-term performance of the FNB House Price Index shows that in real terms the index is -19.2% down on last decade’s real price peak reached in November 2007, while in nominal terms it is a mere 14.9% higher.
“This dismal growth rate makes residential investment a lot less attractive from a capital growth point of view,” continues the report.
“The lack of capital growth creates a necessity to place more reliance on the rental income stream generated from letting the property out. While it may not attract the same level of investment, rental yields are a much more reliable form of income.”
Rental returns are, however, not without their challenges, according to the report.
High debt levels, pressure on income and slow economic growth since the 2008/9 recession not only influenced residential property price growth, but also impacted on the financial wellbeing of tenants.
These tenants have in many cases not been able to absorb large increases in rental payments.
According to Tenant Profile Network’s estimates for the first quarter of 2013, 84% of tenants are in good standing (in other words, have not missed a payment).
Many landlords prefer to keep good tenants in a property at a lower rental return than increasing prices too much and having to face the risk of losing those reliable tenants.
This approach also mitigates the risk of a vacancy between tenants, if the same tenant is not in a position to afford an increased rental amount.
- Fin24
The survey, released on Wednesday, shows little change in the interest in residential property buying for buy-to-let purposes.
This figure has systematically dropped since the early part of the last decade when agents quoted a figure three times as high as today.
On a regional level, KwaZulu-Natal attracts the highest rate of buy-to-let investment, namely 11% of buyers. This is higher than the 6% recorded in Gauteng and 8% recorded in the Western Cape.
The low rate of investment in residential property for buy-to-let purposes is driven by a variety of factors, according to the FNB report.
“Assuming that more housing is needed for rental purposes, this lack of growth in supply could start creating a more lucrative opportunity for investors to enter the market in the near future,” it states.
The prolonged lack of capital growth in the residential property market has made investment in residential real estate fairly unattractive compared to the earlier part of the last decade, when house price growth was at much higher levels.
Yields are also driven down by financially strained tenants and rising maintenance costs.
However, as more young South Africans require housing there is a constant growth in demand for rental stock, according to the report.
“Should the Reserve Bank’s repo rate, and in turn the bank lending rates, rise, the argument quickly tips in favour of renting rather than buying and is expected to further increase the demand for rental properties in the short term,” states the report.
This rising demand for rental properties and slow growth in supply is expected to ultimately drive up yields to a point where buy-to-let property becomes a much more attractive investment.
Evaluating the longer-term performance of the FNB House Price Index shows that in real terms the index is -19.2% down on last decade’s real price peak reached in November 2007, while in nominal terms it is a mere 14.9% higher.
“This dismal growth rate makes residential investment a lot less attractive from a capital growth point of view,” continues the report.
“The lack of capital growth creates a necessity to place more reliance on the rental income stream generated from letting the property out. While it may not attract the same level of investment, rental yields are a much more reliable form of income.”
Rental returns are, however, not without their challenges, according to the report.
High debt levels, pressure on income and slow economic growth since the 2008/9 recession not only influenced residential property price growth, but also impacted on the financial wellbeing of tenants.
These tenants have in many cases not been able to absorb large increases in rental payments.
According to Tenant Profile Network’s estimates for the first quarter of 2013, 84% of tenants are in good standing (in other words, have not missed a payment).
Many landlords prefer to keep good tenants in a property at a lower rental return than increasing prices too much and having to face the risk of losing those reliable tenants.
This approach also mitigates the risk of a vacancy between tenants, if the same tenant is not in a position to afford an increased rental amount.
- Fin24
