RENTAL TRENDS FOR THE BUY-TO-LET INVESTOR
Category Residential Sales
When is the right time to maximise your opportunities for property investment? When the general view is that the property market will only start recovering in three to four years time?
‘Buy low, sell high’ has always been a great investor motto, but timing it right to buy at the lowest, and conversely sell at the highest is where the difficulty lies. The truth is, you will only know after the fact if you could have achieved a better price or not. Property attracts investors through its two pronged approach to value - firstly securing monthly income through a tenant with an annual inflation-linked escalation, and secondly, the potential growth in property value over time.
The property market is currently plagued by a vast array of factors keeping homeowners on their toes: Cautious lending by the banks, a low interest rate environment with expected hikes on the horizon, a slow-down in sales, NCA (national credit act), CPA (consumer protection act), and pressure on disposable household income to name but a few. So where do people live, when they are either too afraid to take on the financial burden of buying property, or worse, are unable to obtain finance?
South Africa’s largest property rental agency reveals some interesting trends showing that rentals have been on a steady rise for the past 18 months, saying it is due to strong demand for rental accommodation. This makes a buy-to-let option appealing to the discerning investor, who can buy at a good price and secure a tenant at a strong market related rental value.
The below graph depicts the national average rentals of all new leases concluded per month, using a 3 month rolling average. This information is supplied by The Just Property Group, holding company of Just Letting, and is gathered from over 80 franchises nationwide.
These national statistics report an average growth in rental values of 0.63% per month for the past 12 months, and an average of 1.92% per month for the first 6 months of 2011. This shows us that growth in rental values is still gaining momentum.
Knowing that the golden rule of property is Location, Location, Location…. you need to make an informed decision, with a long term view on a suburb’s future growth and prospects. Always consult an registered agent to find out what types of property are in demand in any particular area, compare rental values between complexes, flats and free-hold properties. Compare a prospective property’s potential rental value against similar ones available on any of the leading property portals such as, Private Property, IOL Property, and Property 24. The general trend may not apply to a certain suburb, so ask the right questions. Always find out what additional costs will be incurred on a monthly basis, and clarify who should be responsible for them (Landlord or Tenant).
The below graphs, reflect the average rental per region and show the overall movement in the average rental values in selected areas. Pretoria’s new rental values grew faster than Johannesburg’s in the last half of 2010, and then lost some ground moving into 2011.
There certainly is a debate to be had over whether rentals will continue to grow at their current rate. There has to come a time, when the rental values will reach its growth peak, even though there is no indication of this happening yet. When that does occur, it will more than likely indicate that the bottom of the property sales cycle has been reached, and the turnaround in the property market is in sight.
Being familiar with the current property market trends will guide you in making the right decisions when buying an investment property, so investigate everything so you can to make a well-informed decision. And once you have the property, using a management agent gives you access to invaluable systems and processes for rental collection and property management.
