Renting still cheaper option for many
PUBLISHED 14 FEB 2014
This demand for rental properties will also drive up yields and what one saves on transport, you will eventually pay towards rent, according to residential property experts.
Some estate agents reckon, with the high cost of living and the burden of having to raise a deposit in order to buy, renting is still cheaper than buying for many people.
According to Bill Rawson, chairman of the Rawson Property Group, buy-to-let is proving to be a good investment for many especially where there is demand for these properties, i.e. where they are located.
For example, he says they sell buy-to-let units in high demand, metropolitan areas in Cape Town’s central Southern Suburbs, Durban’s Umhlanga and Berea and most of Sandton in Johannesburg.
“Buy-to-let investors will often get a 7 to 8 percent return from day one in these areas and in select markets can look forward to a 9 to 12 percent annual appreciation,” he says.
He is aware that national figures on buy-to-let are between 5 and 6 percent and capital appreciation is between 7 and 8 percent – but, he says these figures do not apply to the central metropolitan precincts, where returns are excellent currently and high demand and an increasing shortage of space is making them better month-by-month.
Adam Kane-Smith, managing director at Seedstone Fund Advisors, explains that only very specific areas of the residential market will beat the average yield achieved by the property sector, specifically some student accommodation and cleverly chosen property locations where there is a market shift in demand and desirability.
He notes that the increase in interest rates and the fact that many home buyers are having difficulty raising home loan finance will be a further boost in the demand for rental property, as fewer people can afford to buy their own property and will rather choose to rent.
Andrew Schaefer, managing director at Trafalgar Property and Financial Services, says the rental market is cyclical and usually busiest at the beginning of the year when people tend to move thereby giving up their old leases, or students start looking for accommodation close to universities.
“The availability of rental properties is at a historic low in terms of vacancies when it should be the busiest period of the year.”
Good quality properties with a good location are hard to find as tenants tend to stay on in order to avoid moving costs, together with challenges of finding suitable alternative vacancies.
While demand has been strong in the last two years, supply and availability has been low, he says.
Meanwhile, some parts of Cape Town are reportedly seeing a huge increase in rental demand particularly in the City Bowl and Atlantic Seaboard.
Grant Rea, a rental specialist at RE/MAX Living, says demand is far outstripping supply and those with rental portfolios will be able to capitalise on the current situation - provided they adhere to a few golden rules.
These include thorough screening processes and criteria should be stringent to ensure that the best possible tenant is selected.
“It pays to be diligent in vetting all tenants as it can largely affect the return on investment for a rental property owner,” says Rea.
Seeff properties report that rental demand in Hout Bay and Llandudno is thanks to these locations' lifestyle allure.
Agents Ruth Webb and Anna Paulina Botten report that 2013 saw this sector of the market expand further with growth in the demand for rentals up by 20 percent year-on-year.
They say while rental rates in the village still offer significant value for tenants, averaging about 20 percent below that of the other suburbs of the Atlantic Seaboard, top-end tenants are increasingly heading to these locations and are prepared to pay excellent rates for luxury homes.
Tenants renting luxury homes pay between R37 000 and up to R45 000 per month.
“While renting is still cheaper than buying for many, we often find that those that relocate or semi-grate from upcountry tend to rent before buying.
“What we do find though is that once they move to Hout Bay or Llandudno, they tend to stay,” say the agents.
Rental prices start from R5 500 per month for unfurnished, one bedroom apartments, R7 000 for two bedroom townhouses, R10 500 for three bedroom homes depending on location, size, features and finishes and luxury homes in sought-after estates are priced from R25 000 per month.
Short-term rentals have seen an uptick with foreigners making up the majority of tenants.
These come from Germany, Switzerland and France and mostly to participate in the Argus Cycle Challenge and Two Oceans Marathon.
As a general guide, Hout Bay apartments now fetch between R1 000 and R2 000 per day while houses range between R2 500 and R3 000, but can go up to R5 000 and R6 000 and luxury homes can fetch up to R15 000 per day for an exclusive home with four bedroom suites, decks upstairs and downstairs with stunning views and an indigenous garden with a swimming pool.
Llandudno is sought-after for high-end corporate rentals, high net worth tenants and celebrities, largely for its privacy and exclusivity and rentals are anything from R4 500 to approximately R12 500 per day with ultra-luxury homes starting from R25 000.
Priced at R15 000 per month, a two bedroom apartment in City Bowl, Cape Town, is available for rent through RE/MAX Living. Click here to view.
Seeff says Hout Bay has something for everyone, from affordable lock-up-and-go or a lovely family home with room to grow, buyers are spoilt for choice.
Buy-to-let investors are smiling all the way to the bank as rentals are rising due to a growing shortage of rental stock, says Jan Davel, managing director of the RealNet estate agency group.
Davel says because of this demand, landlords have been able to raise rentals quite substantially over the past 12 months, as shown by the latest figures from PayProp.
Data from PayProp shows that the national average residential rental grew 10.8 percent to R5 787 at end of September 2013 from R5 221 a year previously.
Furthermore, the dominant rental range is still R2 500 to R5 000 a month, but the fastest growing price band is R5 000 to R7 500, followed by the R7 500 to R10 000 range.
The average “cost of ownership”, or percentage of rental income that a landlord has to sacrifice to keep and maintain a rental property, is 27.8 percent, according to PayProp data.
Looking at the figures, Davel warns landlords to proceed with caution – meaning they need to bear in mind that tenants are struggling to keep up with regular increases in electricity, food and transport prices, not to mention higher health and education costs, and that it is worth moderating their rental increases somewhat if they would like to hold on to a good tenant that pays on time and looks after their property.
At the same time, he says tenants need to know that landlords are not inclined to tolerate deliberate damage to their properties and late paying tenants either.
In many areas, it does not take more than a few days now for a landlord to fill an empty rental unit, so tenants really do need to be more meticulous about paying on time and keeping the property in good condition.
“They should also be aware that most landlords are now asking new tenants for the equivalent of two months’ rent upfront as a damages and utilities deposit, so it could prove very costly if they default and have to move,” he adds. – Denise Mhlanga