Cape residential rentals cover less than 50% of the average bond repayment - but now remains a good time to buy to rent, says Institute chairman

Many estate agencies, said Ivan Neethling, Chairman of the Western Cape Institute of Estate Agents, have been advocating the message that now is the time to buy homes or apartments for rental purposes.

“Their message,” he said, “is sound. In the medium to long term, this is a great investment because current prices are 15 to 20% down on their peaks. A good home in the upper middle price bracket, i.e. from R3 to R5 million is now likely to be selling at R750 000 to R1 million less than it did in early 2008. In the lower price bracket (i.e. R500 000 to R1 million) the discount on 2007 prices will be in the region of R150 000 to R300 000.”

The economic downturn has forced many sellers to sell their properties at well below market values, said Neethling. Liquidation actions are also seeing prices at 40% to 50% of market values. This, he added, does however give significant opportunities for buyers wanting to purchase properties as an investment.

“While these are real bargains, it has to be accepted right now that the rentals on properties bought in the last 20 to 30 months will probably cover less than 55% of the bond repayments.”

“In the last half year, the number of tenants to fall behind on their payments has increased exponentially, leaving the agent between a rock and a hard place – the rock being the landlord and the hard place the recalcitrant tenant.

The landlord himself, says Neethling, is likely now to find that the bank from which he got his bond is now far less understanding about slow tenant payments and could blacklist him.

Whilst rental collections in the Cape remain higher than in other regions the pressure from the economic slowdown and resultant job losses continue to aggravate the situation. It is imperative that the agent conducts thorough credit checks before accepting a prospective tenant. Most rental agencies, he added, are now calling for higher than normal deposits to further protect themselves from further tenant defaults.

Article by: Institute of Estate Agents