Investors returning to buy-to-let property

There has this year, says Tony Clarke, MD of Rawson Properties, been a steady stream of investors returning to the buy-to-let residential property market – and the reason for this, he says, is that the returns here are now looking better and better.

“In the 2000 to 2005 period,” he said, “house sale prices increased at a far faster rate than rentals, making the yields on rented property increasingly less attractive. Since the last quarter of 2008, however, the situation has been very different: house price increases in the recession were few and far between and even now they are rising at a much slower rate than previously. As a result, Rawson’s rental return figures in the first quarter of this year were just on 15% higher than those of the first quarter of 2009 and we expect further rises soon.”

In a previous statement, Clarke revealed that the increases in Gauteng rentals had been higher than those of the Cape – but, he said, the rises are in fact now occurring countrywide.

“It always surprises me that there are not more investors in buy-to-rent property. It is one of the few asset classes where you can finance your purchase with a bank loan (thereby making the real return on the capital laid out far higher than it appears on the books) and you can collect monthly rents to help pay off your bond.”

These facts, added Clarke, are appreciated by a growing core of Rawson clients who are now steadily building up portfolios in Rawson’s new developments and by bidding at Rawson Auctions.

“Every one of the sales made by the new auctions team has, in fact, been to an investor,” he added.

Shrewd investors, he added, are also making use of Rawson’s association with FNB and, more recently, Standard Bank, to buy the properties that come up for sale via FNB’s Quick Sell and Standard Bank’s distressed sale programmes. These are designed to assist bondholders in trouble sell their properties quickly.

These properties, said Clarke, usually sell at 20% below market value and can be particularly good buys. What is more, he says, the flow of such properties onto the market is likely to continue for some two to three years which, in turn, will keep prices down and raise average monthly rental returns from their current satisfactory 0,8% of the property’s value to 1% by early 2011, i.e. 12% per annum.”

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