New credit act may lift demand for rented property

THE buy-to-let property investment market is being buoyed by “insatiable demand” for affordable housing, says residential property manager Trafalgar.

The group says research indicates that the majority of buy-to-let investors are acquiring properties in new developments off plan, specifically those accommodating the middle-income market requiring properties below the R1m mark.

Trafalgar MD Andrew Schaefer says opportunities also exist within inner cities and in areas “ripe for refurbishment” where the higher risks are translating into returns higher than acquisitions in “blue-chip suburbs”.

And relatively higher rents as a percentage of the purchase price mean inner-city rentals show annual yields of about 10% compared with 4%-5% in more expensive suburbs.

The new National Credit Act may also boost the buy-to-let market. The act, which aims to protect consumers from reckless lending, stipulates that banks must check on the overall credit exposure of any borrower before they approve any new loan.

Property economist Francois Viruly, of Viruly Consulting, says an important issue to bear in mind is whether the act will potentially make it more difficult for middle-income earners to own a property, especially if they are relatively highly indebted already.

Viruly says if someone cannot acquire a property, many may turn to the letting market instead. “There is a chance that demand for rental space could increase as a result of the act,” he says.

But buyers of investment units will need to be more careful than they may have been before the implementation of the act.

Potential investors will have to show in detail what properties they own, as well as the mortgages on those properties.

He says that in terms of the act, banks are no longer allowed to discriminate on a geographic basis when it comes to financing home loans.

This means areas that were more difficult to raise finance for could “well open up”.

“Hence buy-to-let investment opportunities in the Hillbrows and in previously considered high-risk areas could open up a lot more,” Viruly says. But property economist Erwin Rode, of Rode & Associates, says there is “no free lunch” and that in those areas where investors get higher initial yields, the risks are also higher.

Rode says there is a higher variability of expected cash flow and prospective capital growth.

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