Buy-to-let properties set for a comeback
Returns from buy-to-let properties have dropped significantly from around the 10 to 12% mark at the peak of the recent property boom, to as little as 2% in some areas and an average of around 4 to 6% countrywide, according to market analysts.

But that’s all about to change says RealNet property group CEO Tjaart van der Walt.

“We have seen the rental market take a knock since the boom peaked about 18 months ago. Returns vary from area to area of course, but take the hypothetical example of a R1m property realising about R3500pm which is not uncommon at the moment. That’s R42 000pa, or a return of about 4% before bond and other costs.

“And according to surveys conducted by Rode & Associates, rentals of flats, townhouses, and houses generally grew at a compound rate of roughly 4 to 8% over the past three years compared with a compounded national house-price growth rate of 19,3% a year over the same period.”

However, Van der Walt says, market conditions appear to be swinging back in favour of buy-to-let investments due to a combination of factors, including the slowdown in new development, the introduction of the National Credit Act which has made it harder to obtain bonds, and rising interest rates which have obliged some homeowners to sell their properties and rent accommodation in order to reduce their monthly costs.

A further factor is the need for accommodation closer to places of work as the petrol price keeps increasing, with oil again testing record levels.

“Moreover, property values are still increasing, according to the latest Absa statistics, which means fewer South Africans are able to afford properties of their own. At current interest rates, buyers have to earn some R15 000/month to qualify for a bond even for a R500 000 home!

“And many young professionals who are still moving around in their careers are now renting in any case until they settle down because the costs of buying and selling – transfer duty, bond registration and so on - are just too high.

This all adds up to higher demand for rental property and makes buy-to-let investments increasingly relevant,” he says.

Article from: