Mining towns less attractive now for buy-to-let investors

The property markets of mining towns around the world have gone from boom to bust in the past year as a result of the slump in commodity prices, with most now having a serious oversupply of real estate that is driving rentals and purchase prices down.

“And resource-dependent towns and provinces in SA have not escaped the decline, although the weak currency has softened the effect somewhat by boosting the rand value of gold and other precious metals,” says Andrew Schaefer, managing director of national property management company Trafalgar.

“The strong local demand for coal to keep up electricity production at SA’s old and new power stations has also helped, but new mining ventures, exploration projects and infrastructure builds have nevertheless been put on hold in many parts of the North West, Limpopo and Mpumalanga,” he says.

“Existing mines and processing facilities have also scaled back operations, and many towns that used to have waiting lists of incoming mine employees and contractors clamouring for accommodation now have large numbers of empty rental units – and declining rentals.”

Schaefer says this is clearly reflected in the latest Residential Rental Monitor released by specialist credit bureau TPN, which reveals that the average rental in Mpumalanga, for example, showed a year-on-year decline of 1.58 percent in the third quarter of last year, compared with an increase of 7.04 percent in the same period of 2014.

“Similarly, the average rental in North West showed a year-on-year decrease of 6.92 percent, less attractive now for buy-to-let investors in the third quarter, compared with an increase of 10.56 percent in the same period of 2014, and the average rental in Limpopo showed a year-on-year decline of 11.12 percent compared to an increase of 9.2 percent in 2014.

“Consequently, even though mining areas  have some of the highest rates of tenants in ‘good standing’ for paying their rent on time and / or in full, we believe they are increasingly risky choices for buy-to-let investors, with the exception perhaps of Northern Cape, where a lack of infrastructure has prevented the creation of an oversupply of rental units.”

By contrast, he says, rental property investments are looking increasingly attractive in the Eastern Cape and Western Cape, where average rentals are still showing annual rates of increase higher than the national average of 5.1 percent. According to the TPN figures, the year-on-year rate of increase in the Eastern Cape was 6.9 percent in the third quarter of 2015, and that in the Western Cape 7.85 percent.

“According to the TPN figures, the percentage of tenants in good standing in both these provinces is also higher than the national average of 84.7 percent – at 88.7 percent and 88.5 percent respectively.”

As for the type of property to buy as an investment, Schaefer says all indications are that these should be apartments or sectional title townhouses in secure complexes that will generate good returns at rentals of between R3 000 and R7 000 a month.

“The TPN statistics show that 59 percent of tenants in SA fall into this rental range, which means that owners of such units are assured of good demand, boosted by increasing urbanisation and the growing trend in the major metros towards secure living in smaller homes.

“This is also one of the better rental payment categories, with 86.1 percent of tenants in good standing and 71 percent paying in full and on time every month.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 23 May 2018
      The importance of correctly pricing a property for sale is more imperative than ever. This is according to Debbie Justus-Ferns, divisional manager of Renprop Residential Sales, who says that despite this crucial selling fact being emphasised so often, in the current market, many sellers are still expecting unrealistic prices for their homes which is having a negative impact on the ultimate sale price.
    • 22 May 2018
      Extreme weather appears to be the new normal, evident by the volume of insurance-related disputes reaching the industry watchdog’s desk. To avoid a situation in which your insurer refuses to pay up, you should proactively ensure that your home is well-maintained and ready for whatever winter has in store.
    • 22 May 2018
      As the impact of technology on the real estate industry becomes more significant, it is clear that there is a need for an objective look at not only traditional real estate models but also online and other alternative low-commission real estate agencies, to examine what they offer and what their impact might be.
    • 22 May 2018
      According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, dealing with some sort of neighbour dispute is an unavoidable part of life unless, perhaps, you choose to live on a remote small holding for the rest of your life.
    • 22 May 2018
      Buyers feel that they are getting value for money in the Northcliff area without having to compromise on aesthetics and amenities
    • 21 May 2018
      Secure living is one of the growing property trends in South Africa and Nooitgedacht Estate in Stellenbosch certainly ticks the right boxes for buyers who want a secure, exclusive lifestyle in one of the Boland’s most sought-after estates, says Pam Golding Properties.
    • 21 May 2018
      With sectional titles growing in popularity, an increasing amount of homeowners simply do not have the garden space to install a tool shed in their backyard.
    • 18 May 2018
      Home improvements are a great way to add value to your property, but not all of us have bottomless pockets for a full-on renovation. Lucky for us, there are plenty of affordable DIYs that can spruce things up over a free weekend.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us