Could rentals start to boost buying soon?

Amid a growing shortage of rental housing stock and rising monthly rentals, more and more tenants are now exploring the possibility of becoming homeowners in their own right.

That’s the word from BetterBond CEO Rudi Botha, who notes: “The recent statistics from FNB showing that the percentage of home purchases being made by buy-to-let investors is now only around 8%, compared to about 25% during the last property boom, clearly indicate that there are far fewer properties being added to the stock of rental homes.”

One reason for this, he says, is that the banks generally require much higher percentage deposits in order to approve loans for the purchase of investment properties rather than primary residences.

“Another is that rental increases have been constrained over the past three years by the need for landlords to take account of large increases in electricity and other municipal costs that have cut into tenants’ disposable incomes and reduced rental affordability.”

Nevertheless, says Botha, rentals in some areas – notably the “power station” towns and others where new mining activity is flourishing – have risen to levels where many tenants are seriously considering that it might now be cheaper to buy than to rent.

“This trend is also being fuelled by the current low interest rates and by improving access to bond finance, especially for first-time buyers.

“At the same time, we are seeing many of those who reluctantly gave up homeownership and turned to renting in the 2008/ 09 downturn now returning to the market as homebuyers. They have had a chance to put their financial affairs in order and are keen to become homeowners again before prices (and possibly interest rates) start to rise again.”

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