As predicted, buy-to-rent investment in residential property now very much back in favour

Those property experts who, like Bill Rawson, Chairman of the Rawson Property Group, continuously advocated investment in residential property (even at the height of the recent recession) took something of a hammering in the 2009 downturn. 

The reason for this was that, as the latest figures from Payprop have shown, in years like 2010 and 2011 rental growth was limited to 4 to 6% per annum. Now, however, it appears that everything that Rawson predicted about an eventual rental upswing is becoming true: Payprop’s latest figures indicate that the average monthly rental for South Africa is now nearing R5,800. 

“This is a very big uptick on the R5,200 average previously prevailing in the middle of 2011 and the early months of 2012 and Joan Muller of the Financial Mail has pointed out that the year-on-year increase is now above 10%.”

“This greatly improved situation,” commented Rawson, “is exactly in line with what the analysts at the Rawson Property Group said would happen over a year ago. At that time, it may be remembered, we advised Cape buy-to-rent investors to have a very good look at the central Cape Peninsula and Atlantic Seaboard suburbs. Today in Hout Bay, our rental division is now achieving average rentals in free standing homes in the region of R9,000 per month and in the academic belt of Rondebosch, Rosebank, Mowbray, Claremont and Kenilworth, single rooms are renting at anything between R3,000 and R5,000 per month.”

Among the factors likely to drive rentals in the next two to three years, said Rawson, are the growing shortage of stock, the performance of the economy and the consequent rises, if any, in the interest rates.

“Our management here at the Rawson Property Group,” said Rawson, “is continuously being asked to make forecasts on these matters, but that is simply not possible. All that one can say is that, except in the very worst recessionary conditions, rents have always tended to keep abreast, or ahead, of inflation and, as things now look, the government’s commitment to achieving growth makes it highly unlikely that interest rates will rise by any significant amounts for at least another year or more – even if inflation does break the 6% barrier. I, therefore, continue to advise our clients to purchase regularly and to build up their portfolios.”

Many potential buy-to-rent investors, added Rawson, have shied away from this asset class because they have burnt their fingers, but in most cases this is the result of going at it alone as landlords (going the DIY route) or appointing an unsatisfactory rental agent.

“Both courses,” said Rawson, “can only too easily lead to very poor tenant selection and the subsequent problems of late payment and poor home maintenance. It has to be realised that in many groups, including our own, there are excellent rental agents who will ensure that their bad debts are kept below 3% of the total and this is the type of agent that the investor should appoint.”

Looking at the bank loan situation, Rawson said that there are now signs that the banks are increasing their appetite for lending bond finance and this will lead to more buyers entering the market and further price rises, possibly, he predicted, in the region of up 12% per annum. The sub-R1 million bracket, added Rawson, will be particularly active and could see the greatest price increases, although there are now also signs that the middle and upper brackets are beginning to witness price increases at last.

Rents, added Rawson, will increase along with prices.

“This is another easily definable trend which we have witnessed in the past and which is now once again making itself evident.”

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