South African property market giving increasingly good returns

Constant advice from Tony Clarke, the Managing Director of the Rawson Property Group, and other senior staff in the group to the effect that now is the time to get into buy-to-let residential property has, says Clarke, been confirmed by a highly informative report from Payprop, the nationwide rental accountancy firm used by so many estate agents and landlords.

This report, said Clarke, indicates that there are now 1,7 million rented homes in the “formal" residential market.  This figure is higher than most analysts had previously estimated.

“Just over 60% of all South Africa’s ± 10,000 estate agencies are now involved in letting – often as a complement to their core selling work — but in a growing number of cases as the specialist, more important activity.  Of the total of 1,7 million rented homes, approximately one-quarter are managed by rental agencies, leaving 1,3 million in the hands of private landlords.”

So far, so good.  The market is quite clearly big and growing.  However, is it really a good place for the investor to be?

Payprop, said Clarke, indicate – although they do not state this directly – that the answer to that question should be a definite “yes”, the reason being that throughout 2013 the one wholly valid descriptive word for the South African residential market would have been “recovering”.

In the first quarter of 2013 year-on-year rental increases were estimated by Payprop to be 5% up. In the second quarter the recovery had, by Payprop’s estimates, gained momentum and rental growth was calculated at 7% (i.e. ahead of the inflation rate for the first time in several years). By the third quarter the figure had reached 10%, which then fell back to 9% in the fourth quarter.

In cash terms, said Clarke, the average monthly rental rose in 2013 from R5,473 to R5,867 and this year it is set to break the R6,000 barrier. The majority of South Africa’s rentals are still in the R2,000 to R5,000 and R5,000 to R7,000 brackets, but homes renting at higher prices will, it is now predicted by many estate agents, also see significant growth in rentals by the end of this year and in 2015.

A trend which is working in favour of landlords, added Clarke, is that which makes tenants, not landlords, responsible for levies and rates and taxes. This means that the regular outflows from the landlord’s account, which can be as much as 35% of the rent (if the agent’s commission is also included), are in a few cases now being significantly reduced. This type of solution, he said, does require very careful watching of the tenant’s account because proof of these payments must be forthcoming.

On a more cautious note, Clarke has also warned investors that while the buy-to-rent market, with a projected growth of 8% this year, is likely to remain a good one, the tough economic conditions now being encountered will call for a specially careful and diligent tenant selection and management.

“All our experience in the rental market,” said Clarke, “shows that immediate and firm action is needed as soon as rent payment deadlines are not met – and this is a fact that the laxer, do-it-yourself landlords all too often overlook.”

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