Buy-to-let purchasing has fallen off in the past year in response to the Covid19-induced problems with defaulting tenants, rising vacancies and very low rental increases, but for investors with a medium- to long-term outlook, now is actually the very best time to buy carefully selected rental properties.
So says Gerhard Kotzé, MD of the RealNet estate agency group, who notes: “Interest rates are really low and prices are very negotiable, so astute investors are currently finding excellent opportunities to acquire properties where the rental income will cover their costs for now, and they can expect both rental and capital growth in the future.”
According to the FNB Property Barometer, up to 30% of property sellers in the below-R750 000 price bracket are currently “downscaling” due to financial pressure – or “disposing of investment properties” to improve their financial position.
“And sellers in such circumstances are often more willing to negotiate than others, especially if the transaction is likely to go through more quickly because the prospective buyers have cash available or are pre-qualified for a home loan. What is more, we believe properties in this price category are likely to be those most in demand among tenants in the future.”
Meanwhile, he says, interest rates are currently still at a 40-year low, following the drastic cuts made last year to try to stimulate economic growth in the face of the Covid19 pandemic. “These decreases reduced the minimum monthly repayment on a 20-year home loan of R750 000, for example, by almost 20%, and of course also reduced the gross income required for the borrower to qualify for the loan.
“From an investment point of view, the low rates also mean that the monthly bond repayment due on your investment property will be much lower and may well be completely covered by the rent your tenant is paying, especially if you have acquired the property at a competitive price.”
Kotzé also notes that while the rate cuts have prompted a huge upsurge of home buying in the affordable sector of the market, this does not mean that everyone is able to become a home-owner – or would like to. “The banks are applying stricter credit criteria now in response to rising unemployment in the past-lockdown economy, so it is becoming harder to be approved for a home loan, and of course there are always those who prefer to rent rather than buy, for a number of reasons.
“And currently, as a sort of ‘bonus’ for investors, there is higher demand for all sorts of rental properties in SA’s popular holiday areas that is likely to persist until at least 2024 due to the restrictions on international travel and increased local tourism.
Nevertheless, he says, potential investors do need to be cautious and highly selective when it comes to buying rental homes, even in the current favourable market, and should enlist the help of qualified and experienced estate agents to find suitable properties as well as quality tenants.
“In addition, we always advise investors to put down as big a deposit as they can afford, and to have emergency funds available in case their property suddenly becomes vacant or their tenants suddenly lose their income, as many did last year.
“Investors also need to be clear on their strategy and expect medium- to long-term gains from rental income and capital growth. This is not a market for speculators looking for a quick turnaround.”
Other than price, the most important factors to be taken into account in a buy-to-let decision, Kotzé says, include the location of the property with regard to shops and other consumer amenities, excellent security features and increasingly, a dedicated work-from-home space.
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