The number of South Africans renting properties has increased by 0,5% (0.9 million households) during the past decade and by 152,000 in 2014, according to development indicators by the presidency. With strong demand for rental accommodation on the back of poor economic outlook and high demand expected to continue, owning a property to rent seems to be a lucrative investment.
Samuel Seeff, chairman of Seeff, says given economic growth has been adjusted downward to about 1,5%, perhaps 2%, for the next year, he expects high demand for rentals to continue. He says consumers are still battling high household debt levels and poor credit records, unable to secure home loans which will drive buoyancy in the rental market for the next two to four years.
Building Personal Wealth through Property
“Property is one of the best ways to build personal wealth and South African property values tend to double every 10 years, but in boom times, values have been known to grow at about 20% to 30% in high demand areas. Renting a property to tenants gives the opportunity to earn a return on investment and the longer the property is owned, the higher the returns,” says Seeff.
Carol Reynolds, area principal for Pam Golding Properties, says property offers good returns and solid capital appreciation provided it has good tenants and is in a sought-after area with a high demand for rental properties. She says the property should be kept in excellent condition with about 10% of rental income allocated for maintenance costs.
“In upmarket areas a garden cottage can rent for around R5,000 per month, while freestanding homes will be approximately 0,5% of property value so a R3m home should easily achieve a rental of R15,000 per month. However each property needs to be assessed on own merits as every suburb is different and condition of the property plays a role determining returns,” says Reynolds.
What buyers are looking for
Jason Shaw, manager at Pam Golding Properties, says foreign corporates are creating demand for accommodation close to business centres seeking upmarket accommodation for staff members and signing rental agreements for between one to three years. He says an idea should be gained of returns a property, areas best to invest in, individuals and companies likely to rent a property and facilities they want.
“There is a demand for furniture, servicing and security to be included in rental and for it to be in close proximity to the central business district. The applicant’s credit scores should be checked and previous landlords contacted for references to ensure creditworthiness. It is in everyone’s best interests for properties in the rental market to move and assets deliver a sound return,” says Shaw.
Words: Lisa Dewberry