Buy-to-let investors into residential property market
Tuesday, 03 July 2012, 13:15
PROPERTY NEWS - The South African property media have in recent months' time-and-again said that, although there are now clear signs that a recovery is on the way, we are still in a buyers' market.
In the circumstances, says Wayne Albutt, Regional Manager of the Rawson Rentals franchise division, one would expect to find an oversupply of stock - but, he says, in many areas, Rawson franchisees and, he understands, certain other estate agencies are now experiencing serious stock shortages.
This Albutt believes is due to a sudden and marked upswing in sales (which resulted in the Rawson Property Group and some other agencies having record sales turnovers in May). It is also, he says, to a degree due to the fact that sellers who can afford to delay marketing their properties have been doing so in the hope that better times will come.
"In the country districts," says Albutt, "we still see an abundance of stock - but in the urban areas there is now often an increasingly serious shortage."
This, he adds, is especially evident in the rental market where, for reasons he has previously enumerated (primarily a shortage of bond finance) many South Africans, although keen to become owners, are still forced to defer buying and to rent.
Right now, therefore, says Albutt, buy-to-let investors should be (and in fact often are) moving fast and expanding their portfolios.
"We have in the urban areas seen rents achieving 8% to 10% returns from day one and moving up by similar percentages year-on-year," he says. "This is obviously, therefore, a very good time to be a buy-to-let investor."
So, what advice would Albutt give to anyone now considering going the buy-to-let investment route?
His first tip is to focus as far as possible on the relatively low priced homes because, he says, it is these that currently get the best returns in relation to cost.
"We have again and again seen situations in which the investor, spreading his risk and making it easier to cash in on his assets should he wish to do so, has got a better return from two R500,000 homes than one bought for R1-million. Similarly two R1 million homes almost invariably give a better return that a R2-million home."
Homes bought at under R600,000, Albutt points out, pay no transfer duty - and this itself is a big saving.
Then, too, Albutt says that potential investors should not shy away from the sectional title schemes simply because they will have to pay a monthly levy to the body corporates.
"In a well-run scheme," he says, "these levies will play a significant role in ensuring that the entire property is well maintained and has efficient security. These factors, in turn, will cause values to rise."
Whether the investor is looking for a sectional title unit or a freehold property he should, stresses Albutt, set aside some 10% of his monthly rentals for ongoing maintenance.
"Here at the Rawson Rental division," he says, "we have statistical evidence to show that well maintained properties always attract a higher rental and a better quality tenant - this latter point is particularly important. It is therefore foolish to allow a property asset to deteriorate in any way - as I am afraid quite frequently happens."
Finally, says Albutt, he would always advise buy-to-let investors to employ a rental managing agent.
"Ninety five percent of all South African rental properties," he says, "are managed by professionals - and at Rawson the figure is even higher at 97%. This should surely be telling investors something about the best way in which these properties can be handled."
Do-it-yourself landlords, says Albutt, all too often come a cropper because (a) they are too involved with their own businesses to manage tenants properly, (b) they cannot carry out tenant credit and behaviour checks efficiently and (c) their documentation is legally and contractually weak and can be 'got around' by the tenant.
Following up on Albutt's comments, Nancy Todd, Rawson Properties' Business Development Manager in the Western Cape, says that in view of the growing stock shortages, those potential sellers who have until now held back on putting their house on the market should now be "thinking again". Todd says that the next six months could be the time to go to the 'market' again provided a big profit is not anticipated. Sellers, she says, should not expect big profits for at least another 12 to 18 months.