Buy-to-Rent Property – Appealing Investment

With banks asking deposits on home loans, South African property owners can expect rental demand to increase significantly. Absa Home Loans’ Head Luthando Vutula says that it might take some time for banks to return to deposit-free home loans, resulting in people opting to rent rather than buy, and with interest rate set to fall this year, investors might find the buy-to-rent property more appealing.

The hike in rental demand can already be seen according to Trafalgar – South Africa’s national residential property managers. According to their CEO, Andrew Schaefer they kept their offices well staffed over the holiday to be ready for higher demand, although activity was slightly below last December’s.

However, some experts like Absa’s Gavin Opperman says that the current investment yield on the asset subclass of 0.4 percent to 0.6 percent per month of the value will have to change.

Valuer Erwin Rode and FNB property strategist John Loos also say yields would have to rise to somewhere between 6 percent and 8 percent per year.

"Residential property is easier to buy, to understand and to finance than commercial property, so the yield will be lower than the latter's 10-year yield of 9.2 percent," says Loos.

Rode added that that residential property is dominated by owner-occupiers at lower yields than commercial property. To get to the higher yields, rents will have to rise 30-40% over the next few year or prices will have to fall at that rate.


(The information in this article is courtesy of Business Report – Grab that rental property - 16 January 2009.)

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