Property rental returns in Durban North and La Lucia in KwaZulu-Natal have risen notably while house prices have shown very little growth.
This is according to Carol Reynolds, Pam Golding Properties area principal who says in recent years, they’ve seen the property market plummeting to a low and then gradually re-emerging to a stable but slow pace.
She explains that over the past few years, there has been dramatic changes in the global property trends, noting that the US housing crisis is finally coming to an end, as economists note a small, but positive rise in house prices and general renewed buyer confidence in the marketplace.
“South Africa’s residential market has been through some troughs, but on the whole, we have managed to buffer ourselves somewhat from much of the travesty on the global front,” says Reynolds.
In Durban North and La Lucia, buyers’ approach have changed as well, pointing out that the market sentiment is a key driver in market activity and 2012 has been embraced by a more positive outlook than was the case in 2011.
Conservatism is the ‘new normal’
Buyers and developers are adopting a conservative approach to buying property. Banks are tightening their lending criteria in regard to developments, and there is still a pervasive air of caution in regard to risk assessment, she says.
Perhaps the most notable trend is the increase of activity in the rental housing market.
Rise in rental returns
A three bedroom home priced at R7 million through Pam Golding Properties is what luxury home buyers look for.
“As a comparator, while house prices have stagnated with very little year-on-year growth, rental returns on residential property have risen notably,” says Reynolds.
She mentions that in 2008, returns were around four to five percent, while currently, they are seeing an increase in demand for rental stock and a consequent rise in rental income.
Today’s landlords can expect a return in the region of six percent and depending on the area, some nodes will generate returns of seven or eight percent.
With new Municipal regulations regarding utilities - and the onus now being placed firmly in the landlord’s camp, the latter are opting for managed leases rather than procurement leases because the administration involved is becoming so onerous, she says.
She says there is an increase in the installation of meters for utilities, as landlords try and alleviate the burden of liability vis-à-vis their municipal accounts.
They are recommending that investors who have a portfolio of properties on the rental market equip each unit with an electricity meter and companies have also started offering water meters.
Reynolds says this too will become a growing trend.
Security a key priority for home buyers
Located in Durban North, this four bedroom home features a separate two bedroom duplex with double lock-up garage.
The property is selling for R4.7 million through Pam Golding Properties.
Reynolds says the best properties, from a return on investment perspective, are still units in complexes and security estates. Security continues to play a substantial role in influencing price trends in the market.
Most corporate tenants will not even consider freehold houses – and prefer to sign leases in secure estates and upmarket complexes.
Investors should therefore look to purchase homes in estates and complexes that offer solid prospects from a rental income perspective, she says.
Reynolds says that although the banks have loosened their lending criteria this year, there are still a large number of unqualified buyers who are unable to secure home loans, and are therefore forced into the rental pool.
This then drives house prices down and rental income up. She says the reduction in the lending rate has certainly been welcomed and they hope that this will facilitate more market activity.
“We are certainly starting to see signs of renewed activity, and whether this is driven by the current low interest rates, or by a seasonal shift into the summer months, the spirit of optimism is noticeable,” she says.
Reynolds mentions that they are seeing a lot of buyer activity between R1.5 million and R3 million in the suburbs of Durban North and La Lucia.
“This sector of the market is buoyant and we are even experiencing stock shortages in certain nodes. However, finance is the ‘Achilles heel’ in this sector of the market."
Upper end attracting interest
She points out that an encouraging sign is that for the first time in two years, the upper end of the market is also beginning to recover.
Homes priced over R5 million are attracting interest and it is a very positive indicator, given that this end of the market has been stagnant for some time now.
“It is interesting to note that the upper end of the market is driven by cash sales or sales with smaller bonds, so finance is not an issue. The big issue in this tier of the market is unrealistic pricing,” she says.
She points out that sellers are still expecting high prices for their homes, and the market at this level is extremely astute and educated in regard to current market trends, so only homes that are correctly priced are selling.
Reynolds adds that while house prices have remained relatively flat this year, the rental market has shown noticeable growth and anticipates anticipate more activity in the latter half of the year across the board, but particularly in terms of demand for rental properties.