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More buy-to-let investors choose KZN

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28 Jun 2013

The second quarter FNB Estate Agents Survey reveals that the total percentage of buy-to-let investors in South Africa remains low at only 8 percent of buyers.

Kellerman explains that the prolonged lack of capital growth in the residential property market has made investment in residential real estate fairly unattractive compared to the earlier part of the last decade when house price growth was at much higher levels.

Of interest though is the fact that KwaZulu-Natal attracts the highest rate of these investors (11 percent) followed by the Western Cape at 8 percent and Gauteng achieving 6 percent as more buyers in these two provinces buy for residential purposes than second homes.

Writing in the report, Ewald Kellerman, head of sales at FNB Home Loans says as many people battle to obtain home loan finance, they will be forced to rent thus creating a huge demand for rental stock.

In Property rentals and stock shortages, estate agents revealed that the residential property market faces good quality rental stock shortages with 94 percent of respondents indicating a shortage of rental properties.

“Ownership is not always possible or feasible and for some there will always be strong arguments in favour of renting instead of buying,” says Kellerman.  

He says assuming that more housing is needed for rental purposes, this lack of growth in supply could start creating a more lucrative opportunity for investors to enter the market in the near future.

Kellerman explains that the prolonged lack of capital growth in the residential property market has made investment in residential real estate fairly unattractive compared to the earlier part of the last decade when house price growth was at much higher levels.

Yields are also driven down by financially strained tenants and rising costs of maintenance, further stacking up an argument against investing in residential property.

“Should reserve bank’s repo rate, and in turn the bank lending rates rise, the argument quickly tips in favour of renting rather than buying and is expected to further increase the demand for rental properties in the short term.”

He says demand for rental properties and slow growth in supply is expected to drive up yields to a point where buy-to-let property becomes a much more attractive investment.

Once this excess demand pushes prices upward, investors will start earning higher returns, he notes.  

Kellerman adds that the risks of financing buy-to-let properties are not expected to change, but banks will continue to support this market with responsible lending. – Denise Mhlanga

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