Rental demand strong in Worcester - Market News, News
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19 Feb 2008

Rental Demand Strong in Worcester

With Worcester's house price growth having stabilised since October 2007, the current gap between prices and buyer affordability is set to narrow.

This is not only good news for future home buyers but also investors, who stand to benefit in both the immediate and long term, says Desiree Koen, principal of Realty 1 International Property Group Worcester.

According to Koen, who recently opened a specialist rental division to service intense demand, residential sales activity in the pretty, low-crime Western Cape town is sluggish at the moment. This she attributes to a series of interest rate increases and reduced access to full bonds as a result of the National Credit Act (NCA).

However, rental demand is so strong that good buy-to-let properties are being snapped up within days if not hours, she adds.

Three-bedroom houses are at the top of tenants' lists of preferred properties, particularly those with rental tags of less than R4k a month. This makes long-term investor buying in the area an extremely viable proposition. "Not only will investors benefit from a slow but steady accrual in the value of their capital asset, but they will also be able to service their investment to a greater or lesser degree, with their rental returns," Koen says.

Though property in the R600k to R800k range appears limited at first glance, she says clean, uncomplicated offers are persuading sellers with unrealistic expectations to drop their asking prices. "Desperate sellers are being forced to accept market-related offers, and in some instances even ridiculous offers as buyers challenge their pricing."

This is happening more and more often, with an extreme case being a R600k offer on a house which was listed at R908k, valued by her at R780k. Should this have been an investment purchase scenario, her suggestion would have been for the buyer to put down the biggest deposit possible to reduce subsidisation costs.

"A R100k deposit with a bond of R500k at the current interest rate of 14,5% translates to repayments of R6,400 a month. This, less a monthly rental of R4k, means the buyer only has to subsidise his investment by R2,400, a situation that will only improve as rentals rise, the interest rate hopefully drops and the capital asset value of the increases."

Upbeat about property price growth having stabilised in her area since late last year, Koen says that although locals are still coming to terms with current prices, Worcester offers good value when compared with the values in Cape Town and other parts of the country.

Even at the top end of the Worcester market in suburbs such as Panorama, Fairy Glenn and Van Riebeeck Park, executive homes, which sell for upwards of R1,2m, beat the prices of those in Cape Town's upmarket suburbs.

For those starting out or scaling down, Koen says the trend at the moment is to buy small, freestanding houses which start at around R650k. These usually consist of three bedrooms, a family and even en-suite bathroom on a 600sq m stand.

"The right property at the right price will sell quickly, especially at the lower end of the market where stock is scarce at the moment. An extreme example is the one she listed at 16:00 last week, which she sold an hour later," Koen says.

"I don't see selling prices dropping but certainly asking prices are under pressure," she adds.

The dearth of vacant land in Worcester, especially in town, has seen prices escalate to around R420k for a 400sq m stand. Stands on the outskirts are both larger and less expensive: from R400k to R700k for 1,000sq m.

Worcester's buyer pool comprises a number of different segments.

According to Koen these include locals, many of whom are downgrading to smaller homes in an effort to improve their cash flow. Others, generally on transfer, are coming from outside areas such as Knysna, George and even Gauteng. There is also a small but serious contingent of expatriate buyers who intend returning to live in South Africa one day and are accordingly buying homes now. Still others are fleeing the crime and traffic congestion of the big cities.

Worcester might only be a large town compared to Cape Town and Gauteng, but it has a strong and growing economy characterised by major national brands such as SASKO, Coca-Cola, KWV and Rainbow Chickens, she says.

"It also boasts a flourishing retail and corporate sector, complimented by a well established agricultural sector, all of which bodes well for the economic growth of the town going forward."

For more information contact Desiree Koen on 023 342 6800.

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